James d. Gwartney

Read:
Creating Jobs vs. Creating Wealth by Dwight Lee

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50
There Are Multiple Sources of Progress
On the first day of an introductory economics class, we often inform students that workers in
developed countries such as the United States produce and earn approximately thirty times as
much per person today as in 1750. Then we solicit their views on the following question:
“Why are workers so much more productive today than two and a half centuries ago?” Think
for a moment how you would respond to this question.
Invariably, our students mention three things: First, today’s scientific knowledge and
technological abilities are far beyond anything imagined in 1750. Second, we have complex
machines and factories, far better roads, and extensive systems of communications. Finally,
students usually mention that in 1750 individuals and families directly produced most of the
items that they consumed, whereas today we typically purchase them from others.
Basically, the students provide the correct explanation even though they have little or
no prior knowledge of economics. They recognize the importance of technology, capital
(productive assets), and trade. Their response reinforces our view that economics is the
“science of common sense.”
We have already highlighted gains from trade and the importance of reducing
transaction costs as sources of economic progress. Economic analysis pinpoints three other
sources of economic growth
(?)
: investments in people and productive assets, improvements in
technology, and improvements in economic organization.
First, investments in physical capital
(?)
(such as tools, machines, and buildings) and
human capital
(?)
 (education, skills, training, and experience of workers) enhance our ability to
produce goods and services. The two kinds of investment are linked. Workers can produce
more if they work with more and better machines. A logger can produce more when working
with a chainsaw rather than a hand-operated, crosscut blade. Similarly, a transport worker can