Our society is coming to the conclusion that the current economic system does not function satisfactorily. Inequality is reaching intolerable levels. From many different directions (Piketty, Trump, Warren, AOC, etc) people are demanding fundamental changes in the economic structure of society. There’s little agreement on the precise nature of the preferred change, but we all know that there must be big changes to our economic system.

A Little History

Let’s get back to basics. Hunter-gatherer societies tens of thousands of years ago had no economies to speak of; it wasn’t until the agricultural revolution that we saw economic interactions among strangers. These command economies were almost entirely agricultural. Perhaps 90% of all labor was on the farm. The other 10% was divided among various service groups: priests, soldiers, and administrators (lords). There was also a tiny group of manufacturing laborers making tools, boats, houses, clothes, weapons, and ornaments for the lords.

The first shock: the Industrial Revolution

The process continued steadily, with minor ups and downs for little fluctuations like the fall of Rome or the Black Death, right up into about 1800 CE. By that time, the agricultural labor force had declined considerably, and agricultural laborers were recruited for manufacturing tasks at home. Most clothing was made under a combination of “put-out” systems in which a businessman organized groups of farmers to provide wool, process the wool, spin it into thread, and weave it into cloth, all done at home. The dream of working at home is really just a reversion to earlier production models.


Less noticeable was the fundamental change in society wrought by all that manufacturing. All these factories were manufacturing lots of consumer goods at steadily decreasing prices. People were able to afford a change of clothes! And then they could afford to have different clothes for summer and winter! And then special clothes for dress-up occasions like Sunday church! The price of everything tumbled. In the early 19th century, books were so rare that Abraham Lincoln would walk miles just to borrow a book from somebody, and he memorized many of the books he read. By the beginning of the 20th century, many households had a few dozen books. Shoes, hats, newspapers, kerosene lamps, and all manner of other consumer goods flooded the market. In the 20th century, we got cars, then washing machines, air conditioners, radios, televisions — the explosion of consumer goods just kept exploding ever more explosively.

Source: 1840–1900: Robert E. Gallman and Thomas J. Weiss. “The Service Industries in the Nineteenth Century.” In Production and Productivity in the Service Industries, ed. Victor R. Fuchs, 287–352. New York: Columbia University Press (for NBER), 1969.

Then they came for the manufacturing workers

But the graph above shows that manufacturing jobs peaked over 50 years ago and have been slowly declining ever since. That’s largely due to automation, not offshoring. Take a gander at this graph of labor productivity over the last 65 years:

Drowning in consumer goods

One consequence of all this increased productivity is a deadly surplus of everything. Throughout most of history, malnutrition and outright starvation were the predominant killers of billions of people. But nowadays in America, it’s the surplus of food that’s more dangerous than a shortage: people are dying from eating too much fatty foods, too much sugar, too much of everything.

A breaking point?

This is why people are so unhappy with the current system: it just isn’t providing a satisfactory return for their labor. They’ve got too much of what they don’t need, and they see the wealth going to other people.

Services to the rescue

Economists point to services as the sector that will solve our problems. The first graph clearly shows that we’re already there: services already provide 75% of all the jobs in our economy, and they’re continuing to grow. It should be obvious that the future of our economy does not lie in manufacturing, but in services. All the talk about the US losing manufacturing jobs is no different from the complaints 200 years ago that machines were putting weavers and spinners out of business. Would you prefer that we go back to people spinning thread in their homes while watching TV at night?

Educational services

Here’s where the next big jump happens: education. Our demographics are changing; more and more of our population consists of older Americans. We have a huge surplus of older people and a huge deficit of teachers. We should greatly expand our educational system to provide youngsters with far more individual attention than they now get. We have almost as many people over the age of 60 as we have under the age of 18. Why must we have a single class of employee called “teacher”? We break down all the other occupations into a wide range of specialties utilizing people with a wide range of skills and experience. Why can’t we do the same with education? Modern teachers carry out a huge range of tasks; we could break those tasks down into specialties that can be tackled by lots of different people.


Ultimately, though, education is the best possible use of human talent. Nothing is as satisfying as directly helping another person. Nothing is as important as educating our future citizens. Which would you rather do: drive a forklift in a warehouse or help some kid with her homework?

Master of Science, Physics, 1975. Computer Game Designer. Interactive Storytelling. www.erasmatazz.com

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