Nor does it matter how efficiently they give, because efficiently really only matters in the context of scarcity. Besides, they don’t need to guess what the non-productive need, because the non-productive can tell them, and they’ll have no reason to refuse.

That was just an extreme hypothetical, though. I think scarcity will persist for many generations to come, if not indefinitely, so there will probably always be gainful employment to be had.

Or is there? By contemporary standards, both Warren Buffett and Bill Gates are each in possession of nearly unlimited wealth, yet each is quite selective about how they deploy it in charitable causes. In particular, both Buffett and Gates are quite public about their concerns about the efficient management of their charitable gifts (which individually and collectively are massive).

Of course, two examples does not a rule make.

Another assumption I question is your statement that “the non-productive can tell them, and they’ll have no reason to refuse.” On what basis do you assume that things would really work that way?

In contrast, my original post assumes that people will continue to turn existing social preferences into behavior, regardless of scarcity or abundance. Game-theoretic experiments seem to bear out the point that most people are neither unconditionally miserly nor unconditionally generous, but instead respond deeply to reputation, measures of “fairness”, and the reciprocity of transactions. These same experiments show remarkable uniformity across populations with experience in complex societies and economies, and across a wide spectrum of wealth levels.

Neither of us really can project what will happen in the absence of scarcity with any certainty. My point is merely that we should attempt any such projections with assumptions that are borne out empirically in social populations today, rather than assumptions for which there is no empirical evidence at all.

I remember Time magazine having a cover story about this same subject 40 years ago. The article talked about robots taking away manufacturing and other jobs. Robotics have taken over in some areas and a lot of jobs have been outsourced because of globalization. However, in the U.S. the employment levels have remained much the same. This tells me that people will always create something to sell to others, to stay employed and busy.

Paul Krugman has an interesting article in NYT , “The New York Paradox”. – “In spite of high costs, New York City’s economy is thriving.” I think his article deals with this subject and explains how we do adapt and reinvent ourselves. Perhaps we should give the “invisible hand” more credit.

Unfortunately, there will always be an unemployable class with us. A lot of that has to do with social attitude and policy.

But partially, you’re right. People find work to do, especially since of course we don’t live in Brandon and Michael’s thought experiment where scarcity has been abolished.

One interesting question is whether people find replacement jobs that are “as good” or better than the ones lost to outsourcing. We’ve all seen anecdotal evidence — stories, essentially — about high-wage union manufacturing jobs lost and being replaced with low-wage low-benefit service industry jobs. This, in essence, is part of what is meant by the somewhat euphemistic term “underemployment.”

And of course, in my original post I’m arguing exactly that we *should* give the invisible hand credit — that the invisible hand will, in fact, continue operating even in conditions where scarcity has been abolished. Brandon argues otherwise — that in conditions without scarcity, markets aren’t necessary and we’ll flip back to a gift economy (i.e., “pure charity” for the have-nots).

The point where we seem to differ is that Brandon believes that scarcity is the driver for what we think of as “market” behavior and the invisible hand. I think that scarcity is correlated with market behavior but not causal of such behavior — that culturally learned social preferences about strategic interactions are the cause of market behavior in many societies. And as such, I believe that the gift/charity economy Brandon speaks of — whether in the presence of scarcity or not — is unrealistic.

If we believe that the action of the invisible hand occasionally needs a nudge in the right direction (which is what progressives and liberals have been saying since FDR), then we have to figure out ways to do so that don’t run counter to how the invisible hand really works, and counter to individual motivations and preferences.

Because that is kind of what is happening here. If mankind suddenly becomes 1000 times more productive thanks to robots then the ultimate result will be to increases wages by 1000 times (you must accept that wages are linked to productivity). So, if the average wage is $60k today, it would become $60 million a year for those with jobs (working 40 hours a week). It strikes me as silly to keep working 40 hours a week when you are getting paid almost $30k an hour.

Therefore, the world will look a lot like this: the average person grows up, gets out of school, and goes to work for two years, working 20 hours a week. After that period they will have accumulated $60 million in the bank and then retired and lived the rest of their life on the priciple, potentially passing whats left to their children.

All in all, employment would be very low, the average wage earner only works two years in their lifetime. However, unemployment will be unheard of because businesses will find it impossible to stop people from quitting to live off past earnings.

But we have no reason to suspect that price levels wouldn’t rise — not because the cost of production would rise, but because producers *could* ask for higher prices, and thus higher margins, on goods produced, with knowledge that people could pay given higher wages.

So basically the outcome you think will happen in our combined thought experiments (i.e., if productivity drastically rises and/or scarcity go away) depends upon a number of things:

(1) How one believes price levels “work” in terms of the factors that affect the average market price of goods.

(2) Whether one believes that social preferences will continue to favor strong reciprocation regardless of scarcity or productivity.

