Mises Wire

Capitalism Is About Working Less to Earn More

In 1800, you had to work, on average, one hour to obtain ten minutes of artificial light. Today, this same hour allows you to buy 300 days of light. In 1900, one kilowatt-hour of electricity cost one hour of work. This costs five minutes of our time now. Buying one cheeseburger in McDonald’s required 30 minutes of hard labor in 1950. This same sandwich now costs about three minutes of your life.

According to British intellectual Matt Ridley, this evolution is the ultimate illustration of wealth in modern societies. In his book The Rational Optimist published in 2010, he evaluates our prosperity by outlining the goods and services we can purchase for the same amount of work. Thus, the main objective of economic development is to reduce the amount of time we have to work in order to produce what we need to live.

This discourse may sound surprising in a world where it is often said that “job creation” is the most important goal of economic policy. But a job is not an end in itself. It is just a means to live better. As Milton Friedman reminds us in this conference dedicated to free trade, we don’t want jobs per se but productive jobs: jobs which enable us to consume goods and services we produce at a minimum expenditure of efforts.

In other words, if working is the price we pay to obtain things we want, then economic progress has always consisted of decreasing this price thanks to perpetual productivity growth. This explains our ability to create more wealth with less and less labor, in order to save time for more valuable activities.


Source: Michael Huberman, Chris Minns, The times they are not changin’: Days and hours of work in Old and New Worlds, 1870–2000

There is nothing secret about the factors which enable us to increase our productivity. The first of them is the division of labor and trade. To better understand the interest of trade, one has to imagine how our condition would be without it. A young Youtuber named Andy George tried to experience the production of a sandwich from scratch.

He made a sandwich by using as little trade and processed products as possible. He had to grow vegetables, produce cheese, make bread, all himself. Of course, he “cheated” a little by using kitchen tools and other “capital goods” which would have been unavailable in a total autarkic economy. But even with this, he spent $1,500 and six months of his life to obtain one sandwich.

Today, it costs a few dollars and mere minutes to buy a sandwich in a supermarket. Free trade is precisely what allows us to obtain an ever more optimal division of labor when it is enabled on a large scale. This division of labor allows us to save time while reducing poverty.

The other factors underlying productivity growth are technical progress and capital accumulation. More efficient instruments, tools, and machines reduce the amount of labor necessary to produce goods and services which increase our well-being. However, these phenomena have always been denigrated in the name of “job protection.”

The most famous historical example of such anxiety is the Luddite movement during the 19th century. Workers from the textile industry in England protested against the spread of better machines. People feared this process would lead to more unemployment and poverty. Of course, this alarmist forecast has been invalided by experience, in accordance with the Shumpeterian theory of creative destruction.

Today, there is among workers and politicians a weird nostalgia for old manufacturing jobs, leading businessmen like Bill Gates to suggest the need to “tax robots.” Weird, because those manufacturing jobs have always been considered alienating for the workers, especially by the socialist intelligentsia. One must, therefore, be thrilled at the idea to get rid of laborious tasks to embrace new opportunities offered by an economy driven by services. As no one is going to regret the time where everyone was working in the fields, there is no reason to fear a decline in manufacturing jobs either.

The process of mechanization benefits the whole of society, generating productivity gains which are redistributed through prices decreasing. Like trade, this process allows us to save time and free production factors and other resources which can be allocated to satisfy other needs which were previously nonexistent or too costly to satisfy. This is why there is no correlation between the decline of manufacturing jobs and unemployment in the OECD.

Capital accumulation and technical progress must, therefore, be acclaimed and not demonized. Of course, this accumulation needs strong institutional prerequisites that modern central banks are not going to like: an environment which protects incentives to accumulate savings in order to invest in more efficient capital goods.

Matt Ridley’s book has the merit to refute all pessimistic speeches which promise us an ever more decadent mankind while humanity has never been as wealthy as it is today. This progress does not imply that we must be satisfied with the current situations to the extent that there are still many things to improve.

Besides, Matt Ridley mentions a few exceptions to the tendency for global prices to decrease in some economic sectors like healthcare and education. This may sound surprising until we remember these activities don’t operate under a free trade regime.

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