The Policy Ramifications of Capital as Ideas

In 1987, Baldwin Ranson wrote about capital and technology in economic growth. Ranson argued that capital should be defined as intangible ideas and technology that are not subject to supply and demand constraints. Thorstein Veblen (1908, 518) described his conception of capital as being “found in possession of something in the way of a body of technological knowledge, – knowledge serviceable and requisite to the quest of a livelihood.” John R. Commons (1934, 662) wrote in a similar vein that “capital is not an accumulation of past products of stored-up labor – these are transitory and aimless – capital is a going plant of industrial knowledge and experience.” More recently, Cesar Hidalgo (2015) and Paul Romer (1990, 1994) have also written about the idea of capital as ideas and the key to economic growth. Hidalgo (2015, 179) states that “the growth of information in the economy, which is ultimately the essence of economic growth, results from the coevolution of our species’ collective computation capacity.” The first section of this article explores the linkages between the older generation and more recent thinkers on the intersection of capital as technology and ideas. The second section explores the policy ramifications of this conceptualization of capital. Romer argues that temporary monopolies are needed to encourage investment in innovation. According to both Veblen and Ranson, these rules do not allow for the full social value of ideas to be utilized. The second part of this article also explores these differences using A. Allan Schmid’s situation-structure-performance (SSP) model.