Nick Szabo, Transportation, divergence, and the industrial revolution
Archive link—here.
- “Metcalfe’s Law states that a value of a network is proportional to the square of the number of its nodes. In an area where good soils, mines, and forests are randomly distributed, the number of nodes valuable to an industrial economy is proportional to the area encompassed. The number of such nodes that can be economically accessed is an inverse square of the cost per mile of transportation. Combine this with Metcalfe’s Law and we reach a dramatic but solid mathematical conclusion: the potential value of land transportation network is the inverse fourth power of the cost of that transportation. A reduction in transport costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen. While a power of exactly 4.0 will usually be too high, due to redundancies, this does show how the cost of transportation can have a radical nonlinear impact on the value of the trade networks it enables. This formalizes Adam Smith’s observations: the division of labor (and thus value of an economy) increases with the extent of the market, and the extent of the market is heavily influenced by transportation costs (as he extensively discussed in his *Wealth of Nations*).”
- “Furthermore, land and sea-borne transportation were far more complements than substitutes. Cheaper land transportation was a ‘force multiplier’ for water transportation. Decreasing the costs of getting to port from field or mine by a factor of two increased the number of fields and mines accessible by a factor of four, and increased the number of possible ways to divide labor, and thus the value, by an even greater factor via Metcalfe’s law. This in turn incentived [incentivized] greater investment in sea-borne transport.”
- “Again roughly speaking, the second phase of industrial growth, after about 1830, was more scientific and far easier to copy than northwestern Europe’s unique biology….When non-European countries industrialized, such as Japan after the 1870s, they did it in a ‘leap-frog’ style: they skipped over the long-evolved improvement in draft animals and went straight to mature steam engines and, soon thereafter, electrical motors. Much as countries installing phone networks for the first time over the last few decades have leap-frogged over the land line era, going straight to cell phones. Starting early in the 20th century industrializing countries could replace all the remaining important functions of the horse with internal combustion engines. England, which made the longest and most thorough use of the horse, and thereby had the transportation economies allowing it to pioneer the industrial revolution, had a less pressing need to use the internal combustion engine and thus lagged enough in that technology so that second-generation industrializers like Japan, Germany, and the United States became leaders in internal combustion engine products.”