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10 Moments That Made American Business
How a debt-ridden banana republic became the greatest economic engine the world has ever known
February/March 2007 | Volume 58, Issue 1
Still, computers remained hugely expensive both to buy and to operate, requiring highly trained personnel. They were restricted to governments and large corporations with equally large data-processing needs, such as insurance companies and banks. Twenty years after ENIAC, had every computer in the world suddenly shut down, the average man in the street wouldn’t have noticed until his bank statement failed to show up at the end of the month.
Today, little more than a generation later, if every computer in the world were to stop operating, civilization would collapse in seconds. Automobiles and household appliances would not run, ordinary purchases could not be paid for, business offices would cease to function, communications beyond direct conversations would become impossible. Airplanes would fall out of the sky.
The microprocessor has led to a redistribution of political and economic power on a scale not seen since Jackson’s day.
What happened? Simple: the microprocessor. A computer’s power is relative to both the number of transistors and the number of connections between them. If there are only two transistors, then 1 connection is needed. If there are three, then 3 are needed to connect them all. Four transistors require 6 connections, five need 10, six need 15, and so on. If these connections need to be made, essentially, by hand, then the cost of building more powerful computers grows far faster than their computing power. Mathematicians call this the tyranny of numbers.
In 1959 Jack Kilby of Texas Instruments and Robert Noyce of Fairchild Semiconductor developed the integrated circuit, a series of interconnected transistors laid down on a chip of silicon. In other words, the transistors and their connections were manufactured simultaneously. The tyranny of numbers was overcome. In 1971 Intel introduced the first commercial microprocessor, which is nothing less than a small computer on a silicon chip, to power a handheld calculator.
While the investment needed to design a microprocessor is very high, as is the cost of the machinery needed to manufacture it, once those investments are made, microprocessors can be turned out like so many high-tech cookies. This reduces the cost of each one by orders of magnitude.
They quickly increased in both power and speed, and Gordon Moore, in his famous Moore’s law, correctly predicted that the number of transistors on a chip would double every 18 months. The first Intel microprocessor had 2,300 transistors. An Intel Core 2 has as many as 290 million, and there is no end in sight.
As the power of computers increased, the cost per calculation collapsed. What cost a thousand dollars in the 1950s costs a fraction of a cent today. As the price of computers declined, their use began to increase at a fantastic rate. The cheap computer caused (and is continuing to cause) an economic revolution, just as the steam engine did 200 years earlier and for precisely the same reason: It drastically reduced the cost of a fundamental economic input.
In the steam engine’s case, it was the cost of work-doing energy; in the computer’s, the cost of storing, retrieving, and manipulating information. Previously only human beings could perform these tasks. Now computers could increasingly do them at lower cost and at far higher speed and accuracy. Many products that could not exist without computers—cordless phones, cell phones, DVDs, CDs, digital cameras, GPS systems—started to flow into the marketplace, and endless new commercial uses for them began to be exploited.
And just as the railroad proved to be the most economically important subsidiary invention of the steam engine, so the Internet is proving to be that for the microprocessor. The Internet has already caused a revolution in publishing, news transmission, advertising, retail sales, and many other important parts of the economy. As a result, economic and political power is being redistributed to a degree we have not seen in this country since the days of Jacksonian democracy and the birth of the mass media 150 years ago.
The opportunities for entrepreneurs today are greater in number than they have ever been, even in this most entrepreneurial and opportunity-rich of countries.