Why Robots and Software Will Not Take Over the World

Reality Check

There is fear that computerization will produce mass unemployment over the next 30 years. The computers will do the work of hundreds of millions of workers, leaving no jobs for these displaced workers.

One implication is this, we are told: the federal government will have to put them on welfare. Otherwise, they will starve. They will not be able to compete with robots and software.

I am curious. Who will pay the taxes to do this? Robots?

No, no, no: we must tax the rich.

I am curious. How will they be rich if there is no one able to afford to buy their products?

REUTHER’S QUIP

It was well over 60 years ago that a friend of mine told me about the following exchange.

CIO President Walter Reuther was being shown through the Ford Motor plant in Cleveland recently.A company official proudly pointed to some new automatically controlled machines and asked Reuther: “How are you going to collect union dues from these guys?”

Reuther replied: “How are you going to get them to buy Fords?

Reuther said it really did take place. iRobot Roomba 650 Robo... Best Price: $199.99 Buy New $599.99 (as of 08:30 EST - Details)

My friend was a Democrat and a liberal. His father was a lifetime member of a trade union. His father worked on the assembly line to produce tires.

At the time, I thought Reuther’s remark was pretty good as a quick response. I didn’t think it was applicable to the situation at hand. I still don’t. There is nothing that says that a worker should be able to afford to buy the output of a particular factory. There are highly skilled craftsmen who know how to cut fine diamonds, but they cannot afford to buy them.

THE VALUE OF YOUR OUTPUT

Free market economics teaches that the value of a worker’s contribution to the overall production process will be paid according to this value. The reason is clear: competition. Employers do not want a competitor to be able to profit from the output of his employees, if they can offer a little more money and attract these employees. A competitive bidding process, comparable to an auction, is constantly in operation. Businessmen do not want to let their competitors retain permanent advantages, if these advantages can be taken away from them simply by offering to pay a little more for the resource that is giving the competitor his advantage. This is what competition is all about.

Reuther’s comment is valid with respect to customer demand. It may be possible for an automobile manufacturing company to fire tens of thousands of people, because robots can do their work more efficiently. The business makes purchases of robots, and some of these robots may have been produced mainly by other robots. So it goes, all the way down the chain of production.

Reuther’s question is still valid: how are businessmen going to sell the total value of the output of their robots to other robots? Robots do not consume. They are not in the market, looking for better opportunities.

As we move toward a world in which robots, computer programs, and other substitutes for human labor are used to produce valuable goods and services, we will not escape the problem of economic value. Modern economics teaches that value is imputed by customers and their agents. Value is not imputed by machines. It is imputed by acting individuals. Furthermore, after this value is imputed, the individual must be willing and able to back up his imputation by a purchase. Imputed value that is not related to the ability of specific people to make purchases in a competitive market is not relevant for the competitive market. Such imputations are simply dreams of pie-in-the-sky by-and-by.

Reuther’s point, in the aggregate, is correct. Somebody has to buy the output of the factories. The factory owners will not allocate capital and labor to producing goods and services for which there is no expected demand. This is another way of saying that they will not allocate the money needed to purchase software and robots unless they think that the final output of this investment will be purchases made by human beings.

The super-rich, or the 1% at the top, control an enormous percentage of the world’s capital. Whether they control over 50% of the world’s wealth (capital), I don’t know. Pareto’s law says that they do: 20% of 20% of 20% (0.8%) will control 80% of 80% of 80% (51%). But capital is used to produce something of value. The value of this capital is ultimately imputed value. It is imputed by all of the customers who buy the output of this capital. If customers cease to purchase the value of the output of this capital, then the capital will begin to fall in value. If no customers by the output of this capital, the capital will fall to zero value.

Entrepreneurs are constantly seeking ways to buy capital and to gain a greater rate of return from this capital than is available from investments in other kinds of capital. So, these brilliant minds are constantly being applied to finding ways to meet the demands of customers. These customers must have money to buy the output. This means that these customers must be sufficiently productive in order to make the purchases.

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