It is said that the first human ancestors appeared between five million and seven million years ago, probably when some apelike creatures in Africa began to walk habitually on two legs. What we have built throughout this time is something astonishing. Like any other mammal, the life of human beings is also challenging. It said that life on earth radically changed when the living organism started to develop vision 544 million BC years back. When the life on the planet was single to multicellular organisms, the course on the planet was pretty impassive. Everything started to change when these organisms started to develop and evolve into fully functional being which could sense the world around them through a tiny piece of the device called eyes. This simple piece of the organ made life on the planet pretty competitive, as a carnivore's animal you could see your food in front of you and you have to hunt it down and fill your stomach, if you couldn't do this, you fall behind and you become a prey. If you are herbivorous you need to learn from which direction your enemy is coming and learn to escape from it. This is one of the reasons, computer scientists around the world, today believe that proving vision to the computer, the capability to see the world around them could radically change how we look at the world.
How did this mammal call Homosapien, build such a massively complex system around him which serves all his purpose. For Homosapien life on this planet is improving every day. It's definitely not good going for any other beings on the planet but homosapiens just dominated the planet, building complex cultures, systems which improves every day which serves his purpose, technology which makes his life lucid, he turns sand into tiny blocks of chips and uses them to power his daily life, he uses the same sand and mold it into glasses and construct the modern city.
The progress
The history of human beings start in Africa, we were living together as small tribes, used hunting as the primary source of food then eventually moved into agriculture and migrating towards different parts of the world. Slowly we developed languages, which were used as a medium to share ideas, this knowledge of yesterday was used to build a better future. In a very short time, we realized the importance of the information and we developed multiple techniques to share and store the information to expand the horizon of the tribes we created. Among us, some of them were thinking deeper into the life of human beings and questioning the environment and started documenting it. The journey of human race in this part was, extremely progressive because they have the ability to think and process information, they learned things through multiple iterations and this knowledge was shared and communicated to the next generation. We were explorers, we travel into multiple tribes and understood how do they solve their problems and this knowledge was replicated into another time. One of the classical example which fascinates me is the development of mathematics.
If human beings have to understand what's happening in another tribe they have to travel and collect the information from one tribe to another. The development of mathematics is really fascinating because every tribe around the world was parallelly developing their system of counting. This tells us how similar our problems were. How everyone simultaneously realized the importance of a system of counting. When the Arabians travel to the Asian country they found the Indian numerals, this knowledge was transferred to Arabic and stored in the library of Persia, later the British got the hand of it and called Arabic numerals. The study of mathematics allowed a human being to quantify and measure anything.
This simple idea radically changed human civilization, the ability to quantify anything open a huge window of opportunity called trade. Trade provided a system of exchange, through a system of trading you are not just transferring an object to another person, you are transferring the skill and the work that went into producing a commodity. Soon trade started to appear in different parts of the world. The practice of trade become a part of human society, still one of the biggest problems still faced by the civilization was how do you value goods? Now this problem was solved with a system called money, in today's economics you have multiple definitions for money. The money took the role of exchange and the value problem was solved with a system called auction, still, the value of any commodity is determined through an open market auction. The idea of the auction is to put a commodity for sale and give it to the highest bidder, the bid price becomes the standard price of the commodity. When you have a more unusual quantity of the commodity the prices come down, today we define this with the law of demand and supply. This system of valuation works so well because it works how human beings behave.
Now, these trading practices were taking us towards a new system of exchanging goods and services called markets. Markets and trade were a great leap towards a design of new civilization for human beings on the planet. From the concept of market, we developed into an idea of free markets, a free market is a system in which the prices for goods and services are self-regulated by buyers and sellers negotiating in an open market. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority. the idea of trade, markets, the free market was slowing even into a new form of ideology called capitalism. There are debates on is this system good enough or not, but this political ideology backed by the concept of free markets was much more than an ideology. Capitalism created a system of incentives and massive decentralization. There were several violations of basic human rights, in this system of markets, and this so eventually the government intervention is necessary for framing the regulation of conduct and practices in this social system. The child labor law, labor law, company's act are some of the examples of that.
For the easy working of this system of markets and maintain the discipline of the society we had to implement the rule of law, Rule of law, the mechanism, process, institution, practice, or norm that supports the equality of all citizens before the law, secures a nonarbitrary form of government, and more generally prevents the arbitrary use of power.
Institutions
To support trade and commerce, human beings have to set up different institutions, banking is one of such institution.
