A few gems from George Gilder’s 1990 masterpiece Microcosm: the Quantum Revolution in Economics & Technology as I work my way through the book:

Predatory Pricing. Gilder details how early microchip manufacturers created wholly new markets put Say’s law into action: supply creating its own demand.  Not only did these companies introduce new technologies, but they created demand by slashing the prices of those technologies by multiple orders of magnitude (10-10,000x) even before they figured out how to lower production costs enough to make even a small profit. While such practices would later give rise to charges of “predatory pricing” and “dumping,” Gilder explains:

Selling below cost is the crux of all enterprise.  It regularly transforms expensive and cumbersome luxuries into elegant mass products.  It has been the genius of American industry since the era when Rockefeller and Carnegie radically reduced the prices of oil and steel. (122)

The Learning Curve: Gilder explains the dynamic by which prices drop so consistently in innovative new industries:

Early in the life of a product, uncertainty afflicts every part of the process. An unstable process means energy use per unit will be at its height. Both fuels and materials are wasted. High informational entropy in the process also produces high physical entropy. The benefits of the learning curve largely reflect the replacement of uncertainty with knowledge. The result can be a production process using less materials, less fuel, less reworks, narrower tolerances, and less supervision, overcoming entropy of all forms with information. This curve, in all its implications, is the fundamental law of economic growth and progress. (125)

The Curve of the Mind: Gilder explains the broader implications of the Learning Curve to the competitiveness of the market economy, and how easily yesterday’s giants can become tomorrow’s easy prey: Continue reading →

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