The Future: Capital without Humans

Economics Economics Questions
1

This is currently the most emailed story at the New York Times: it’s titled “3-D Printing Spurs a Manufacturing Revolution,” and it’s about how 3-D “printers” are moving from small-scale prototyping and model-making tools into full scale production, including a “printer” the size of a tractor trailer that can make foundations for houses.

I’m in architectural school right now, so I get to see these things in action. The slightly out-dated models they have here are ridiculously expensive but can ridiculously complex things - they can create shapes so complex they can hardly even be imagined without high-powered software. The only hard part is thinking up what to tell them to make, and once you’re there (within limits), you push a button and the machine does the rest.

To quote the times article, “Advocates of the technology say that by doing away with manual labor, 3-D printing could revamp the economics of manufacturing and revive American industry as creativity and ingenuity replace labor costs as the main concern around a variety of goods.”

Think about that for a second - these machines, if they continue to advance, could “revive American industry” - in part by eliminating labor. These things are very nearly Star-Trek style “replicators,” and more closely approximating them is clearly the direction things are going.

What we’re talking about here is a fundamentally new type of capitalism - one in which capital does not need labor, but labor still needs capital. This is likely to be the biggest economic issue of the 21st century - what happens when Say’s Law breaks down. Say’s Law states roughly that production creates its own demand - or, the act of producing product x requires hiring and paying wages and dividends roughly equivalent to the cost of the product, so increasing production automatically creates increased demand on a macro level, allowing the economy to grow organically.

This will no longer be true as we approach total automation. Increasing production might mean buying more 3-D printers, but not more designers and not more laborers. Production can be increased on both a micro and macro level without naturally creating increased demand simultaneously. Thus, a economic framework which was successful in the 20th century becomes instead a curse in the 21st, as labor saving advancement lead to lower levels of demand and hence stagnant or even reduced levels of production.

This is probably an unrecognized contributing factor to world-wide underemployment, wage stagnation and under-capacity production - and all the signs only point to it worsening. The question of the 21st century is how to create artificial demand in response to artificial production.

2

How can capital “need” anything? Labor is human beings.

Hence any form of automation whatsoever should cause Say’s Law to break down. But has it broken down so far?

No, it hasn’t. The reason is that Say’s Law does not say that supply creates its own demand. What it says is that production is never held back by consumption.

Again, what is consumed must first be produced. Presuming that the products of 3-D printers are exchangeable for other goods, then other goods must also be produced in order to be exchanged with the products of 3-D printers. So exactly where does the economic framework break down?

How do you define “underemployment”, “wage stagnation”, and “under-capacity production”? How can demand be “artificial”? How can production be “artificial”???

3

these machines are no different from any other machines. don’t be taken in by hyperbole.

I recommend you read Hazlitt’s one lesson chapter on machinery if you need a refresher.

4

In addition to the post by Autolykos, I’d like to point out that the services sector today accounts for 70% or more of employment in developed countries. This is true even in cases when the country isn’t sustaining a permanent and probably unsustainable trade deficit.

Why is this so? Because capital has been playing a dramatically increasing role in the economy since the beginning of the Industrial Revolution, over 300 years ago. Since all such transformations and technological advances happen somewhat gradually, the economy has time to readjust structurally. When people no longer need to lay bricks, or stand in front of conveyor belts for 8-12 hours a day, then suddenly a whole bunch of other jobs become possible, that we didn’t even know existed. In ancient times, only a handful of people could preoccupy themselves with the arts, or music, or philosophy. Nowadays, because of the shrinking of the average working day, almost anyone can do it as a hobby, and millions of people do it professionally.

In short, I find your post to be reminiscent of the luddite fallacy… Now an economy without capital - that would be a horror.

5

"Say’s Law states roughly that production creates its own demand - or, the act of producing product x requires hiring and paying wages and dividends roughly equivalent to the cost of the product, so increasing production automatically creates increased demand on a macro level, allowing the economy to grow organically. "

No it doesn’t. That’s not what it says at all [excuse the pun].

It says that if you produce thing X, you can then go and trade it for thing Y. So that the production of thing X created the ability of its owner to buy [=demand]. It has nothing at all to do with hiring and paying wages and dividends roughly equivalent to the cost of the product.

6

http://mises.org/media/4301

7

I’m starting to get really, really tired of this misstatement of Say’s law.