In a recent interview with The Economist, Elon Musk boldly contended that “money won’t matter in 2036.” He went on to argue that humans want money for goods and services. He then said, “Well, if that [goods/services are]. . .so abundant that. . .the robots and AI are providing more goods and services than any human could possibly consume, what do you need money for in that case?”
The Economist editor-in-chief, Zanny Minton Beddoes, expressed agreement on that potential destination, but expressed concern about how income would be distributed, seemingly (though it is not totally clear if she was) concerned about potential massive unemployment. After asking about higher taxes on rich people like Elon Musk and whether that is desirable, Ms. Beddoes candidly asked, “Otherwise, what do people live off?”
Musk expressed his view that the treasury should simply issue people checks. Beddoes expressed her concern for inflation with that type of policy. Musk then said, “These things were relevant in the past—they will not be relevant in the future.” Musk went on:
. . .inflation is simply the ratio of money to goods and services. So if the. . .output increases dramatically, if it increases, you know 1000%. . .you create money in the database, provided the creation of that money is less than the rate at which goods and services increase, you will actually have deflation. . . If the output of goods and services increases faster than the money supply, you will have deflation. . . It is just a statement of fact.
One of the more confusing parts about this is the apparent contradiction: why would sending out checks matter if money does not matter?
But I suppose this contradiction is resolved with the explanation that the stimulus check policy is meant to only be in place during the transition toward that economy, not at the end of it; that is, issuing checks sometime between now and ten years from now would make Musk’s remarks dubious.
While increasing the quantity of output causes prices of non-money goods/services to fall, ceteris paribus, and increasing the quantity of money increases prices of non-money goods relative to money, these are not the only factors that determine the purchasing power of money. The flaw in Musk’s theory of money is that he is missing that the demand for cash balances, that is, the demand for money itself, also impacts its price. Holding the quantity of money and other goods/services constant, and all other things constant, an increase in the (reservation) demand for money increases its price relative to other goods.
Furthermore, the idea that money would not be necessary because the economy is more productive is quite bizarre. In actuality, the more physically productive and complex production becomes, the more opportunities for trade arise, making money even more essential. Money allows entrepreneurs to perform economic calculation, and there is simply no way to have meaningful capital accumulation in complex production processes without it.
Additionally, the idea that government checks will be the answer for those that are affected by technological change and the accumulation of a more sophisticated stock of capital goods is moot. This line of thought usually starts with the assumption that the owners of capital goods and the laborers are in inherent conflict due to conflicting interests. In actuality, machines with AI capabilities produced at a low enough cost help produce economic goods at lower costs (and new goods/services), which increases incomes for other industries, and laborers aided with better machinery can benefit from higher wages.