Banks:
Banking is one of the biggest achievements of human civilization, it says that one idea enlightened different other ideas. There are some ideas, which have profound effects on the civilization of human beings. One amount is money and then banking. What does a bank do?
As the medium of transaction became money, or when people started to exchange money for goods and services, you have a standard method of exchange, in the beginning, we were using something called promissory notes as a standard. The system worked something like this, the first form of money/currency was gold coins. There were plenty of advantages for these coins, they were limited in supply, it's hard to fake them, and you can carry it around. There was a big disadvantage for these gold coins, keeping these coins safe was a big challenge. So these coins were handed over to the bankers, who are the most trusted entity they kept this gold in their vaults and provided the customers with a recipe. these receipts were called promissory notes equivalent to the gold coins kept. This made the transaction, even more, smoother and as this banking enterprise started to evolve they started issuing more promissory notes than the value of your gold. These were called debts. The idea of debt was one of the greatest innovations of the banking enterprise. This is a fully win-win deal which worked properly. This created a system of incentive for the depositor(one who deposit the coin), banker (who facilitates the lending), and the lender (who need money). In today's terms, if you deposit 100rs in bank the bank lends that 100rs to someone and take an interest (cost of lending ) of 20rs of it, (so total he has to pay bank 120 to bank) bank takes 10rs and gives you 10rs for parking the money with the bank. Why is this such a big deal? The entire idea of banking and the services related to banking opened up a huge opportunity for trade and commerce. This is done by multiple financial products, the debts act as leverage. Imagine that you own an enterprising which is doing great business and you need to expand, but you don't have the capital for it how do you solve this problem. It turns out you can use debts to finance your business thus banking played a phenomenal role in the expansion of economies of scale. It also controlled the liquidity of money in the market? how does it happen?
The banks use the
Gold coins parked in their values to generate IOU(promissory notes)
This becomes debt /withdrawal.
This is used for purchase by individuals.
Here the bank technically controls the flow of money in the market, as its holder of the currency and it could create IOU it plays an important role in the development of commerce. The banks could also pump more money (IOU) into the economy, more IOU you create more money you have in circulation, more money you have in circulation people could buy more. There is a slite problem to this, this leads to something called inflation, we are going to look into a particular case of inflation called demand-driven inflation. Human beings have this tendency to consume more, when you have more money to spend you consume more. But what if there is less supply for what you are looking for. Imagine that you need to buy tonnes of sugar with your money but what if there is less supply of sugar, this increases the prices, this rise of price is called inflation. Today the government-approved institution called the central bank is the supreme authority for banks every few months they issue as a set of policies called monetary policy which regulates how much a bank could lend to the public and business. This keeps inflation in control.
Stock market
This was another institutional innovation. As the trade started to emerge, we introduced the concept of companies, in the simple company is a legal entity that is engaged in some business practice. The idea of the stock market was very simple. It started with the East India company. The east India company was founded in the exploitation of trade with East and Southeast Asia and India. the company was engaged in the business of trading, spices they used to import spices from a foreign land to Europe. They created a monopoly in the process of trading the spices. The company wanted funds for intercontinental exploration. For that the company issues a certificate called the share certificated, this certificated provided the holder a legal beneficiary of company profits.
This is a revolutionary idea because how we are conducting commerce was changing through such kinds of institutions, in the beginning, we started trading grains and metals and now an entire civilization is trading intangible assets. These share certificates doesn't provide you any direct company ownership (this changes wrt to the share you hold) but rather they are backed by the company assets. In case the company goes bankrupt the shareholder can receive their money by auctioning the company property. The share market provided the company a huge window of raising capital for business, this provided them the opportunity to expand to multiple countries, and eventually, they are going to define and influence how we all live.
The stock market was an example of financial innovation, and a bunch of people came together to issue a type of contract to raise capital for business expansion. Now, this idea is going to go through multiple layers of innovation and iteration to make different kinds of contracts to solve numerous problems. From stabilizing prices to the issue of big money bonds.
The bust
Look at this diagram, as you can see there is a spike in the world GDP , how did this happen? What leads to this .what is this bust? Trade had been expanding for centuries, and colonial exploitation with it, and these alone were unable to give anything like the order of magnitude of improvement in incomes that happened.
All these things still don't explain how did we reach here. if you look at the trajectory of human growth from the past 2 century everything has changed.
