For all their love of technology and science, people (mostly those comprising the middle class) have morbid fears that someday technology will make them obsolete and thus, jobless. It is one of those economic paradoxes which prevail in mainstream economics, such as the notion that currency debasement and the destructive power of war lead to prosperity. In the same fashion, technologyâ€”the very thing that gave rise to the middle class through inventions such as the assembly lineâ€”is seen as the eventual tool of its demise. Understandably enough, the image of smart machines and robots manning every job imaginable can be a scary prospect to the average person who sees himself outcompeted by tireless, inert chunks of steel. There is no room for the non-capitalist in a world where he cannot rent his services for a wage. To make things worse for the average person, mainstream economists tend to support this view.
Since the onset of the Great Depression cranks in what then became and remained the orthodox view of this science have spoken of a â€œmature economy,â€ and blamed the speed of technological progress for most downturns and recessions, which inevitably lead to spikes in unemployment. A recent example is given us by Paul Krugman, citing a certain Robert Gordon of Northwestern University, who
created a stir by arguing that economic growth is likely to slow sharply â€” indeed, that the age of growth that began in the 18th century may well be drawing to an end. â€¦ Mr. Gordon points out that long-term economic growth hasnâ€™t been a steady process; it has been driven by several discrete â€œindustrial revolutions,â€ each based on a particular set of technologies. The first industrial revolution, based largely on the steam engine, drove growth in the late-18th and early-19th centuries. The second, made possible, in large part, by the application of science to technologies such as electrification, internal combustion and chemical engineering, began circa 1870 and drove growth into the 1960s. The third, centered around information technology, defines our current era.
There is much wrong with the orthodox view, starting from the fact that the mainstream view tends to see recessions as a result of unemployment, when in reality it is the other way around. Likewise, and â€œAustrianâ€ economists keep repeating this, technological progress is not to be feared but to be embraced, for it brings efficiency and releases labor and capital to be employed in other, less developed fields. In doing so, technological progress brings prosperityâ€”not just subsistenceâ€”to an increasing number of people. However, there is truth in the notion that there will be no room left for the non-capitalist in the completely or mostly computerized world toward which technological progress invariably tends.
Let us illustrate the Keynesian view on technological progress by quoting the most prominent of all Keynesians of our day.
The long-term projections produced by official agencies, like the Congressional Budget Office, generally make two big assumptions. One is that economic growth over the next few decades will resemble growth over the past few decades. â€¦ On the other side, however, these projections generally assume that income inequality, which soared over the past three decades, will increase only modestly looking forward. On the other hand, if income inequality continues to soar, weâ€™re looking at a dystopian, class-warfare future â€” not the kind of thing government agencies want to contemplate. â€¦ So machines may soon be ready to perform many tasks that currently require large amounts of human labor. This will mean rapid productivity growth and, therefore, high overall economic growth. But â€” and this is the crucial question â€” who will benefit from that growth? Unfortunately, itâ€™s all too easy to make the case that most Americans will be left behind, because smart machines will end up devaluing the contribution of workers, including highly skilled workers whose skills suddenly become redundant. [Emphasis added]
That technological progress is necessary for economic progress is evident wherever one turns: a forklift manned by a single person loads a truck in a quarter hour, where it may take a dozen people an hour to do the same job; computers allow accountants to enter values into matrices and get results within seconds, where it may take them the better part of the day to complete these tasks manually; motorized vehicles get people from place to place, not only faster, but also allow those previously unable to make long trips by foot or on horseback to comfortably complete these journeys. Technology also allows for more egalitarianism in the workplace: where in the past only strong men at the peak of their physical fitness could, say, dig ditches, today a physically unfit man or woman long past their prime can operate a bulldozer and outperform Adonis-like men by the scores. One can go on listing examples indefinitely.
Yet, while fully embracing these benefits, politicians, mainstream economists and other cranks turn around and blame the sources of these benefits for the plight of the unemployed. To the politician and the Keynesian economist jobs are a means in and of themselves, not a means to an end. According to them technology has already â€œdestroyedâ€ countless jobs, many of which the government has had to reproduce in the public sector; and the move to full robotization is sure to create a post apocalyptic world where only a handful of individualsâ€”the wealthyâ€”will have everything while the working classes, nothing. Continuing with this projection, income inequality will only increase, rather than decrease. However, if this were true, there would be no working classes altogether. They would be eradicated; extinct like the dodo, for if left jobless and without property, how are these people supposed to feed themselves? Thus, in the final analysis, rather than bringing further income inequality, the future dystopian world of full computerization is sure to bring no income inequality i.e. to completely eradicate the wealth â€œgapâ€ that leftists worry so much about.
That technological progress does not itself represent an obstacle to human welfare is self evident. Yet, by saying that, we are not addressing the issue of income inequality raised by Professor Krugman, nor do we solve the problem posed by a world of constantly decreasing workplaces. Certainly staying the course of currency debasement and the confiscation of income and inheritance, presently taken by nearly every government in the world, is more likely to lead to Krugmanâ€™s dystopian future than to any other alternative. Let us discuss these issues in turn and present some alternative possibilities.
