A sideways look at economics
One of the interview questions for economists at the Bank of England (years ago, when I was there), went:
“Imagine a world with no money. Could there be inflation?”
To which the ‘correct’ answer was ‘no’. You could see changes in the relative price of certain goods or services, but not in the general price level. And the inference from that: inflation is always and everywhere a monetary phenomenon.
At that time, this was a thought experiment designed to illustrate the difference between relative and general prices. However, a world with no money is more than just a thought experiment now: it’s a possible, though unlikely, future. I am not referring to the growth of alternative forms of ‘money’ (CBDCs and the like). I am referring to a world in which scarcity, that is the condition in which our species, indeed all species, has found itself to date, comes to an end. Imagine a world with no scarcity. Money is a way of representing and settling competing claims over scarce resources. With no scarcity, could there be money?
Industrialisation, the division of labour, mechanisation, automation: these advances have transformed the material standard of living of the human population already, defying Malthusian doomsters by providing an exponentially expanding population with an exponentially increasing real standard of living for 200 years and counting. The hours the average person must exchange in labour to secure subsistence is a tiny fraction now of what it was at the time that Adam Smith was writing The Wealth of Nations.[1] And the things we can and generally do acquire now would have made Smith blush and tut: he was famously scornful of the childish tendency towards conspicuous consumption (as he saw it). The amount of leisure we typically enjoy would have astonished him.
I am speaking here of the ‘average’ person alive right now. Of course, there are many very poor people and a few very rich people, though measures of inequality, globally, are currently close to an all-time low, whether in income or wealth. The average person does not actually exist: I know this. It’s a device deployed by economists. I am one, and I am deploying it now.
Caveats out of the way, here’s the thought experiment I want to conduct now. The next leg of the industrial revolution, which involves among other things the incorporation of artificial intelligence into production technologies, can in some scenarios lead to the end of scarcity. Anything that can be manufactured is manufactured by machines. Physical resources can be recycled without limit. Some of the processes of recycling are costly in the form of resource intensity: but those resources can be recycled without limit, like everything else. The binding constraints on productive capacity in that world disappear one by one. When Smith was writing, these constraints were the stock of fixed capital, the supply of labour, and the supply of usable land. The first, fixed capital, can be increased not without limit but far beyond the limits that create scarcity in manufactured goods. The second, labour, is increasingly irrelevant in this imagined world. The third, land, cannot be increased but can be utilised with increasing efficiency (as it already has been) and that efficiency can increase without limit.
The remaining binding constraint for now is energy (this is a constraint that the growth of AI is bumping into already). So this world requires energy to be free and plentiful. This is obviously a huge assumption, though the development of fusion and solar power suggests that it is not impossible. Roll with me for the purposes of this experiment.
So now we are in a world where, when it comes to manufactured goods, they are all free, or as close to free as makes no difference. That includes food and all the items that contribute to subsistence. But it also includes fridges, washing machines, TVs. It also includes Ferraris, battleships and aircraft. Guns, drugs and Rolex watches. Everything that can be made can be made for nothing. How much labour do we need to exchange for any manufactured good? Zero.
It is hard to wrap one’s head around such a world. What would it mean to own something, in that world? I’ve got a Ferrari. Big deal: I can have ten tomorrow, for nothing, if I wanted. Ah, but they wouldn’t be Ferraris, not the real thing. What do you mean? They will be identical in every way, unless you want improvements. Luxury goods lose their exclusivity: what are they worth without that?
I’ve got an original Rembrandt. Lucky you, I have the same one in my spare room. You can’t have! Why not? It’s identical. No expert could ever distinguish the two. But what about the provenance? Yep, got that too: yours must be fake. Mine’s not fake! I’ve had it checked by the world’s leading experts! Me too.
OK, so those coveted items become a way of decorating a spare room. But what about the guns, the battleships: who owns them?
Who indeed? A natural answer is – whoever owns the technology to manufacture them. But that technology can be reproduced for nothing and so can the battleships. Moreover, what’s the need for battleships? What are you trying to protect? What are you acquiring? It’s a strong assertion to say that conflict arises primarily from competing claims over finite resources, but that doesn’t mean it’s wrong. What if resources were effectively infinite? Would conflict end?
