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We are halfway to an Asimov economy: classical economics is of diminishing utility [1]

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Date: 2025-09-12

In high school in 11th grade in 1959, I began a two year course in economics. The textbook by Silverman said there were four factors of production, land and natural resources, labor, capital, and I forget the fourth. Economics was the science of scarcity, and the task of the economist was to figure out rational policies to achieve a reasonably good standard of living.

Classical economics said all of the four factors are scarce and have to be used wisely.

Classical economics is breaking down because human labor is increasingly being replaced by machines and computers and robots. We are living in a world where less and less human labor is required to produce the necessities of life.

During freshman year in college I read science fiction novels by Isaac Asimov that imagined a future where machines do everything and no labor is required. I recalled writing a term paper about the problem of what would happen if no labor is required.

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PART 1:

I have been thinking for some time about money. Money is an enormously powerful mechanism for organizing human activity. Money is the whip that elicits labor in paid employment from a large segment of the population. (The typical home in America contains one or more person in a paid job, and one ore more persons who are dependents. There are a relatively small proportion of homes where no one is working and one or more residents are receiving government subsidies, which is a major political football in American politics, appealing to voters who don’t want their tax money benefiting others.)

Without money in America, either in your hands, or the hands of someone you depend on, you are destitute and very likely homeless. The whip is painful and works on most people. Those without paid employment and no one to depend on are typically homeless, unless they are in jail or mental institutions or in old folks homes or in special institutions for the disabled who cannot work or receiving unemployment insurance. There is a large class of people who are working but whose income is insufficient who receive government subsidies -— food stamps, housing vouchers, income tax rebates, unemployment benefits. And a small class of people who do not have to work because they are wealthy either from their own past labor or from inheriting money.

I

But what happens in an Asimov world where no one is working because robots do all the work ? Is money needed?

ANSWER: Money is not needed to ration consumption. But If machines do everything and we do not have to work to produce the necessities of life, consumption will be restrained by the the constraint of natural resources, though with a smaller population people can consume more per capita. The machines produce heat as they work, and have now been shown to produce global warming. The machines require physical materials to work — metals, lubricants, sources of energy. And -— crucially important --- these resources are limited, placing an implacable restraint on consumption.

In other words, in an extreme Azimov world, constraints on natural resources and maintaining a habitable environment place a constraint on how much people can consume. It will be impossible for everyone to gluttoously do things like have their robots construct palaces. Consumption has strong limits.

In this situation, money is useless, but there may have to be rules to prevent over consumption.

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PART 2: Money in a semi-Azimov world

In America and in a number of other countries, we are part way to an Azimov world. Machines, computers, robots, have replaced a large part of the labor force. Machines increasingly supply all the necessities of life.

But we are only half way to an Azimov world and are retaining the need to use money because there are a lot of things that still require human hands and requires the money whip to make them work.

There remains a giant health care industry. A giant law enforcement industry including police and courts and scads of lawyers doing both criminal and civil law. Also huge educational institutions — universities and schools. Also serious research institutions that help move us towards an Azimov world. Also the military.

There is an increasing segment of the labor force engaged in service activities that are not essential, but nice to have. such as restaurants, commercial sports, commercial entertainment like movies, music recordings, videos, music concerts, plays, hotels, tourism, amusement parks, publicly funded recreation like public tennis courts, golf courses, sports stadiums. Jobs jobs jobs, Nail salons, beauty parlors.

We could also absorb a lot of labor if we try to explore the solar system and establish colonies on Mars.

So we retain a working labor force for the time being.

What we have now is an immense problem in distributing income. Our current economy pays some people very well, others quite well, but leaves large segments of the population struggling to stay afloat.

It is totally wrong to think that “Distribution of income” consists only of “money received by workers” . Modest pay can still support a nice life style if you do not have to pay for health care, schooling for your children K through 12 then through college and graduate school, if there are free or modestly priced public parks, public swimming pools, tennis courts, golf courses, and if you do not have to save for retirement, because after retirement you receive sufficient money to live comfortably.

In America we have devised all kinds of methods to supplement direct money payments to workers, . and this is because many employers could not remain in business if they paid their workers a living wage.

A typical grumble of high income individuals is they don’t like their taxes used to benefit low income people, and is a typical argument used by the Republican party to attract campaign donations.

PART 3: How much money can be conjured out of thin air

The American people have been bombarded with the idea that they should pay as little tax as possible so that they keep as much of the money they get paid. Political ads attack politicians who dare to raise taxes.

To lower taxes while at the same time maintaining or expanding public services and the public infrastructure, the Republican party is guilty of borrowing money and diverting more and more of tax money into paying interest and principal to the lenders of the money. And guilty of doing things like insisting higher education should be paid for by students or their families, blocking universal health care. In other words, reducing the real income of lower paid people.

Government expenditure is determined by politicians who can find money either by taxation or by borrowing or by just printing money without borrowing it, subject to more or less stringent constraints restraining them. Without constraints on printing money, very bad things can happen, like hyperinflation. The requirement of borrowing money rather than just printing it places a very useful designed constraint on what politicians can spend for the benefit of various constituencies.

The central constraint that should govern printing of money rather than borrowing it is the very simple principle that we do not want to have too much money chasing too few goods, because when too much money chases too few goods, demand strongly outweighs supply, resulting in hyperinflation and declining purchasing power of money and diminished value of savings.

In the American context at the present time, raising taxes is not an acceptable alternative for funding much needed support to people whose incomes are too low. The only alternative is either (a) borrowing money and raising the public debt or (b) creating “money out of thin air”. The latter alternative is less visible and more politically acceptable.

A very important question that is really worth asking, is how much the money income of insufficiently paid workers can be improved with “money out of thin air" without causing inflation.

The answer is extremely simple. Don’t jump their incomes too fast by injecting too much printed money too quickly. These days with electronic money transfers it is very easy to inject income in small amounts to protected bank accounts that cannot be invaded by creditors, with the amounts carefully metricated so there is no sudden large increase in income that produces sudden surges in demand, but instead a predictable increase.

An important part of the answer is to prevent malfeasance by irresponsible politicians from trying to buy votes by providing overly fast increases in printed money. The trick is to keep increases in payments to low income on a steady and predictable path that manufacturers and other suppliers can rely on to determine how much they produce.

Even Milton Friedman believed in providing a guaranteed minimum income, in his early career. This is what we need now.

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AFTERTHOUGHTS:

We could increase the spendable income of low income voters by lowering their taxes. But this would require either additional borrowing or printing money or raising taxes on higher income people.

The concept of “conjuring money out of thin air” is maybe alien to many people. Just think of it as a computer increasing the number of dollars in your bank account…. authorized by your government.

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