The growth of industry disrupted old economic models, but brought unimaginable wealth.

By: Phil Gramm and Michael Solon / The Wall Street Journal
Translation: Telegrafi.com

Much of the speculation about artificial intelligence [AI] has focused on its potential to destroy jobs and on the policies that governments can implement to control AI and mitigate the negative effects of workers facing temporary or permanent unemployment. Amidst all this pessimism and calls for state protection, it is important to remember that our only window into the future is the past. Since the colossal changes that came from the Industrial Revolution to the Digital Revolution of the last quarter century, improvements in technology have created a series of jobs that have far outnumbered—in both quantity and quality—those that have been eliminated, while also raising living standards. History offers cautionary examples of how vested interests and public fears can create state policies that delay progress and increase the cost of transition.

For a medieval economy that had barely grown for 1500 years, the Industrial Revolution in the United Kingdom unleashed a greater concentration of material goods than ordinary people had ever experienced. From 1840 to 1900, real wages doubled and average life expectancy rose by 22 percent—from about 41 to 50 years. The population doubled and employment rose by 80 percent.

In America, growth during the Industrial Revolution was of biblical proportions. From 1870 to 1900, real gross domestic product tripled, the population and labor force nearly doubled, and manufacturing output increased sixfold. Real per capita income rose by 110 percent between 1865 and 1910, while real wages for industrial workers rose by about 173 percent. Life expectancy increased by a quarter, while real costs of food, clothing, and shelter fell by about 50 percent.

Read also: Let's not underestimate humans as "AI losers"

During the Digital Revolution of the last quarter century, real U.S. GDP grew by 66 percent. Data from the Bureau of Labor Statistics show the remarkable ability of the American economy to absorb new technology. Since 2000, an average of five million Americans a month have been laid off or left voluntarily, but the economy has created 5.1 million higher-paying jobs—every month. This creative destruction is nothing new. In 1810, 81 percent of Americans worked in agriculture; today, only 1.2 percent. In 1953, 32 percent of Americans worked in factories. Even as real industrial production quadrupled, the share of the workforce in manufacturing fell to 7.8 percent in 2025.

No one understood the creative destruction of the Industrial Revolution more clearly than Karl Marx. He saw the Industrial Revolution as a force that unleashed “greater and more colossal productive forces than all previous generations put together” within “about a hundred years.” But Marx also saw the destruction of “the old instruments of production” that broke “the various feudal ties that bound man to his natural superior,” leaving “no connection between men except naked self-interest and heartless money payment.” Unfortunately, Marx saw these changes not as the dawn of economic freedom and the rise of humanity, but as the beginning of a new age of exploitation—a view that once impoverished and enslaved half the world and still exerts its influence across the planet.

While Marx saw both the creative and destructive effects of the Industrial Revolution, the public response focused almost entirely on the destructive ones. British historian Arnold Toynbee called the Industrial Revolution “as destructive and terrible a period as any through which a nation has ever passed.” A room in the National Portrait Gallery in Washington holds paintings of titans of American industry—as well as of the economic journalist Henry George. The label next to George’s portrait includes this assessment of the Industrial Revolution in America: “The rich got richer, the poor were left helpless, the middle class disappeared.”

In Britain, laid-off textile artisans engaged in industrial terrorism by destroying machinery, such as looms, in the Luddite Rebellions. The government sent in troops and Parliament imposed the death penalty to stop the destruction. In America, mechanization, economies of scale, and mass marketing destroyed local competitors by offering lower prices and higher quality products. First the states and then the federal government sought to constrain large, efficient manufacturers with Progressive Era regulations that for 90 years protected manufacturers at the expense of consumers.

Also read by Phil Gramm and Mike Solon: Lessons from the Great Inflation of 1973-'81

In the 19th century, the governments of the United Kingdom and the United States were small and largely non-interventionist. Today, both are large and filled with political interests eager to expand the role of the state in the economy. Senator Bernie Sanders has embraced the Luddite cause, calling for a tax on robots. President Biden issued an executive order imposing state oversight on the use of AI and requiring that AI promote unionization, environmental improvement, and the advancement of “equality” and civil rights. The president of the AFL-CIO [American Federation of Labor and Congress of Industrial Organizations] has declared that “workers are resisting artificial intelligence and other technologies that are being used to eliminate workers or exploit us.” And that’s just the beginning.

Almost every discussion of AI calls for broad economic relief for the laid-off. Meanwhile, an increasingly vocal chorus calls for guaranteed income. These proposals show no awareness that while trade adjustment assistance, extended unemployment, and our welfare system may be well-intentioned, they have hindered workers from transitioning to new jobs. Barriers to AI are already up. Mr. Biden launched a wave of antitrust lawsuits against big tech companies that the Trump administration has largely continued.

The unique American case—where Americans are more productive and have a higher standard of living—relies in part on our remarkable ability to adapt to change. Europe has a hard time laying people off, which limits the opportunity for new job creation. In China, most industrial subsidies go to uncompetitive industries, not to potential future winners.

Despite all the costs of the transition, industrial technology and the market system achieved what no benevolent king with his gifts, no benevolent bishop with his charity, no mercantilist protectionist or powerful guild could achieve: a vast increase in productive capacity that continues to enrich our world. If we base policies to smooth the transition to the AI ​​era on proven results rather than good intentions, and if we allow the market to develop and absorb AI technology, then we can achieve a second economic miracle - one that will enrich America and the world. /Telegraph/

Opinions News