The thing that does not increase is land, though if Elon and the others have their way, that constraint will also be relaxed in due course, with other planets made habitable. But, long before that happens, there are vast areas of land that are currently inhospitable for us and for other animals: that is a much easier problem to solve. Green the deserts – let the machines do that, we’ll just go and live there. Compared with greening the planet Mars, never mind other, much less hospitable places, greening the Sahara is a doddle. There’s even a plan to do it, known as the Great Green Wall.
Do humans become peace-loving the moment you remove scarcity? That seems extremely unlikely, and the experience of dramatic reductions in scarcity over the past two centuries is hardly encouraging. What will we fight about, if not competing claims over scarce resources? Well, there are some resources that remain scarce: other people. I suppose we will fight over that as we always have. What if we don’t need actual people anymore, though? If our virtual counterparts are so convincing that there is no scarcity here either?[2]
The science-fiction writer Iain M. Banks addressed these questions many years ago in his excellent ‘Culture’ series, which I am now enjoying. The Culture is the triumphant expression of what would now be called neoliberalism (I won’t call it globalism, since its domain in Banks’ books is far beyond the globe). Scarcity has been abolished and, with it, money, law, hierarchy, ownership, faith, nation, and – within the Culture – war have all disappeared. But the human desire to explore has not been abolished and neither has curiosity. So, the Culture expands through the galaxy, driven by those desires. As it does so, it runs into other civilisations to whom it presents a mortal threat. Not because it is aggressive, quite the contrary. But because of its example: one look at the Culture exposes the cruelty and perversity of other civilisations immediately, and few can survive that exposure.
And yet, the question he asks repeatedly is: has something else been lost in the transition to those sunlit uplands where scarcity is a barely to be believed thing of the past? This was also the question asked in Aldous Huxley’s Brave New World. Globalisation and neoliberalism have delivered a material standard of living unparalleled in human history, and yet the result seems to have been increasing discontent rather than the reverse. What if we went the whole way, and nobody had to worry about money ever again? This would help applicants to the Bank of England, perhaps, but what about the rest of us?
I don’t know. What I do know is, if that’s the brave new world that’s coming, you’re welcome to it. I see myself in that world choosing old, inefficient technology, choosing to make a living by the sweat of my brow, so to speak. I can have it for free, but I don’t want it. I imagine a world without scarcity, and I imagine communities in that world pretending that things are still scarce. Living on the reservation with Huxley’s ‘savages’. Call me old-fashioned: I suppose I am.
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[1] Smith, Adam, 1723-1790. The Wealth of Nations. New York: Modern Library, 2000.
[2] Incidentally, I heard a neat refutation of the ‘simulation hypothesis’ recently. That hypothesis argues that the odds we are in a real universe rather than a simulated one are trillions-to-one against. It bases this position on the following train of thought. It is probable that there are other civilisations out there among the billions of galaxies that we have so far discovered. Not knowing anything about them, let’s assume we are about average in terms of how far we have developed. That means there are many, perhaps millions, of civilisations that are more advanced than our own. Some of them might be millions or billions of years ahead of us. Consider how many simulated universes exist just in our civilisation, and how close they are to ‘the real thing’; now consider how many there must be across the universe and how indistinguishable many of them must be from ‘the real thing’. It’s going to run to trillions. Trillions of simulated universes that are indistinguishable from the real thing. As far as we know, there’s only one real universe. Therefore, goes the argument, the chances we are in that one must be trillions to one against. QED. Not so fast! Let’s roll with the idea that we are in a simulation. Then, by construction, we have no access to the ‘real’ universe at all. We have no idea how large it is, how long it has existed, whether it is one or many, whether there is one civilisation in it or many (or none). We know nothing about it. So, estimates of how many simulated universes there are must be empty. We can only attach any meaning to those estimates if we are in the real universe. If that’s the case, we’re not in a simulation. If it’s not the case, we can have nothing to say about the likelihood of being in a simulation: no way of judging that likelihood. So either we are in the real thing, or we have to remain silent about the structure of the real thing: there’s no reason our simulation should resemble the real thing in any way. Put up or shut up. Or, as Wittgenstein said: we cannot disprove the sceptic, but we can silence him.