The very, very abbreviated version of the Marxist concept of creative annihilation is that capitalism not only destroys previous economic orders to make way for the new, but also that it must ceaselessly devalue existing wealth. The manufacturer that implements automation destroys the value of plants that lack automation. When the fully automated plant comes online, the semi-automated plant loses it’s value.
For Marx and those who followed him, this seemed rather obvious. Acme Widget pops up to make a new gadget that eliminates the need for some old gadget. The plant making the old gadget would close and the workers would be fired. The new and better had to displace the old and that naturally meant capital always declined in value. The math would follow. At least from the perspective of a man in a rapidly industrializing world, it felt that way.
The trouble with Marxism was not so much that it had everything wrong, but that it could never square basic tenets with observable reality. The new gadget was, in fact, better than the gadget it replaced. Capitalist societies did, in fact, experience a general, as well as a specific, increase in material wealth. Clearly something else was going on which is why we have the phrase, Schumpeter’s gale.
The core of Western economic thought is that two things are essential to a thriving economic order. One is a growing population and the other is the multiplier effect from technological advance. The value created by each unit of labor, in turn makes subsequent units of labor more productive and thus more valuable. The value of the buggy whip factory may have been vaporized, but the value of the fuzzy dice factory that replaced it is much higher.
Libertarians, of course, will bore the hell out of you preaching about creative destruction. To some degree, we all accept it, even the socialists. It’s impossible not to as we have seen the process with our own eyes. The fax machine makers followed the typewriter makers into the dustbin of history, but you can now read this off your phone. Even old school socialists understand this now.
A very hard thing for people to understand is the idea that things can be true for a while and then stop being true. Alternatively, something can be true and important today, but unverifiable and insignificant tomorrow. Feudalism made a lot of sense in the 7th century, but then stopped making sense in the 14th century. By the 19th century no one really cared about it anymore. In other words, lots of things are true and important for a while, but not forever.
That’s where we may be headed with economic growth. The whole point of pushing for economic growth was to increase the general welfare. Sure, some people getting rich was nice, but that was a necessary evil. The point was to increase the overall bounty in order to make your society prosperous. Reducing scarcity has been the goal of man since the dawn of time. Even Marx accepted this as the starting point of political-economy.
We are reaching a point where vast segments of a modern economy can be turned over to robots. Japan is building indoor farms that are almost entirely automated. Automating warehousing is just about here. Driverless car technology will make driving a truck a thing of the past. Read the news and you can see the future of manual labor. It has no future. In a generation, maybe two, it will all be done by robots. More important, it will be done better, faster and cheaper.
Of course, financial transactions can be automated now, eliminating the gambling aspects of finance. It has not happened for a number of reasons, but it is coming. We talked about the law last week and how it is slowly being overrun by algos. Health care is another profession where automation will be making a huge impact over the next decades. Dr. Google is already the first consult for many people. Put in the symptoms and out pops hundreds of sites full of useful information.
Instead of the value of the widget factory being vaporized by the essential processes of capitalism, it is the value of human labor, both manual and cognitive. In fact, cognitive labor is what will most easily be replaced with automation. Instead of having the value of our labor stolen by greedy capitalist, mankind is about to have the value of its labor vaporized by our own inventions.
We are already seeing hints of the problems to come from mass automation. America has a record number of people not working. This is causing disruption in our politics and our economics. It’s hard to pitch the American Dream to people who are on an allowance from the state. More important, it is impossible for people to maintain the habits required of citizenship when they are on an allowance from the state.
The bigger challenge is how to distribute the bounty. Human societies from the dawn of agriculture have distributed wealth based on the value of labor. The great warrior who saved his people would be rewarded with lands he could pass onto his heirs. Today the smart guy who is good with the language gets rich in the law or on TV, while the smart guy with high math skills gets rich on Wall Street.
How do we distribute the bounty of society when everyone’s labor is worthless? There are a few possible answers, but none of them include maintaining cultural items like a work ethic or self-reliance. Free markets would also become an artifact for the museum. In other words, the robot future will require an entirely different culture based on the value of labor being zero. That may require a different type of human too.