Looks like your main point is that an invention that removes a bottleneck (“relaxes a taut constraint”) is the one likely to succeed, is that right? Would it mean that in your China example someone inventing, say, banking or lending would make a killing? If so, is that what happened?
Great question! The short answer, in the context of the China example, is that the capital bottleneck is the first gear in the model. Whether banking/lending would relax the constraint depends on the next gear up the chain—i.e. it depends why capital was scarce in the first place.
Here are a few possibilities:
malthusian poverty trap: all excess resources go to expanding the population, so there is little-to-no surplus to invest in capital.
institutions: weak property rights or poor contract enforcement mechanisms, making it difficult to invest.
coordination problem: there’s plenty of people with surplus to invest, and plenty of people with profitable ways to invest it, but the coordination problem between them hasn’t been solved.
Introducing banking/lending would potentially solve the last one, but not the first two. In the constraint language, banking technology introduces new constraints: it requires contract enforcement, and it requires people with excess resources to invest (among other things). Those new constraints need to be less taut than the old capital constraint in order for the technology to be adopted.
In the case of China, banking/lending technology was almost certainly available—it simply wasn’t used to the same extent as in Europe. I have heard both the malthusian trap and the institutions explanations given as possible reasons, but I haven’t personally studied it enough to know what was most relevant.
I hypothesise that cultural stigma is also an important factor. The traditional hierarchy in Chinese society was the Intelligensia at the top, followed by farmers, craftsmen and finally merchants at the bottom rung. Bankers would likely be lumped with the merchants, and the lack of social status might have served to discourage innovation in that field.
I think this is very much true. Only if you are both aiming for the same things (eg. economy growth) will different constraints be the primary drivers of different choices.
But I think that the two samples were, in some aggregate sense, not aiming for similar objectives. In Medieval Europe, presumably, people believed that increasing prosperity and economic growth were good things.
This is not a universal standard. According to Karl Popper’s “Open Society and its Enemies”, the ancient Spartan government placed as the greatest objective : stability. All forms of change were seen as dangerous, including economic growth and population growth. Government policy was introduced with the aim to prevent both of them. At one point in Chinese history the government was so concerned that foreign trade was destabilising the country that all of the ships over a certain size were burned, and all the shipwrights had their tongues cut out to stop them teaching people how to build new big ships. They then (I think a bit later) doubled down and made it illegal to live within a few miles of the coast, to ensure you were not tempted to trade with foreigners and thereby risk new ideas entering and destabilising the realm.
I think the article has a good point but only when objectives do in fact align. The extreme conservatism described in the examples above would, I think, have stopped the Industrial revolution, regardless of capital/labour balances.
Looks like your main point is that an invention that removes a bottleneck (“relaxes a taut constraint”) is the one likely to succeed, is that right? Would it mean that in your China example someone inventing, say, banking or lending would make a killing? If so, is that what happened?
Great question! The short answer, in the context of the China example, is that the capital bottleneck is the first gear in the model. Whether banking/lending would relax the constraint depends on the next gear up the chain—i.e. it depends why capital was scarce in the first place.
Here are a few possibilities:
malthusian poverty trap: all excess resources go to expanding the population, so there is little-to-no surplus to invest in capital.
institutions: weak property rights or poor contract enforcement mechanisms, making it difficult to invest.
coordination problem: there’s plenty of people with surplus to invest, and plenty of people with profitable ways to invest it, but the coordination problem between them hasn’t been solved.
Introducing banking/lending would potentially solve the last one, but not the first two. In the constraint language, banking technology introduces new constraints: it requires contract enforcement, and it requires people with excess resources to invest (among other things). Those new constraints need to be less taut than the old capital constraint in order for the technology to be adopted.
In the case of China, banking/lending technology was almost certainly available—it simply wasn’t used to the same extent as in Europe. I have heard both the malthusian trap and the institutions explanations given as possible reasons, but I haven’t personally studied it enough to know what was most relevant.
I hypothesise that cultural stigma is also an important factor. The traditional hierarchy in Chinese society was the Intelligensia at the top, followed by farmers, craftsmen and finally merchants at the bottom rung. Bankers would likely be lumped with the merchants, and the lack of social status might have served to discourage innovation in that field.
I think this is very much true. Only if you are both aiming for the same things (eg. economy growth) will different constraints be the primary drivers of different choices.
But I think that the two samples were, in some aggregate sense, not aiming for similar objectives. In Medieval Europe, presumably, people believed that increasing prosperity and economic growth were good things.
This is not a universal standard. According to Karl Popper’s “Open Society and its Enemies”, the ancient Spartan government placed as the greatest objective : stability. All forms of change were seen as dangerous, including economic growth and population growth. Government policy was introduced with the aim to prevent both of them. At one point in Chinese history the government was so concerned that foreign trade was destabilising the country that all of the ships over a certain size were burned, and all the shipwrights had their tongues cut out to stop them teaching people how to build new big ships. They then (I think a bit later) doubled down and made it illegal to live within a few miles of the coast, to ensure you were not tempted to trade with foreigners and thereby risk new ideas entering and destabilising the realm.
I think the article has a good point but only when objectives do in fact align. The extreme conservatism described in the examples above would, I think, have stopped the Industrial revolution, regardless of capital/labour balances.