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Knowledge and the Wealth of Nations: A story of economic discovery
Author: David Warsh
Amazon info

This book traces the development of Paul Romer's work to incorporate growth into standard economic models - to explain questions such as "why do economies grow" and "why do some grow faster than others". Prior to Romer, growth had been treated exogenously, it was outside the model. Romer put it into the model and handled the mathematical non-convexities that result. The book doesn't actually cover any of the models or the math, which is probably a good thing. As the subtitle indicates, this is less a story about Romer's theory than it is the story of how economics is done and how new ideas overtake/become incorporated into the existing canon for example, Kuhn's "Structure of Scientific Revolution" is often cited. The book also takes a wide scope for economic thought - starting with Adam Smith, moving through Malthus and Ricardo, and then through a number of theorists in the 20th century.

While an interesting and useful approach, a book about how economic theories change and shift over time requires more concentration and continuity than reading 15 minutes per night before bed. While the basic difference between Keynesians and Monetarists and those between Saltwater and Freshwater were clear enough, I found it somewhat difficult to remember all the distinctions between other groups and how things were changing over time.

In terms of Romer's work itself, he sought to resolve a basic problem with Adam Smith's theory. On one hand, Smith has the "invisible hand" of competition that matches supply and demand to generate the appropriate equilibrium price at which point buyers and sellers are completely satisfied. On the other hand, Smith tells the story of the "Pin Factory" that is the first producer of pins and constant improves their processes to remain more efficient than anyone else, selling at lower prices and driving all competitors from the market - and then being able to establish monopolistic pricing. Clearly "growth" was part of the answer, but exactly how, I am not sure I could say - but my sense was that "monopolistic competition" (the Pin Factory) was closer to the truth. I certainly see that in companies creating new products (a key form of growth) that they claim are unique and thereby avoid having to be "price takers" in the market, but rather "price makers" (as monopolists are). Of course, since the uniqueness is usually not complete (substitutes are available), there is still competition (hence the phrase "monopolistic competition").

Recommended: For those with a strong economic background and/or those taking an economics class.