In the year 2005, if you were the average consumer you would have spent your after-tax income in roughly the following way:
20 % on a roof over your head
18 % on cars, planes, fuel and all other forms of transport
16 %on household stuff: chairs, refrigerators, telephones, electricity, water
14% on food, drink, restaurants, etc
6 % on health care
5 % on movies, music, and all entertainment
4 %on the clothing of all kinds
2 % on education
1 %on soap, lipstick,haircuts, and such like
11 %on life insurance and pensions (i.e., saved to secure future spending)
and, alas from my point of view, only 0.3 percent on reading
An English farm laborer in the 1790s spent his wages roughly as follows:
75%on food
10 % on clothing and bedding
6 %on housing
5% on heating
4 %on light and soap
A rural peasant woman in modern Malawi spends her time roughly as follows:
35 % farming food
33 %cooking, doing laundry, and cleaning
17 % fetching water
5 %collecting firewood
9 %other kinds of work, including paid employment
The new century was the century of innovation, this is a very overused term in this decade, you could see every dude in silicon valley use this word 3 times a day, 7 times a week. innovation is not just about invention. Innovation, like evolution, is a process of constantly discovering ways of rearranging the world into forms that are unlikely to arise by chance – and that happens to be useful. The Nobel Prize-winning economist Edmund Phelps defines innovation as a new method or new product that becomes a new practice somewhere in the world’. In simple innovation is the habit of applying new ideas and raising the living standard.
There are several properties with the ideas,
Ideas can be connected.
They can be combined to form different models.
They can be transformed from one subject to another, we call them inspiration.
they can be overlayer to form different structures. I call them the knowledge capsule. For a modern example, think about how
The Internet created multiple businesses, which changed how we look at the modern world. It connected people, it made the trade lucid, new ideas got birth. Now the world is an open community.
The hearing of this economic miracle was, The event I am talking about is the first controlled conversion of heat to work, the key breakthrough that made the Industrial Revolution possible if not inevitable and hence led to the prosperity of the modern world and the stupendous flowering of technology today. The Industrial Revolution, therefore, was in effect, as Phelps has argued, the emergence of a new kind of economic system that generated endogenous innovation as a product in itself. I will argue that some machines themselves made this possible. A steam engine proved to be ‘autocatalytic’: it drained the mines, which cut the cost of coal, which made the next machine cheaper and easier to make. Before 1700 there were two main kinds of energy used by human beings: heat and work. (Light came mainly from heat.) People burned wood or coal to keep warm and cook food, and they used their muscles or those of horses and oxen, or rarely a water wheel or a windmill, to move things, to do work. Like I mentioned above, ideas have this incredible ability to bind with other ideas to form great substance, adaptation of this new idea creates a new way of looking at a problem.
Innovation happens when people are free to think, experiment, and speculate. It happens when people can trade with each other. It happens where people are relatively prosperous, not desperate. It is somewhat contagious. It needs investment.
As Friedrich Hayek argued, knowledge is dispersed throughout society, because each person has a special perspective. Knowledge can never be gathered together in one place. It is collective, not individual. Somewhere somebody will have a new idea and that idea will enable him to invent a new combination of atoms both to create and to exploit imperfections in the market. The most fundamental feature of the modern world since
1800 – more profound than flight, radio, nuclear weapons or websites, more momentous than science, health, or material well-being – has been the continuing discovery of ‘increasing returns’ so rapid that they outpaced even the population explosion. The more you prosper, the more you can prosper. The more you invest, the more inventions become possible. How can this be possible? The world of things – of pecans or power stations – is indeed often subject to diminishing returns. But the
world of ideas is not. The more knowledge you generate, the more you can generate. And the engine that is driving prosperity in the modern world is the accelerating generation of useful knowledge. So, for example, a bicycle is a thing and is subject to diminishing returns.
One bicycle is very useful, but there is not much extra gain in having two, let alone three. But the idea ‘bicycle’ does not diminish in value. No matter how many times you tell somebody how to make or ride a bicycle, the idea will not grow stale or useless or fray at the edges. Like Thomas Jefferson’s candle flame, it gives without losing. Indeed, the very opposite happens. The more people you tell about bicycles, the more people will come back with useful new features for bicycles – mudguards, lighter frames, racing tires, child seats, electric motors. The dissemination of useful knowledge causes that useful knowledge to breed more useful knowledge.
The invention of a steam engine not only made the work productive, but it also made sure that the train carrying the fertilizers for the framers in Britain reach the right time so that he can avoid crop failure. For the first time in the history of beings, we figured out that, things can be produced at a very affordable price if we could mass-produce them. This simple thing radically changed the life of the common man.
