The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 73

Texans Weren't the First to Ride—The Learning Curve

When the famous term “learning curve” was coined in the 1960s, it described the way semiconductor pioneers like Texas Instruments learned more as they made ever more electronic devices. The brand-new product technology had little real world experience. Producers counted on on-the-job learning to teach them how to slash their per-unit production costs. As they produced more, their knowledge increased, and their costs per unit plummeted in a steady path.

Since lower costs per unit would make demand grow, the transistor pioneers priced as if they already had those low costs. They took orders, made oodles of chips, and “rode down the learning curve” to lower costs and big bucks. No one had ever seen such a thing. Imagine, having your unit costs drop just by making more of something. To this day, most folks think the learning curve was first discovered by these transistor Texans.

Not so! It's clear from this 1913 chart the electric utility industry had its own learning curve in the early 1900s. Notice the dramatic decline in the cost of energy per kilowatt-hour: from 12 cents in 1896 to about 2 cents in 1912, as industry output exploded. The transistor tycoons merely reinvented learning curves—which are rediscovered about every 50 years—in amazing coincidence with the upward phase of the much scoffed at 50-year Kondratieff wave cycle (see for yourself in Chart 84). Learning curves propelled the railroad boom of the mid-19th ...