Principles of Economics 7

Technology as Non-Material Capital

Saifedean Ammous defines technology as a form of capital that increases productivity without being physical. Unlike material capital, technology is non-scarce. It exists as ideas inside the acting person's mind before economic production takes place. Ammous compares technology to a meal's recipe: not a physical part of the meal, but essential for its creation. The key distinction between physical capital and ideas is that physical capital encounters diminishing returns without technological improvement. Accumulating more fishing rods becomes pointless after a certain point; inventing better fishing methods—boats, nets, advanced techniques—allows capital investment to remain productive.

Technology and Labour: Debunking the Luddite Fallacy

Ammous devotes substantial attention to correcting the misconception that technology causes unemployment. This hysteria, prominent since industrialisation began, appears in Marxist theory and the historical Luddite movement—workers who destroyed factory machinery fearing job losses. Ammous judges these fears decisively unfounded. Two centuries later, Britain demonstrates the opposite: larger populations, larger workforces, more women working, and drastically higher living standards. Nobody performs the menial tasks obsoleted by machines; instead, people perform more productive jobs.

The economic explanation rests on several principles:

• Labour is not a consumer good but a productive resource, always scarce and in demand
• Human labour is the least specific factor of production, capable of redirection to new tasks unlike specialised machines
• Technology increases labour productivity, making workers more valuable and better rewarded

The Transportation Example: From Slavery to Free Labour

Ammous presents transportation as his favourite illustration of technological progress. Pre-industrial transportation relied on human porters—expensive, low-productivity work requiring effectively slave labour. The wheel increased productivity; adding horses increased it further; engines, cars, trains, trucks, shipping containers, and aircraft multiplied productivity exponentially. An Airbus A380 carries 300 tons at 900 km/h with minimal crew. The HMM Algeciras carries 672,000 tons at 28 km/h with a few dozen workers.

This transformation did not eliminate transportation employment—it transformed it. Engineers, truck drivers, pilots, and logistics planners replaced human porters. Critically, technological advancement in transportation correlates directly with the elimination of slavery. Ammous argues this is not merely moral progress but economic necessity: when machines provide hundreds of slaves' worth of labour power daily, adding another human slave contributes marginal value approaching zero, whereas willing workers who can direct expensive machinery become indispensable.

Technology and Slavery

Ammous advances a striking thesis: technology eliminates slavery through economic logic rather than moral awakening alone. Higher productivity makes labour more valuable, shifting value from physical power to intellectual ability and honesty. Heavy menial work transfers to machines. Workers must handle expensive equipment requiring cognitive cooperation—angry slaves could destroy machinery worth centuries of their labour; paid workers have incentive to maintain it. Modern capital makes adding slaves economically irrational while making willing workers essential.

Ideas as the Driver of Long-Term Growth

Ammous identifies technological advancement as the fundamental driver of long-term economic growth precisely because ideas are non-scarce. Labour, property, capital, trade, and energy all face diminishing returns; ideas do not. Copying the wheel does not diminish it. This explains why larger populations achieve faster economic growth than smaller ones—contrary to resource-based predictions. Michael Kremer's research demonstrates this pattern: more people generate more innovations, and ideas are non-rival, reproducible productivity enhancements.

Ideas prove harder to destroy than physical capital. Destroy one machine, builders reconstruct it; observers comprehend and replicate it. Technology persists as conceptual knowledge.

Entrepreneurship Versus Science in Innovation

Perhaps Ammous's most surprising argument challenges the "linear model" of scientific progress. Universities teach that scientists discover, engineers apply, and technology results. The actual history reveals markets and entrepreneurs as innovation's true drivers. Workers solving practical problems through tinkering and experimentation create technologies; scientists subsequently develop theories explaining existing innovations.

Ammous cites Terence Kealey's The Economic Laws of Scientific Research extensively. Kealey's examination of Industrial Revolution innovations—engines, looms, critical machinery—reveals consistent patterns: illiterate or semi-literate workers devised practical solutions through hands-on problem-solving, not theoretical science.

Kealey's quotation encapsulates this:

It will be seen, therefore, that the development of the steam engine, the one artifact that more than any other embodies the industrial revolution, owed nothing to science. It emerged from pre-existing technology and it was created by uneducated, often isolated men who applied practical common sense and intuition to address the mechanical problems that beset them and whose solutions would yield obvious economic reward. Looking back at the industrial revolution generally, it is hard to see how science might have offered very much at all to technology because science itself was so rudimentary. Chemists who subscribed to the phlogiston theory or to the view that heat was a substance, or who tried to build perpetual motion machines, were not likely to be of much use to engineers. Indeed, during much of the 19th century, the reverse was true. Scientists scrambled to catch up with the engineers. Carnot's description of the laws of thermodynamics, for example, emerged from his frustration with Watt's improved steam engine because the steam engine broke all the rules of contemporary physics. Watt's engine was more efficient than theory stated it could be. So Carnot had to change the theory.

The Wright brothers exemplify this pattern: two bicycle shop owners without university education achieved powered flight in 1903 while scientific consensus, including Lord Kelvin's authoritative declarations, maintained its impossibility.

Software: The Purest Technological Good

Ammous concludes with software as the culmination of technological development. Originating in the 1950s when programming separated from hardware manipulation, software represents codified pure information—non-rival, non-scarce, infinitely copyable. It enables general-purpose machines to perform diverse, predictable tasks through abstract instructions. Software invades all production processes as automation previously did, representing humanity's ability to direct machines through purely informational, non-physical economic goods.