THE ECONOMICS ESSAY
The revolution in information technology and how it is transforming our world in ways that even economists are struggling to understand
In 1930, while the world was still reeling from the impact of the
This would be quite a big change, he pointed out, because the entire history of humanity has been determined by there not being enough for everyone.
"For the first time since his creation," Keynes wrote, "man will be faced with his real, his permanent problem - how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well."
Scarcity had been the basic assumption of economics. As LÉon Walras, the founder of marginalist economics, put it: "There are no products that can be multiplied without limit. All things which form part of social wealth ... exist only in limited quantities."
Walras's book is currently available in the unlimited quantity of one from
It was the economist Paul RÖmer who in 1990 stated the earth-shakingly obvious: information goods are infinitely copiable and, if the normal laws of the market operated on them, their price would rapidly decline towards the cost of production, which is zero or near zero.
Even as we grapple with the aftermath of our own
Keynes imagined and fought for a society based on liberalism and aesthetics. The market would eventually provide for all and create a confident, socially adventurous leisure class, whose purpose was to understand and create beauty - and to work as little as possible. That view had been dented by the First World War and would now be shattered by the Depression. So the "grandchildren" essay stands as almost the last utterance of Keynes's pre-Depression world-view.
So, as with all insights into the future, Keynes's essay is full of misunderstandings about the present. (In 1930 the great wave of bank insolvencies that triggered the Depression lay 12months ahead.
Yet there is something breathtakingly farsighted about the "grandchildren" essay. At its heart is the proposition that one day:
I capitalism will grow into something else;
I if that happens the cause will probably be technology;
I we will have a major psychological problem adjusting our lifestyles to a situation where money is not important;
1 the love of money will come to be seen as a disease; *
*h I economics will become as mundane as dentistry.
Keynes looks into the future using three yardsticks: the rate of technical innovation, the growth of population and the growth of capital through compound interest. He estimated that productivity would safely grow at least i per cent per year, and that capital would grow by 2 per cent per year. If so, it was safe to assume that by 2030 the standard of living in advanced countries could be four to eight times what it was in 1930 - and if technology improved faster, eight times could be an underestimate.
So, what happened in reality? Take just the case of the
If we switch to modem data, from Trading Economics, we can reset
You will be thinking: but we feel so much better off in material terms. What about all the plastic toys that clutter our own grandchildren's bedrooms? What about the iPods? And what about
Obviously, first, the Depression, which lasted most of the 1930s. Keynes's caveat - no major wars - was confounded. And the population did grow significantly. There were 45 million people in
If we take a very broad overview of economic history since the "grandchildren" essay, we could say: after the war, you get 30 years of high productivity combined with relatively low real rates of return on capital, because the inflation implicit in the global system Keynes designed helps suppress the returns on financial capital.
In fact, as
Then - from about 1992 to 2008 - we experienced an era of high returns on capital but suppressed productivity growth. GDP p er capita rose relentlessly but an ever greater part of social wealth in developed countries is devoted to state-provided incomes and services, and this creates a debt problem for states, soon followed by a debt problem for consumers.
If you wanted to be cruel, you could say that two legacies of Keynes got in the way of his ultimate vision for capitalism: first inflation, then the social state. This is not to suggest that the social state should not exist, or that it should be smaller: just to state that it was 30 per cent of British GDP in 1930 and is 45 per cent now.
Here we have to recognise that another of Keynes's assumptions didn't hold: the assumption that rising wealth brings equality. As the French economist Thomas Piketty has pointed out in his book Capital in the zist
In the late 1970s the ruling elite of the west decided that capitalism could not coexist with organised labour. Their project - beginning in
Under these conditions even rapidly rising GDP can lead to the increase in poverty among growing parts of the population. You get the oligarch's yacht alongside the food bank, for ever.
Seen on this basis, the future does not look bright. Demographic ageing in countries like ours will place a huge strain on pensions, health and social care. As a result, the ratings agency Standard & Poor's believes that by 2050, even with the postcrash austerity measures, ageing will turn 60 per cent of all sovereign nations' bonds to junk: not safe to lend to.