The story of fabric and industrialization
Pair of jeans, to weave that amount of fabric, takes about six miles of thread. Six miles of thread is a lot of thread. And, nowadays, you can spin in a modern spinning plant that amount of thread in a few seconds. But in the pre-Industrial Revolution period, the very fastest, best spinners in the world were in India; and they could spend 100 meters of thread an hour. A bandana is a very small piece of cloth--it's 22 inches square. And, it would take 24 labor hours to spin that amount of thread, the amount of thread in a bandana. How did we manage to make the cloths affordable, in the olden days the clots were just mean for the privileges as the process goes spinning, and creating the fabric itself is very expensive and labor-intensive. An individual fiber, you have to turn into thread.
And, this is, I think the part that today we most take for granted, and it's where the Industrial Revolution started. Another critical technology that was invented to weave, and that is what is known as heddles--which are originally strings, often they're metal--but it's something that ties around the warp threads and allows you to lift them individually.
And, I think there's a reason that the Industrial Revolution started with thread. It's not just an accident. It's because it was such a huge leverage point in the standard of living.
One thing you learn about dying, if you do any of it yourself, is that it can be a very stinky process. Indigo, which is a miraculous dye, and again, something that was developed in many different parts of the world--using different plants that have the same chemicals in them. It's an amazing process and I can't believe anybody figured it out, but they did. It takes several steps. But, in many cases, it really stinks. It smells like urine. It smells like various stinky things. Elizabeth the First [Elizabeth I, Queen of England, 1558-1603--Econlib Ed.] required that any woad production, which was the European indigo, be far away from any of her palaces because of the smell from it. And, indigo is nothing compared to Tyrian purple, the ancient shellfish purple that was highly prized in Roman times and up through the Byzantine period, where you've not only got all kinds of smelly dyes, but you've also got rotting flesh from these snails, and flies, and all kinds of really disgusting things. So, it's a chemical process, and you're changing chemicals, and many of those are organic chemicals that are not too pleasant to smell. All this was replaced with the invention of artificial dye.
The war
In the looming battle between world powers, the Allies lagged far behind Germany in what Winston Churchill described as the “secret war”: the race for more powerful technologies. Germany’s new submarines, called U-boats, threatened to dominate the Atlantic and strangle supply lines to Europe.
Had the technology race been lost, Churchill wrote, “all the bravery and sacrifices of the people would have been in vain.” RADAR stands for Radio detection and Ranging System. It is an electromagnetic system used to detect the location and distance of an object from the point where the RADAR is placed. It works by radiating energy into space and monitoring the echo or reflected signal from the objects. It operates in the UHF and microwave range.
Radar is an electromagnetic sensor, used to notice, track, locate, and identify different objects which are at certain distances. The working of radar is, it transmits electromagnetic energy in the direction of targets to observe the echoes and returns from them. Here the targets are nothing but ships, aircraft, astronomical bodies, automotive vehicles, spacecraft, rain, birds, insects, etc. Instead of noticing the target’s location and velocity, it also obtains their shape and size sometimes.
World war trigged a new set of innovation, it created a huge demand for new technology and methods, this focused the engineering to develop more technologies and this was later used in the civilian uses. One does the important amount is nuclear energy, The twentieth century saw only one innovative source of energy on any scale: nuclear power. (Wind and solar, though much improved and with a promising future, still supply less than 2 percent of global energy.) In terms of its energy density, nuclear is without equal: an object the size of a suitcase, suitably plumbed in, can power a town or an aircraft carrier almost indefinitely. The development of civil nuclear power was a triumph of applied science, the trail leading from the discovery of nuclear fission and the chain reaction through the Manhattan Project’s conversion of a theory into a bomb, to the gradual engineering of a controlled nuclear fission reaction and its application to boiling water.
