Stupid Smart

Professor Jerry Hathaway: When you first started at Pacific Tech you were well on your way to becoming another Einstein, and then you know what happened?
Chris Knight: I got a haircut?
--Real Genius

Professor Bylund notes that recently deceased physicist Stephen Hawking was one of the latest in a line of 'geniuses' to whiff when discussing economics. One of his many mistakes concerned inability to distinguish between factors of production and economic resources.

In recent commentary devoted to 'the robots (and the capitalists that own them) will take over the world' meme, Hawking stated:

"If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine owners successfully lobby against wealth redistribution."

Hawking erroneously assumes that ownership of factors of production grants economic power. However, owning factors of production is only valuable to the extent that they are employed to produce goods that consumers value. If a single individual buys up all the machinery in the world and does not use it to produce and sell goods to consumers, then that machinery has no economic value.

If we do reach a future state where robots were able to 'produce everything we need,' then the cost of production plummets--as do prices as supply explodes higher. That's good. In fact, this is the proper role of capital--i.e., to improve the productivity of labor.

There are other problems with Hawking's argument that Prof Bylund does not address. For example, why would investors allocate capital to projects that are likely to have no payoff? Stated differently, if machines and their output are horded by producers, then how do they collect the the resources to pay back investors? And knowing this, why would investors fund such projects?

The upshot to ever increasing productivity facilitated by machinery is that people do not have to work as much while enjoying a much higher standard of living. This has been going on since the first machine was employed in production. In the future, wouldn't it be nice to only work a few hours to support a month's or year's worth of consumption?

Apparently not to some geniuses drenched in socialism.