However, inequality and low growth, alongside high returns on financial capital and challenging demographics, are not the fundamental problem. If they were, there would be a solution - albeit one that seems too radical for the political centre now: a global rules-based currency system that would make the mercantilist strategies of
The fundamental problem is abundance of two things: information goods and labour - but coupled with mechanisms that artificially constrain the supply of information and force the work of the majority to become ever more intense.
In 1990, in his paper for the
Conventional economic theory said monopolies were an anomaly; they would be eroded naturally by information, or patents, or skills, spilling over into the public domain, becoming essentially free. But modern information companies' entire business model is based on monopolising these spillovers. A growing number of heterodox thinkers - economists, lawyers, technologists - are convinced that such monopolies are doomed. They will be replaced with an economy where large amounts of information are produced and exchanged at negligible real prices, if not for free.
Alongside conventional production for the market, and provision by the state, a third kind of activity is growing up: nonmanaged, peer-produced, non-market activity based around information. Some, like the
Take a concrete example: iTunes. Technically we could all own every tune ever recorded. We would not need to own them, because they all exist on a server in
Should the price be zero? Probably not, but how many perfectly playable vinyl records can be picked up for a penny? Should it be 99p per track? Did the Beatles make the record so that Apple could charge 99p per download for it long after they were all dead, passing to their estates a maximum of 33p and pocketing two-thirds?
A better question is: would the break-up of Apple and the rise of a music-sharing and renting model deter a modern-day group from writing great music? Every rock band or pop singer you talk to complains that information technology is eating into their revenue, and they have to go on the road to sell merchandise in order to make money. They often say this is because of piracy. But, in a sense, rock bands are just facing the same problem as journalists, magazine writers, literary novelists face. The pricing power of their artistic labour no longer depends on a technological bottleneck: the publishing house, the record label, the printing press. What they don't lose to pirates they lose to the rentier class - firms such as Apple or Amazon, which demand a hefty distribution payment as the price of selling your wares via the internet.
Twenty-first-century kids who want to make a lot of money by their artistic labour do so by creating things you can't copy and that you have either to own or rent: computer games, TV drama series, contemporary visual art and jewellery. Now, what applies to the pure information product also applies to the information content of real things.
A veteran aircraft engineer told me he and his colleagues did 12 different stress tests on the tail fin of a Tornado jet in the 1970s, and for its replacement, the
With modern aircraft the entire process of manufacture is simulated and then the built object is flown on a computer; a little virtual man with a screwdriver walks up to the wing to see if he can get his hand in to adjust a virtual nut. A modern airliner, once built, cannot be flown without a computer and generates a stream of information to its makers in real time that is essential to the economics of running an airline.
Everyday products are alive with information in the same way as an art gallery is alive once you've rented one of those audio guides. A lecture is not just an analog event but a virtual conversation, as people tweet about it. Familiar objects suddenly have an information content.
We are living through a revolution in technology that is altering the relationship between information and physical things, but it is not being measured by conventional economics. Accountancy still sees the information as a dead design, sitting on the balance sheet like an asset. Economics has barely begun to ask: what is information?
Consider the social implications: if the cost of information goods tends towards zero, and the ability to standardise and virtualise the manufacture of real things also rapidly reduces their cost, the real price of labour will also fall because a) supply exceeds demand and b) the input costs fall.
That is what I think underpins the surprise outcome of the neoliberal revolution: the impoverishment of the developed-world working class. It looks like the outcome of class struggle and defeat, but it may also be the product of a one-time technology event.
The idea was that technological progress would create fresh demand, so that even as the price of today's goods got cheaper (because of productivity) there would always be new, more complex human needs created that require higher-valued things and a high er-skilled workforce to create them. That has been capitalism's get-out-of-jail card for 200 years, confounding Malthus, Ricardo and Marx, each of whom in his own way believed there were limits to capital.
