John Steward of Jesus
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The forced end of malinvestment

December 4, 1980

The present situation of productive enterprise is absurd. We read articles regarding robots which are replacing auto workers at a time when there is an obvious surplus of thousands of unemployed auto workers. We read of the decrease in the number of people in the agricultural efforts of the world at a time when greater numbers of people are starving. Each year more workers leave the agricultural communities in the world to seek better wages in the cities. All the while, farming machines are getting bigger and bigger.

A robot or farming machine which truly promotes efficiency is a blessing to everyone. If a machine saves more labor than is taken for its manufacture, then the welfare of mankind is promoted.

Inflation, however, has removed this test of efficiency from our decisions. There has been an accelerating effort to convert money into goods, including efficient and inefficient machinery. Even the poor manager in the traditional sense, who has in recent years been able to borrow money to buy inefficient machinery, has done well. The increased value of the machinery has concealed his poor judgment. Because the cost of labor continues to rise, the greater amount of labor consumed in making the machine is seen as worth less than the smaller amount of labor which is saved at a later date. Thus, an inefficient machine is seen as a good investment. In reality it has been a profitable speculation. The operators who have benefited most are the shrewd speculators rather than the efficient producers.

This process leads to an accelerated flow of money into goods.
Savings decrease. Prices rise faster yet. So long as this process continues, machines will get bigger and bigger. Wages will rise at accelerating rates. This will promote a further decrease in savings and thus a decrease in money available for borrowers. Together with the increasing desire for yet more speculation, this will result in ever higher interest rates as demand for money far outpaces the supply. If those who print money try to satisfy the borrowers, the process will continue until the purchasing power of the money available (regardless of how infinitely large the numbers on the paper) approaches zero. A collapse is thus made inevitable.

Whether the collapse occurs because of this limiting factor, or because of other factors before then, the adjustment will he massive. The longer the adjustment is postponed, the lower will be the value of labor (in relationship to the price of basic commodities which then remain) and thus the higher will be the price of basic goods, in relative terms. The more basic goods have been consumed before then, the smaller will be the remaining capital base, and thus the more severe will be the reversing of the trend toward bigger and bigger machines. When there are no jobs in the cities, and no remaining capital for the government to use to support urban residents, a huge supply of labor will become available to agriculture at survival wages (if the adjustment is postponed long enough). We may see people picking corn by hand again.

If the adjustment is not so severe, we will certainly see much smaller operations, as the cost of hiring someone to manage a hog, chicken, or cattle operation decreases, and the relative cost of building barns, equipment, trucks, and machines increases. A return to true tests of efficiency may someday tell us what size of tractor is the best use of resources--if we have a non-coercive political-economic system which permits such natural tests to function. A coercive system will keep us tied to subsistence wages for a long time, perhaps decades or centuries.