The spontaneous nature of ideas
As you can see that the entire human civilization started to take a turn from the 1700s, there are a lot of innovations we have omitted in this section. it's not because I found there irrelevant or not appropriate for his idea we are talking about here. Different innovations at different points of time in the history of mankind and the rules of markets and the system we created to lead to mass adoption of ideas and this created a huge bust in how the future of civilization. Think about the concept of artificial lights, artificial light you can earn with an hour of work at the average wage. The amount has increased from twenty-four lumen-hours in 1750 BC (sesame oil lamp) to 186 in 1800 (tallow candle) to 4,400 in 1880 (kerosene lamp) to 531,000 in 1950 (incandescent light bulb) to 8.4 million lumen-hours today (compact fluorescent bulb). Put it another way, an hour of work today earns you 300 days’ worth of reading light; an hour of work in 1800 earned you ten minutes of reading light. Or turn it around and ask how long you would have to work to earn an hour of reading light – say, the light of an 18-watt compact fluorescent light bulb burning for an hour. Today it will have cost you less than half a second of your working time if you are on the average wage: half a second of work for an hour of light. In 1950, with a conventional filament lamp and the then-wage, you would have had to work for eight seconds to get the same amount of light.
As late as the mid-1800s, a stagecoach journey from Paris to Bordeaux cost the equivalent of a clerk’s monthly wages; today the journey costs a day or so and is fifty times as fast. A half-gallon of milk costs the average American ten minutes of work in 1970, but only seven minutes in 1997. A three-minute phone call from New York to Los Angeles cost ninety hours of work at the average wage in 1910; today it costs less than two minutes. A kilowatt-hour of electricity cost an hour of work in 1900 and five minutes today. In the 1950s it took thirty minutes of work to earn the price of a McDonald’s cheeseburger; today it takes three minutes. Healthcare and education are among the few things that cost more in terms of hours worked now than they did in the 1950s.
Take an example of transportation, we started the journey with a steam engine, later this invention inspired diesel and other fossil fuel engines. Very soon enough we build the electric motor engines and power out bullet trains which travel at a speed of 500km/hr. The amount of progress such a technology could bring is way beyond what we have achieved till now. From 2008 to 2021, the Chinese government was aggressively building bullet trains across the country and connecting the urban space to the villages. So that the city radius can be expanded. More opportunities come from villages in China. Technologies like hyperloop will expand these boundaries every further, since the capsules cold travel more than the speed of the bullet train.
The internet, the idea of the internet was a cold war nightmare, of losing contact with the military command centers. The DAPRA build a network around the university and military installments in America and used a technology called package switching to efficiently transfer data in between. Later this was opened to the public, remember the key to innovation, you have to bring people together to innovate, the knowledge should transfer each other. When the internet came out of the laps of DARPA it created a new form of commerce called e-commerce, governance became electronic which is e-governance. Now the world is more connected than ever before. When people started connecting to the internet with their tiny device called a smartphone, it revolutionizes what is called labor. With the help of technology, the labor divided into tiny capsules called gigs, these gigs can be a cab ride, short-term or long-term project. What distinguishes human beings from any other living being on the planet is their ability to adapt to any condition and create a great environment for them. The social epidemic is such a fascinating concept, They are also driven by the efforts of a handful of exceptional people. In this case, it’s not sexual appetites that set them apart. It’s things like how sociable they are, or how energetic or knowledgeable or influential among their peers. In the case of Hush Puppies, the great mystery is how those shoes went from something worn by a few fashion-forward downtown Manhattan hipsters to being sold in malls across the country. The Law of the Few says the answer is that one of these exceptional people found out about the trend, and through social connections and energy and enthusiasm and personality spread the word about Hush Puppies.
Where are we heading with this? I found an interesting reading by Max Tegamn on his book called Life 3.0. He describes 3 phases of life,
If you consider bacteria, Their DNA specifies not only the design of their hardware, such as sugar sensors and flagella but also the design of their software. They never learn to swim toward sugar; instead, that algorithm was hard-coded into their DNA from the start. There was of course a learning process of sorts, but it didn’t take place during the lifetime of that particular bacterium. Rather, it occurred during the preceding evolution of that species of bacteria, through a slow trial-and-error process spanning many generations, where natural selection favored those random DNA mutations that improved sugar consumption. Some of these mutations helped by improving the design of flagella and other hardware, while other mutations improved the bacterial information-processing system that implements the sugar-finding algorithm and other software. Such bacteria are an example of what I’ll call “Life 1.0”: a life where both the hardware and software are evolved rather than designed. You and I, on the other hand, are examples of “Life 2.0”: life whose hardware is evolved, but whose software is largely designed. By your software, I mean all the algorithms and knowledge that you use to process the information from your senses and decide what to do—everything from the ability to recognize your friends when you see them to your ability to walk, read, write, calculate, sing and tell jokes.
All this requires life to undergo a final upgrade, to Life 3.0, which can design not only its software but also its hardware. In other words, Life 3.0 is the master of its own destiny, finally fully free from its evolutionary shackles.
:)