It happened spectacularly in the Progressive Era, the second industrial revolution, when Victorian-era cities were suddenly populated with Arts and Crafts-style pubs, cinemas, libraries, automobiles, electric lighting... prompting
"Information wants to be free," said the hippie-ideologue
Recently the news headlines were dominated by a striking image: a Turkish political adviser in a suit kicking the relative of one of 301 miners killed in the Soma disaster, as the man lay on the ground and was restrained by two security guards. Some saw the image as symbolic of the situation in
The bargaining power of labour was already low - hence the stagnation of real wages in many economies, the disappearance of high-skilled work, the return of slave-style work intensity and surveillance at work. Trust in politicians is minimal, hence the tendency for unpredictable social crises and protest movements to break out repeatedly. When they do, ordinary people face a scale of repression, even for stepping off the pavement, that would have seemed to Keynes's generation simply fascist.
The most symbolic figure in the picture is the man in the suit. He represents the essence of oligarchic power. For him, the added bonus was that he hurt his foot and was given a week's sick leave; for the miners who went on strike for a day in memory of their colleagues, there were, naturally, two days' pay docked.
In late neoliberalism, profit has become primarily rent. The art of making money has become the art of cornering the supply of something, repressing its workforce, rigging politics in your favour so that pleas for better regulation are blocked and registering your company in such a way as to avoid paying tax. Anybody who objects can be kicked.
The present situation breeds not only a widening inequality of wealth but an inequality of power not seen in Keynes's time except in Fascist
If we avoid this dire outcome, it will because the forces for good, for understanding and knowledge and restraint are also being strengthened by technology. I think we should imagine new technology creating the world of abundance Keynes longed for, but it is likely to be decoupled from the question of pure GDP growth and compound interest.
It won't happen by 2030. It will not be the transition Marxists imagined, led by the state suppressing market forces, but a transition based on the controlled dissolution of market forces by abundant information and a delinking of work from income. I call this - following economists as diverse as
Keynes's critique of Marxism was that by basing itself on the working class it asked too much of the intelligentsia. He wrote in 1925: "How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above bourgeois and the intelligentsia, who, with whatever faults, are the quality of life and surely carry the seeds of all human achievement?"
Well, now (thanks to education and technology), we have a mass intelligentsia: yes, for sure, spoon-fed tick-box learning on degree courses whose intellectual level Keynes would have scorned. But they have shown themselves willing to stand somewhere between the mud and the fish, and able to create science and art and ideas that make this a thrilling time to be alive. It was they who launched the Arab spring, the
When I look at the picture of the miner's relative and the man kicking him, I find it hard to prefer the fish to the mud. I suspect that Keynes, placed for one hour in a Rolex store, or in any of the yachting ports where British politicians frequent the vessels of Russian oligarchs, might also begin to find this whole "fish v mud" thing not so useful. But we have gone beyond the proletariat and the bourgeoisie. We have an educated demos alongside an underclass, and we are all toiling in a social factory where every act of production, consumption and leisure sucks us into a system of value creation based on debt, finance, monopoly.
By 2030, according to the
Keynes imagined a future where rising wealth led to falling inequality. Instead, economic wealth has grown more slowly than he imagined but physical and information wealth has grown faster and begun to detach itself from the value system. The moment is coming where we have to recognise this and redesign society as boldly as Keynes's generation did in the mid-i940s.
I think a modern-day Keynes would be obsessed with how to decouple work from income, production from price, organisation from ownership. We know what he achieved in practice: a workable system that revived global capitalism. But he also dreamed of something better than a system based on the pursuit of money.
Amid the pressing challenges - Eurofascism, repression, stagnation, political mistrust - the true Keynesian thing to do is to imagine a humanist future based on abundance and freedom, and explore what tools we have that might make it come about. There is no better time to imagine it. I
A new international award, the CharlestonEFG John Maynard Keynes Prize, was launched on 23 May at the inaugural Keynes Lecture, given by
Needs are being created but how will they be commercialised?
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