The Classical Economists Never Thought of Crumbling Jupiter
[comments on a FLOWIdealism post]
Adam Smith outlined a vast range of concepts in Wealth of Nations. Though a brilliant work, not everything stood the test of time. The Classical economists saw the world as limited by a fixed amount of land. But natural resources turn out to be neither natural nor limited. Innovation and entrepreneurship turns swamp land into rice fields, deserts into vast cropland, and factory buildings in Chicago into hydroponic tomato factories. Here in Seattle we love the hot-house tomatoes grown in greenhouses up north in Vancouver BC.
Land and natural resources are not fixed. They become infinite as new technologies allow us to reach new spaces. Ed Regis in “Great Mambo Chicken and the Transhuman Condition,” (a fun book on technology and “science slightly over the edge”) describes one scientist’s plan to transform Jupiter into a thin sphere rotating around and surrounding the sun, thus providing a lot of land and capturing the 99.99999% of the sun’s energy now lost to space. Another scientist in Regis’s book suggested a septillion people could live comfortable on man-made islands spread across the oceans.
These are crazy ideas with today’s technology, but not much crazier than suggesting 100 years ago that millions could live comfortably in the California, Arizona, and Nevada deserts.
In a free economy, interest rates will drop, or rise, depending upon the interplay between the supply of savings for investment and the demand for investment funds by folks with plans.
Higher labor rates don’t increase disposable income for workers unless productivity rises with wages. That is, high labor rates without productivity increases lead to unemployment or destruction of value. The supply of labor and demand for labor influence wages paid, of course, but in the end, it is labor productivity that sets the limits for what can be paid to workers.
When employers make high profits from the spread between wages paid and worker productivity, those profits attract competition to the industry. Unless market regulations prevent new firms from being established and hiring workers, wages will rise with productivity.
Adam Smith was right on target though in pointing out over and over that it is the manufacturers and merchants who lobby for restraints on trade and for regulations on competition. New competition tends to chase away their profits as it lowered prices to consumers and raised wages to workers.
Market regulation has historically been the servant of established industry, not the protector of workers or consumers.
(Well, I hope this combination of outlandish and simple observations can be seen in the spirit offered. Technology, innovation, and entrepreneurship broke the constraints of classical economics, so many of the observations and arguments of Adam Smith, David Ricardo, and Karl Marx, no longer apply.)
–Greg Rehmke, www.EconomicThinking.org
On Sun, 22 Jan 2006 13:24:19 -0600, Richard Relph wrote:
> Do you think an unregulated economy would lead to a labor
> shortage or a capital shortage?
An unregulated market is likely to lead to labor and land shortages. Adam Smith pointed out these things back in 1776. He noted how capital accumulates, which over times brings down the return on investment. In a free economy real interest rates drop, which leads to drops in the return on other investments since people with money compete for investment opportunities.
Land (i.e., natural resources in general) is fixed. While we may find better ways to use land, it is hard to make more of it. Prosperity thus bids up the price of land. Those who speculate in land make big bucks as the economy grows. Higher labor rates increase the amount that laborers can pay per month, while lower interest rates increase the value of land with respect to the monthly payment rate.
Smith noted this as well, suggesting that a land tax (land, not the improvements thereon), would have minimal effect on the economy other than reducing the unearned windfall of landlords.