Wealth

Part 7 - FREE MARKETS

So, how did the developed countries get to be so wealthy?

Although the free market is ancient, it was only between 1600 and 1848 that the concept of profitable free trade was adopted by the Dutch, English, Scots and Americans. Buying low and selling high and banking and insurance were no longer disreputable practices. The Dutch were the first to recognize that ethically derived profits increased wealth for everyone; and thus disregarded traditional clerical damnation, aristocratic scorn and feudal envy. 

Adam Smith's famous passage from The Wealth of Nations states: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

Of all work in 1850, 80% no longer exists. Think of electricity, railways, automobiles, aircraft, satellites, radio, telephones, cell (mobile) phones, TV, computers, the Internet, the genetic code and nuclear power.

Traditional work was revolutionized. Today, each farmer in the USA feeds 300 people whereas 200 years ago 4 out of 5 Americans worked in agriculture. In 1900 farm workers were still 40% of the work force; while in 2016 they were less than 2%.

All change causes disruptions and anxiety. The world's first boat powered by a steam engine was destroyed by men afraid they would lose their jobs working on sail and oar propelled boats.

In 1950, 36% of American workers were in manufacturing; in 2016 this was down to 20%, and, with the development of computers, artificial intelligence (AI) and robots, it continues to decline.

However, before 1650, in Europe, any increase in wealth was wasted on wars, non productive building or absorbed by endemic diseases or an increase in the population. Wealth per person barely grew, if it did not decline.

For most of history until the Industrial Revolution, living standards were stagnant except for brief periods of slower population growth and fewer supply constraints like wars, thieves or invaders. Historically, economic wealth increased or decreased with little overall progress. The Roman Empire became extremely wealthy but then collapsed because of bad government, corruption and hoards of uneducated invaders. This stagnation created the mythology that the economy was a zero-sum game and the only way to increase an individual's wealth was to steal from someone else. The myth is ensconced with envy in socialist and communist ideology.

 According to sociologist Jack D. Douglas, "the zero-sum game is really the most ancient way of thinking."

When the Black Death reduced the English population, from 8 million to 4.3 million, after 1348 CE, it caused a severe shortage of farm workers and wage increases of more than 30%. (This was possible because farmers no longer needed to use less productive agricultural land. (The death of a neighbour benefitted those that survived; the economy was a brutal zero-sum game then).

But afterwards, from 1500 to 1650, the total gross domestic product (GDP) increased more than 280% but the population also grew and the increase in output did not increase income per person. The population and the income per person stagnated until around 1500, although the British Agricultural Revolution between the mid-17th and late 19th centuries improved labour and land productivity. 

 Agricultural output grew faster than the population but wages decreased because there were more workers than needed.

In 1798, Thomas Malthus argued that population increases meant declining nutrition, health, and incomes, causing mass starvation.

It was only after 1850 that the English broke out of the Malthusian Trap and the income per person increased.

The British Industrial Revolution saved millions of surplus and starving farm workers by providing paid work so they could afford to buy food for their families. The new steam engines and the internal combustion engines supplied power previously only available from wind and water mills or human and animal muscles. The new engines reduced the need for horses and this freed more land to produce food for people. 

So, what are all the unemployed workers going to do in future?

Computers will probably never replace some trade jobs entirely but will assist skilled workers to improve productivity. The construction and maintenance trades like plumbing, housing and other building work, electrical supply, sewage treatment, heating and air conditioning will not be strongly affected. We can predict an increasing percentage will be in service jobs and this includes engineering, architecture, research, medicine, senior care, machine and robot design and management, travel, arts, sports, entertainment, computer software design and artificial intelligence development. 

 And of course education, as most workers will be employed in skilled trades, or as researchers, doctors, engineers, architects, teachers, managers and designers requiring much more education. We can also expect a continued growth in the world economies that will make everyone (including the poor) wealthier and healthier.