To be sure, because peopleâ€™s abilities, needs and wants differ from person to person, incomes will never be totally equal in a free society. All things equal a janitor employed by Princeton University will never be able to make an income equal to that of a professor hired by the same university, simply because the services of the janitor are less valuable and can be performed by more or less any person. A professor has specific skills that not every person possesses. Would Professor Krugman not object to equalizing his own salary with that of a janitor by having their annual incomes combined and divided by two? One is inclined to believe that the Professor would not be motivated to perform all the duties his job requires (teaching, grading, upgrading his knowledge, adding to his credentials, etc.) if he were able to make the same income by simply sweeping floors. At the same time there is nothing that the janitor could add to the value of his product, even if his income doubled. His marginal value productivity remains the same. Inequality in incomes gives impetus to people to seek out better jobs, which in turn means self improvement, as well as more and better goods and services on the market. Thus, we see that income equality is a utopian idea no sound economic policy can aspire to achieve. Yet, by reaching this conclusion we do not address the worry of the future fully computerized, mostly jobless society which Professor Krugman has us worried about.
We stated above that in the world of full (or almost full) automation, toward which the progress of technology tends, there will be less and less room for the non-capitalist. Most futurists tend to depict the society of the future as completely communistic, but â€œAustriansâ€ have the insight that economic calculation is impossible in a socialist commonwealth. Thus, a communistic society will tend to move backward technologically, as the history of Soviet â€œWar Communismâ€ (1918-1921) has demonstrated. And since full automation does not necessarily mean entry into an era of post-scarcity, economic calculation will still be essential even in the highly automated world that we are imagining will one day become reality. Thus, the question that needs to be answered is: How is the average person who is not inclined to entrepreneurship to become a capitalist?
In discussions on currency debasement through inflation, Professor Mises pointed out that in the modern economy the bulk of lenders does not consist of the wealthy, but of the middle classes. In discussions on entrepreneurship, Mises pointed out that:
The moneylender is always an entrepreneur. Every grant of credit is a speculative entrepreneurial venture, the success or failure of which is uncertain. The lender is always faced with the possibility that he may lose a part or the whole of the principal lent. His appraisal of this danger determines his conduct in bargaining with the prospective debtor about the terms of the contract. (Human Action, p. 536)
Thus, currency debasement, as it harms savers and lenders, combined with taxation ends up harming the (working) middle classes at the expense of borrowersâ€”which in our time mostly consist of the banking sector and the government. Likewise, progressive taxation works predominantly to prevent persons who currently own little capital to accumulate more. Indeed, progressive income taxation is perhaps the biggest obstacle a person needs to overcome if he is to move up along the wealth ladder. These policies result in low and middle class individuals being prevented from accumulating enough savings to turn into meaningful investment, and push income and wealth gaps wider rather than closer.
Keynesian doctrine, to which Krugman subscribes, recommends borrowing and spending, which one presumes is to lead to the above discussed socialization of the means of production. That is to say, that as job disappear, governments begin to confiscate more and more of the privately held enterprises that are profitable; or allow these enterprises to remain privately owned, but drastically increase the rate of taxation upon the producers. But here we are met with more or less the same problem as in a proper socialist commonwealth.
In contrast, the â€œAustrianâ€ prescription is simple: full privatization of the means of production by saving and investment. Average persons who lack entrepreneurial acumen still have the opportunity to become capitalists by investing their savings through the purchase of shares in ongoing or startup businesses. Presently many do, and as jobs become scarcer for humans, the most obvious way for people to earn incomes appears to be through the incomes derived from the work of machines. In fact, this is already how many people derive part or all of their incomes. For instance the owner of a trucking company derives income from the work performed by the driver, and the work performed by the truck; likewise the owner-operator of a digital print-shop derives income from the work performed by the printer.
Furthermore, the stock markets play a key role in the transformation of non-capitalists into capitalists. Here is an opportunity for all to become owners of the means of production. In doing so, the problem of economic calculation that exists under socialism is to be evaded. While every investment is a speculation, the nature of the stock market is misrepresented when it is referred to as a gambling institution. Writing about the nature of stock markets, Mises explained how investors direct companies toward profitability:
Even financial writers fail to realize that stock exchange transactions produce neither profits nor losses, but are only the consummation of profits and losses arising in trading and manufacturing. These profits and losses, the outgrowth of the buying public’s approval or disapproval of the investments effected in the past, are made visible by the stock market. The turnover on the stock market does not affect the public. It is, on the contrary, the public’s reaction to the mode in which investors arranged production activities that determines the price structure of the securities market. It is ultimately the consumers’ attitude that makes some stocks rise, others drop. Those not saving and investing neither profit nor lose on account of fluctuations in stock exchange quotations. The trade on the securities market merely decides which investors shall earn profits and which shall suffer losses. (Human Action, p. 517)
Among other things, the world of tomorrow will require deregulation of business, and the stock markets in particular. New stock markets will need to emerge and entry in them will need to be free from government interference. Yet, increasing government regulation of the stock markets, which decreases the number of participants and increases the cost of doing business through these institutions, make it more difficult for persons to enter them. This way middle class non-capitalists are prevented from taking the necessary steps that the going trend of technological progress requires them to take: to become capitalists.
Poor insights into economic truths have prevented Man from maximizing the potential of his technological state. Technology has, much like the market system (capitalism), been unjustly blamed for the outcomes brought upon by government intervention, and economic cranks like Krugman are only perpetuating these misconceptions. Time and time again the free market in a system of private property of the means of production has proven to be not the best, but the only means toward progress and sustainable prosperity. So it has been, and so it shall be for as long as there is a state of scarcity.