Rule No. 5

A third complication caused by the Industrial Revolution is that technologies that serve the same function at different times often cannot be readily compared in economic terms.

In the nineteenth century housework was done by hand or by servants (hired hands). Today washing machines, food processors, dryers, Scotchgard, dishwashers, vacuum cleaners, wash-and-wear clothes, and a host of other inventions have changed matters completely. Although the real cost of a maid has increased greatly over the last hundred years, the need to have one has drastically diminished.

A hundred years ago private transportation was by horse and carriage; today the automobile fills that role. Both are expensive in terms of the percentage of average annual per capita income required to buy them, although the automobile much less so. But a horse and carriage is very much more expensive to run than a car. A car can be parked on the street, but a horse must be stabled and cared for. A car burns gasoline only when it is running; a horse burns oats day in and day out. Furthermore, a horseless carriage’s capacities are so much greater, its comforts so much more extensive, and the skills required to operate it safely so much less difficult to master, that the two means of transportation can hardly be compared at all in money terms.

Consider an extreme example of technology on the march, for here, really, is the most difficult problem faced by the historian in translating money over time in the modern era. In the mid-eighteenth century Prince Nikolaus Esterhêzy, a Hungarian nobleman, had a passion for music. Being one of the richest men in Europe, he could afford to indulge this passion with a state-of-the-art music reproduction system, and indulge it he did. He maintained his own private orchestra, chorus, and five-hundred-seat theater. Presiding over this vast musical establishment was the great composer Haydn.

While Esterhêzy still lived, however, the mechanization of music reproduction began with the invention of the music box, and today anyone with the price of a portable cassette player can possess a system that would astound Esterhêzy. The two systems are not the same, of course. The fidelity of Esterhêzy’s was, by definition, perfect, while that of the Walkman is only superb. And Esterhêzy’s system could compose original masterpieces on request, no mean feature. But the Walkman has advantages of its own that Esterhêzy would have greatly admired. It is a lot easier to take to the beach; it does not need to be fed, clothed, and housed; and one needn’t worry about its getting the upstairs maid pregnant.

And the Walkman has one capacity that would boggle Esterhêzy’s mind: It can summon the dead. Do you want to hear Judy Garland sing “Over the Rainbow”? Just insert a cassette, push a button, and the voice of an artist who has been dust for twenty years fills your head with music.

In economic terms, Esterhêzy’s music-reproduction system and today’s portable cassette player are incommensurable. But no one would argue with the idea that while Esterhêzy’s system might, in a sense, be “better” than the Walkman, it is certainly much more unwieldy and millions of times more expensive on a per note basis.

To add to the burdens placed on historians by the Industrial Revolution, there is a new revolution sweeping the world economy today, and it has already had consequences equal to those of the collapse of the price of work-doing energy two hundred years ago. This is the revolution caused by the collapse in the price of moving and manipulating information.

Until the invention of the digital computer in the 1940s, information could be handled only by human beings. People had to write the letters, push the telegraph keys, add the columns of figures, file and retrieve the data. Just as human beings are an expensive means of putting energy into the economic system, they are a very expensive way to manipulate information. Still, until the computer they were the only way.

Since the invention of the transistor in 1947, the cost of using a computer to make calculations has been declining very rapidly indeed, at about 25 percent per year on average. So great has been the drop in the cost of calculation, and thus so great has been the increase in demand, that one recent scientific experiment using a computer to create a model of the history of the solar system is estimated to have required more calculations than had been performed in the entire history of the human race up to the year 1940.

To give just one example of how this drop has affected other prices, consider the cost of a three-minute telephone call between London and New York. Before 1926 all the money in the world would not buy a phone call to London. That year it became possible, but at a price that precluded anyone but the very rich from making use of the service. The price declined as the phone company added more capacity, but with the advent of the computer, which eliminated the need for many operators and manual switchboards, and the integrated circuit, which eliminated the need for much manual wiring, the price plummeted.

The law of supply and demand, of course, immediately got to work on this price drop. In the years between 1960 and 1985, for example, the number of overseas phone calls originating in the United States increased fully one hundred and twenty-fivefold. In 1950 a long-distance call was a bit of an event in most American households, and an overseas call was virtually a state occasion. Today they are commonplace. The futurist Arthur C. Clarke has predicted that the very idea of long distance will disappear by the year 2000. By then, he thinks, it will be a local call both to the house next door and to a house on the other side of the globe.