This Sputnik era paper explains why basic research pays for itself

But dangers lurk when we let industry do too much of it

Earlier this year America lost a great Cold War-era thinker. On January 28, at age 94, Richard R. Nelson, a Columbia professor, passed away. He left behind a legacy including being the father of evolutionary economics. He challenged the prevailing tradition of rational choice economics, arguing instead that economic forces are chaotic, subject to rapid changes, and entrenched with psychological factors. In the current economic climate, where one man seems to have taken hold of the economic fortunes of billions worldwide, his theories seem all the more relevant.

Another relevant topic to today’s political discussions is how and why the government should fund basic science. Nelson had a practical approach to real problems facing policymakers. He not only worked for 10 years at the neutral think tank, the RAND Corporation (where I spent a summer working 20 years ago) but also worked for the Kennedy administration before returning to academia at Yale and then Columbia.

While at RAND, Nelson studied why governments should bother to fund basic research with tax dollars. What, after all, do taxpayers get out of this investment? Is it worth the money, or is it just a way of providing sinecures for overeducated thumb twiddlers who ought to be put to work on real problems in the real world?

In a 1959 paper titled The Simple Economics of Basic Scientific Research, Nelson laid out the argument amid the backdrop of the 1957 Soviet launch of Sputnik which would push America into the space race and eventually land men on the moon.

Nelson defines a simple equation. Investment in basic science, as with any other area, provides a social value in terms of a “flow of future benefits”. The allocation of funds to science however takes away funds from other activities which may provide other benefits. Hence, there is also a social cost. The difference between social value and social cost is social profit.

Therefore, the amount that we should allocate to basic research is whatever maximizes social profit.

Simple.