“The Lever of Riches” is a powerful metaphor for the most fundamental source of long-term economic growth: technological creativity and innovation.
Coined by economic historian and Nobel laureate Joel Mokyr in his influential 1990 book, The Lever of Riches: Technological Creativity and Economic Progress, the concept is more relevant to your business today than ever before.
In essence, Mokyr argues that new ideas and useful knowledge are the true engines of prosperity, acting as a “lever” that allows humanity to achieve exponential gains in wealth and living standards. For your business, understanding this lever is critical to survival and success in a global, rapidly evolving marketplace.
What the “Lever” Really Means?
The term lever immediately brings to mind Archimedes’ famous saying: “Give me a place to stand, and a lever long enough, and I will move the world.” In an economic context, Mokyr identifies the “lever” not as financial capital or labor, but as technological progress.
He distinguishes between three types of growth, but elevates the third as the true “Lever of Riches”:
- Solowian Growth: Growth driven by the accumulation of capital (e.g., building more factories). This eventually slows down due to diminishing returns.
- Smithian Growth: Growth driven by the division of labor and specialization (e.g., Adam Smith’s pin factory). This has limits imposed by the size of the market.
- Technological Progress (The Lever): Growth driven by macroinventions (radical new ideas like the steam engine or the internet) and microinventions (incremental improvements that fine-tune efficiency). This form of growth is unique because it is not constrained by fixed resources—it creates entirely new possibilities and continually pushes the frontier of what is economically achievable.
In short, the lever is knowledge applied to production. It’s not just what you make, but how you make it and what new things you can make possible.
The Two Pillars of Technological Success
Mokyr’s analysis of history—comparing why Europe surged ahead while highly advanced societies like ancient China eventually stagnated—reveals that the “Lever of Riches” requires two essential pillars to be effective in any society or organization:
1. The Supply of Useful Knowledge (Creative Potential)
This pillar is about the inventors, researchers, and creative thinkers who generate new ideas. To maximize this, a business must foster:
- Tolerance for Deviation: People must be allowed to challenge current practices and propose “heretical” or eccentric ideas without fear of punishment.
- Access to Existing Knowledge: Modern innovation often involves combining existing knowledge in novel ways. Open communication channels, access to data, and a culture of continuous learning are vital.
- Cross-Pollination (The “Republic of Letters”): Mokyr argues that Europe’s fragmented political structure led to a “Republic of Letters”—a transnational community of scholars who freely exchanged ideas. For a modern business, this translates to breaking down departmental silos and actively seeking insights from outside the company (e.g., partners, customers, academics).
2. The Demand for New Technology (Institutional Willingness)
Having a great idea isn’t enough; it must be adopted and implemented. This requires an environment ready to accept and reward change, even if it disrupts current operations. This relates to a company’s institutional framework:
- Incentives for Innovation: There must be a system that allows innovators and early adopters to capture a sufficient share of the profits. This could be through strong patent protection, internal bonuses, or recognition programs.
- Low Resistance to Change: The most significant obstacle to the lever is often vested interests—groups who benefit from the existing technology or status quo. Successful companies must develop a culture that views creative destruction (the process of new innovations replacing old, inferior ones) not as a threat, but as necessary for progress.
- Infrastructure for Adoption: New ideas require new physical and human capital to become profitable. This means investing in training, new equipment, and supporting processes that enable the new technology to function effectively.
Practical Takeaways for Your Business
To effectively wield the “Lever of Riches,” your business must focus on nurturing both its creative potential and its institutional willingness to change.
1. Invest in Knowledge, Not Just Capital
Re-examine your budget. Are you merely investing in more of the same (capital accumulation), or are you investing in new knowledge?
- Prioritize R&D: Dedicate a measurable portion of your resources to projects that have a high chance of failure but a high potential for radical change.
- The Learning Budget: Fund employee training, subscriptions to industry intelligence, and time dedicated solely to exploring emerging technologies.
- “De-Militarize” Failure: Create a separate mechanism for testing radical concepts where failure is treated as a data point, not a disciplinary action. This lowers the psychological cost of challenging the status quo.
2. Foster a Culture of Creative Friction
The most powerful ideas often emerge from the collision of different perspectives.
- Multi-Disciplinary Teams: Structure project teams with members from radically different departments (e.g., Marketing, Engineering, Finance, and Customer Service) to ensure ideas are viewed from every angle.
- Open-Source Internal Knowledge: Use accessible, searchable platforms to document and share processes, research findings, and customer insights. Don’t let valuable knowledge remain locked in individual departments or heads.
3. Actively Dismantle Resistance
Identify the people, processes, or technologies that are threatened by your most promising innovations and address them proactively.
- Pilot Programs: Introduce new technology through controlled pilot programs that allow the entire company to observe its superior performance before a full rollout. This provides tangible evidence to counter skepticism.
- Incentivize Adoption: Tie internal rewards and recognition not just to the creation of new ideas, but to the successful implementation and adoption of them across the organization.
By consciously cultivating an environment that generates useful knowledge and is eager to apply it, you turn innovation from an occasional event into a continuous, unstoppable lever that lifts your business toward sustained prosperity.