By Marc Morgan
“If I have seen a little further, it is by standing on the shoulders of giants.” (Isaac Newton, 1676)
A simple idea, embodied in a proverb, has been at the core of mainstream economic theory since the conservative-libertarian economist Milton Friedman popularised it in 1975. This is that “there is no such thing as a free lunch”. Essentially what this proverb intends to say is that one cannot get “something for nothing”. The first reference to this idea originated in 19th century US saloons whereby free lunches were offered to customers who purchased at least one drink. The foods, being high in salt, would entice customers to consume more drink, usually beer. As such the “free lunch” carried a hidden cost, namely the price paid for each extra unit of drink, which effectively ended up paying for the lunch. In economic terminology “no free lunch” represents the trade off (or opportunity cost) that must be made between two things that one values.
This idea has had such powerful grip on modern economic thought that few have questioned its empirical content. Yet it is only from considering modern economic growth literature and technological history that the “no free lunch” theory proves to be defunct. What one discovers is that inherited knowledge, which forms the basis of technological innovation, proves to be a very nutritious free lunch for the economy as a whole. And because it is made equally available, through inheritance, to all of society it is only reasonable that its fruits should be shared.
In his landmark 1957 paper on economic growth, Nobel-Prize winning economist Robert Solow claimed that it is the progress of knowledge that is the main stimulus to long term economic growth. He calculated that in the first half of the twentieth century, almost 90 percent of productivity growth was attributed to “technical change in the broadest sense”. William Baumol, a contemporary of Solow’s, estimated in the 1960s that “nearly 90 percent…of current GDP was contributed by innovation carried out since 1870”. Stanford economist Paul Romer in his 1990 paper compares a college-educated engineer working today with one working 100 years ago. Both have the same skill level but the engineer working today is far more productive. This is because the engineer today can avail of “all the accumulated knowledge” that went into solving design problems over the last 100 years.
Two individuals who have had the privilege of a free lunch provide revealing testimonies as to the nature of these lunches. Warren Buffet, the third richest person in the world according to Forbes, recently stated that “society is responsible for a very significant percentage of what I’ve earned”. Bill Gates Sr., the father of the wealthiest person in the United States and the second wealthiest in the world, similarly reported:
“Success is a product of having been born in this country, a place where education and research are subsidized, where there is an orderly market, where the private sector reaps enormous benefits from public investment. For someone to assert that he or she has grown wealthy in America without the benefit of substantial public investment is pure hubris.”
History reveals that Gates Jr. himself inherited crucial free knowledge, from Claude Shannon’s sophisticated mathematics of the 1940s to the federal government’s development of the internet as a defence program in the 1960s to the advanced operating system developed by Gary Kildall in the 1970s, to such a point that all he had to do was to lay the ‘next’ piece of this great pyramid of technological innovation. Yet he seems to have received a disproportionate share of the rewards from simply ‘taking part’ in the innovation life cycle. This is largely due to applied free-market theory, which has little regard for anything which doesn’t command a price, thus knowledge which has been passed down through generations often at the expense of national taxpayers, as was the case with the internet. The general consensus among the IT community is that the internet would have emerged anyway, and in the same timeframe had people like Bill Gates or Steve Jobs not been born. The same may be said of social networking sites like Facebook (whose ‘creator’ and CEO Mark Zuckerberg at 28, has to date amounted an estimated fortune of $17.5 billion) and countless industrial and scientific innovations.
The central moral of all of this is that “the individual genius” is not so important in the innovation process. What is much more fundamental is the development of knowledge which many individuals have contributed to through the ages and which, when they pass away, becomes the common inheritance of the current age. Such knowledge can certainly be classified as a “free lunch” to those that are “in the right place at the right time”. Moreover, since knowledge from previous societies passes down to be the common inheritance of the current society it is only reasonable that these “free lunches” should be more widely shared among the population through redistributive measures, or as C.H. Douglas advocated in the early 20th century, through a “National Dividend” payable to all members of society, like a dividend on shares, independent of income from employment.
Much of the skewed distribution of the fruits of what is a common inheritance is due to a dogmatic belief that the free-market justly rewards individual effort and invention, and that free-market mechanisms like intellectual property rights serve to encourage societal innovation. This belief proves to be self-righteous as well as self-interested for those that have benefited disproportionately from it. As outlined here, no recognition is made of where innovative knowledge comes from and who has contributed to its development in all of its dimensions. As Newton recognised of himself, certain individuals may ‘see a little further’ than their peers, but this distance is minutely small as compared to what was seen by all the individuals that came before them. And their next-of-kin was society as a whole. A new social will certainly needs to be considered, in light of persistent wealth inequalities within and between countries.*
* To further enlighten the evidence on the matter, what I have written here also forms part of this “free lunch”. It is inherited from two scholars, Gar Alperovitz and Lew Daly, who in turn were preceded in the more primitive elements of the theory by a previous generation of scholars, philosophers and social thinkers, which included the British engineer-cum-economic theorist Clifford Hugh Douglas, mentioned above, writing in the first quarter of the 20th century.