University of Minnesota economist Vernon Ruttan, who died in 2008, understood the economic factors that motivated his contemporaries, brothers Louis and Cyril Keller, two rural Minnesota blacksmiths, to invent the skid-steer loader a half-century ago. Louis Keller died this week at age 87, but is survived by his 88-year-old brother.

Their invention, an example of "induced innovation," probably did more to increase labor productivity in animal agriculture, construction and other materials-handling industries than any other in 50 years.

The idea of induced innovation is simple but powerful. Changes in the relative prices of different factors of production motivate the development of new technology that economizes the use of whichever factor became more expensive. In simpler terms, if wages go up faster than the cost of machinery or natural resources, inventors will develop machines that use less labor.

That is what the Keller brothers did in their shop in Rothsay, in northwestern Minnesota. Turkey production was an important industry in that area, and removing dusty, ammonia-laden turkey manure from barns was an unpleasant, labor-intensive task. Front-loaders on conventional farm tractors could remove some, but a lot of hand labor still was needed. And labor got increasingly expensive in the 1950s as thriving urban areas pulled people out of the countryside.

In 1958, the Kellers built a simple three-wheel loader with drive wheels that could be made to turn in opposite directions. This enabled it to turn on a dime and remove manure from places that formerly would have required hand pitching. Its agility made it more productive than tractors even in parts of barns that the larger machines could reach.

The machine was an immediate hit with turkey growers, and the Kellers soon sold their invention to Melroe, a Gwinner, N.D.-based manufacturer of farm machinery. They brought out the Model M-400 Bobcat in 1960 and the rest is history.

From the Upper Midwest, Bobcats first spread across the U.S. and then the world. They spread from agriculture to construction, mining, forestry and other industries. And everywhere, they dramatically boosted productivity of the workers who ran them. It was a classic case of the productivity-boosting induced innovation that Ruttan explored with great insight.

Why does this all matter? The only way people can have higher real standards of living is for each worker to produce more goods or services. There are few more fundamental questions in economics than how to increase productivity. Many important productivity-boosting inventions, the transistor for example, came out of labs staffed with Ph.D.s. But other important ones sprang from smart men like the Kellers, who never studied past the eighth grade.

There is a second innovation lesson in the ubiquitous modern skid-steer. The models manufactured in the 1960s were wonderful labor savers, but mechanically they involved a complicated set of belts, chains, clutches, sprockets and pulleys to transmit power from engine to wheels and to let the wheels on one side turn forward while those on the other turned backward at the same time.

Modern ones are simple by comparison. The engine drives a hydraulic pump that drives hydraulic motors connected to the wheels or tracks. A set of hydraulic valves provides control. Maintenance is far lower, and the machines are much more durable.

Hydraulic motors themselves were invented back in the mid-1800s and were used to train the turrets on British battleships a century ago. But they were huge and heavy. The ones that drive moving parts on a combine header or some industrial machine are not much bigger than a pound of butter and are easy to heft with one hand. And they replace complicated drive trains involving the same sorts of belts, chains, sprockets, gearboxes, shafts, bearings and pulleys that drove early generations of skid-steers.

The refinement of hydraulic motors from cast-iron monstrosities to light, compact and durable units is another example of induced innovation, but one in which the added factor of competition between various manufacturers was key.

The Kellers' new machine faced no directly competing product. But there were many hydraulic machinery manufacturers. Most made pumps and valves used to actuate hydraulic cylinders to raise and lower or open and shut things. Until the 1960s, hydraulic motors were a curiosity, a sideline.

The modern versions depended on improvements in metallurgy, machining and the chemical engineering of new materials for seals that prevent internal or external leakage of the oil that is the power-transmission medium.

In a process first described by Adam Smith in 1776, hydraulic manufacturers vied to produce motors that provided better value to users than those of competitors. They had economic incentives to invest in research and development to be able to offer such improved models.

And, in a process that is familiar from the history of the personal computer, users themselves adapt improved technology to uses never envisioned by its original inventors. Feedback from users to producers touches off a snowballing cascade of innovation.

Farm boys and construction workers all owe thanks to the Keller brothers and to Ruttan and other economists who explain productivity growth. So do all consumers who benefit from resulting lower-cost goods and services even if they are not aware of it.

St. Paul economist and writer Edward Lotterman can be reached at