Economic discussion on growth theory with references to Mill and Solow

My reading of the Mill paragraph says that if we plowed back only depreciation investment, without invading consumption for more, we would still grow if that investment paid off in higher returns than the current norm. Then capital would grow faster without making consumption grow slower. The gain in output, even though we had invested only enough to make up for depreciation while keeping consumption the same, would have been split into some for capital growth and some for more consumption. And Mill gave the reason for the gain in output. The driver was “whatever increases the productive power of labor”. He was talking about better ideas. We would make returns higher if we could make capital more productive at the same cost. This possibility troubled Nobelist Robert Solow, who came reluctantly to a conclusion most of the way toward Mill’s a century later. He felt that growth should not be a gratuitous deux ex machina arriving at its own whim. How could Mother Nature say “Shazam” and turn less into more whenever new ideas come along? Didn’t the capital chicken have to grow before the output egg? Didn’t we have to tighten belts to invest in new plant applying those new ideas? But the evidence seemed to say that the rise in output came first. Rise in capital followed. Thrift seemed to play little role. Tests by others have tended to find the same thing since. My own tests, using new data from national accounts and my own new testing method shown in my charts and tables, reduces the role of thrift to zero. How could that be? How could better kinds of capital arrive without costing more, at least at the start, than the kinds we already knew? My best guess is that the cost of innovation in failure rates and learning curves is the cost of being human, that we pay it about the same every day, and that growth happens when the worth of innovation proves more than the cost. It can because we are human. The cost of being human means the cost of adapting. It is how we cope. We turned in our fangs and fur in exchange for the savvy to make tools and fire and clothing do better. Other creatures adapt Chapter 2: Fast Forward 1/06/16 4 HOUSE_OVERSIGHT_010944