(3) Whether one believes that Hayek’s point about planned distribution applies only in conditions of scarcity or whether his point is generalizable to all planning, even without scarcity.

Of course, I said “absense of finite supply” for a reason. As long as we do not run out of iron ore paper clips will be priced near production costs because we can always make more until the Earth is one big pile of paper-clips. However, land is finite and I would expect the price to increase as productivity increased because people can only consume so many paper-clips, eventually they’ll want land.

Another example is the pricing of software. I’ve worked for both consumer and enterprise software companies. Programmers who work in each realm are equally expensive, as are testers, etc. So in terms of cost of production, there isn’t a massive difference, certainly nothing like the difference in unit cost to the “customer” in the two realms. The pricing decisions (and I’ve been involved in a number of such decisions) are driven by (a) anticipated volume of customers, (b) market comparables, (c) minor adjustments due to “positioning” — i.e., “premium,” “entry-level,” etc. COGS, in any classical sense, is tracked by the CFO, but rarely is an important factor in pricing intangibles like software.

My point, of course, is that some pricing is related to costs (as in your example), particularly in those products and markets with low differentiation and mature channels. Other products are priced based on what the market “will bear” and with less, or even no, direct relationship to production costs.

To refine my earlier point, I think your hypothetical is valid in those situations where the bulk of prices encountered are set by actual production and raw materials costs (as you suggested in the paper clip example). I think your hypothetical isn’t valid in those situations where a substantial fraction of pricing decisions incorporate factors like I mentioned in the BMW and software examples — in such situations the average “wealth” of customers will begin to have an effect on pricing decisions and lead to price inflation.

Wealth and spending also serve social “signalling” functions, letting others know about social position, how “up to date” or “plugged in” to innovation a particular individual is, or as an indicator of unconditional generosity or conditional reciprocity as opposed to “selfishness.” In fact, there’s a set of mathematical models in evolutionary theory & game theory concerned with the circumstances under which such “signals” can be treated as “honest” indicators of some individual quality — worthiness as a mate, etc. In many situations described by such models, individuals even seek out opportunities to “outdo” others in spending significant energy (or wealth) in order to create specific social “signals” or effects perceivable by peers or possible mates.

Some products — principally highly expensive, actually (or artificially) rare items — are tailor-made for such signalling displays. (The BMW M3 discussion for example). In the hypothetical you discuss, if *everyone* could afford virtually all items, there is no social signalling value in purchasing, owning, and displaying such items. We might expect, in such situations, demand from customers for items which are (possibly artificially) “rare” in order to make some things “costly” (again artificially), and restore the value of such items as signalling media. I know that’s not orthodox microeconomic theory, but it *is* orthodox evolutionary game theory (see the work of Zahavi, Grafen, Bergstrom & Lachmann on costly signalling).

An interesting example of just such an artificial “signalling” driven economy, post-scarcity, is described by the science-fiction author Ken MacLeod in “Newton’s Wake” — which I highly recommend. He posits a hypothetical situation in which “cornucopia machines” are able to replicate nearly any common item, and thus abolish scarcity. As a hypothetical response, he describes how the social functions of economic signalling and differentiation are transferred to “original art” works, which have intrinsic scarcity simply through uniqueness, and thus serve the same social roles that purely “high-priced” objects serve in our scarcity economy. (This isn’t really the main point of the plot, I’m focusing merely on this detail as an example of someone who’s described how inequality might survive scarcity for purely social reasons. I recommend the book highly for its actual plot as well.

In summary, I suggest that orthodox microeconomic theory doesn’t tell the whole story on how prices get set for a variety of products, and that it’s not all about scarcity, material & production costs, etc. And thus it’s not at all a foregone conclusion that “merely” eliminating finite supply for some things at all changes the social dynamics involved in our economic exchanges. Many of those patterns of exchange serve more than just pure economic purposes – they serve social purposes, and I haven’t seen an argument which describes exactly how one expects those social purposes to magically become irrelevant or to change just because we abolish scarcity.

And that comes back to my original point — I doubt anything magical happens if we can abolish scarcity where human societies will happily support massive groups of free-riders, just through “pure charity” (in the terms used by Brandon originally). There’s simply no warrant for thinking that’s the case.

What we *do* know is that abolishing scarcity will solve some problems — perhaps basic subsistence issues, for example, but that human social differentiation, signalling of various kinds of status, and the preference for reciprocity will likely still be factors post-scarcity in how our political economy works. Though a hypothetical example, MacLeod’s picture of such an economy is interesting because it does point out that scarcity is not the sole root of why some people feel privileged and some left behind in a particular economy — we should expect inequality to remain even if scarcity is not a factor, and thus the political dimension of economic beliefs and decisions will likely also remain even in a post-scarcity economy.