Wealth Distribution and AI: Why Workers Won’t Win
One of the biggest challenges facing modern American society is the question of wealth distribution. Today, 31% of America’s wealth is held by just 3 million people, leaving the rest of us to fight over what remains.
While this might not be something you think about on a daily basis, the issue of wealth distribution is omnipresent. The gender pay gap and reparations are just two examples of political issues that are rooted in a belief that some people have benefited at the expense of everyone else.
The issue of wealth distribution is pervasive today but it is far from unique. Throughout history there are countless examples of civilizations that collapsed because the distribution of wealth became so concentrated at the top, it could no longer keep the economy going.
During the late 18th and early 19th centuries, the western world underwent tremendous change. The French Revolution and Napoleonic Wars shifted the balance of power in Europe while the Enlightenment brought about new theories of political and economic organization. All of this was happening as industrialization was beginning to take hold.
In the midst of all the upheaval a new class emerged – the capitalist middle class. For the first time in history, those who were not born into the aristocracy could create and hold wealth for themselves. This wealth translated into unprecedented political power and social capital, undermining the old order.
When Adam Smith published The Wealth of Nations in 1776, he wasn’t inventing capitalism; he was simply creating a framework for understanding the post-feudal economic system that had already emerged. His contribution to economic thought gave rise to the birth of economics as a discipline and invited a swath of thinkers to begin adding to a growing body of literature about what economies are and how they function.
David Ricardo was one such luminary that emerged in the early 19th century. Ricardo analyzed Adam Smith’s work from the lens of a practicing capitalist rather than as a theoretical academician. In doing so, he attempted to explain where prices come from and the levers that shape prices in the market.
By shedding light on the central role capitalists play within an economy, Ricardo made a case for why wealth doesn’t – and shouldn’t – trickle down to workers. Despite political promises otherwise, wages can only come at the expense of profit – something capitalists won’t voluntarily surrender.
David Ricardo’s contribution to the theory of rent and his analysis of prices provides invaluable insight as we head into a new era dominated by artificial intelligence. This essay will dive into Ricardo’s theories on how prices are derived, why profit matters, and why it’s unrealistic for workers to expect to receive financial remuneration from technological advances in the years to come.
Prices are determined by profit, rents, and wages. Because rent and wages are largely fixed, profit is the most vulnerable to erosion.
Unlike Adam Smith or Thomas Malthus, David Ricardo was not an academic. Coming from a family of stockbrokers, Ricardo was an established businessman. He viewed the world through a practical, experiential lens, not just a theoretical one.
In 1817, he published Principles of Political Economy and Taxation. The book looked at the relationship between land and population and the effect it had on prices. In his analysis, Ricardo divided the economy into three groups of people:
The proprietor of the land, the owner of the stock of capital necessary for its cultivation, and the labourers by whose industry it is cultivated.
Prices are determined based on the role each group plays in the production and distribution of goods in the market. Landowners are paid rent (or a royalty in today’s terminology) for the use of their land while workers are paid a wage for the use of the labor. What remains is the profit capitalists can take and reinvest into building their business.
Economic thought during Ricardo’s life centered around agricultural production. Land was used to cultivate crops while workers were paid not according to the value they provided to their employer but to the cost of grain. Wages during this time were directly correlated with the cost of subsistence – what the human body needed in caloric energy to continue working another day.
According to Ricardo, one of the problems with Adam Smith’s original framework around pricing which included profits, wages, and rents was that it couldn’t take variability into account. A highly skilled worker, for example, could leverage their skills to find better employment but that didn’t always translate into higher paying employment. At least, not from within the economic framework he had created.
David Ricardo offered a more nuanced view. He showed how quality affected the value of rent and how wages correspond with the growth of the population. All of these factors determine prices within an economy. In his 1815 Essay on the Influence of a Low Price of Corn on the Profits of Stock, Ricardo defined rent as:
The portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.
Ricardo advocated for distributing wealth to the most productive members of society. For landowners, that meant the most fertile, productive lands.
In his theory of rent, Ricardo argues land varies in quality and as a result, output varies between tracts of land. Despite the lower quality of land, as the population grows less desirable plots of land will eventually come under cultivation. Rent is paid on all the land being used, but the most fertile lands will command the highest rent as farmers bid for the right to use it.
For Ricardo, surplus value would find its way to either landlords or capitalists. The labor of workers was seen as a valuable input in production, but nothing more than that. As a result, wealth would never trickle down to workers.
While this might not seem fair in the modern context, at the time Ricardo was developing his theory on rent, unrestrained population growth was a concern in Europe. Unlike landlords and capitalists, workers had the ability to inflate the supply of labor in the market, putting downward pressure on wages.
As wages rise, workers have more disposable income to support a family. Population naturally increases as a result. But as the population increases, it also increases the supply of available labor in the market. Pushed to cultivate more land with diminishing returns, capitalist farmers find their profits squeezed by higher rents. Rather than being paid more, workers see their wages fall. Eventually, wages return to subsistence level, incentivizing workers to have fewer children, beginning the cycle all over again.
Landlords and capitalists don’t have the ability to create like workers do. A landlord can acquire more land but they cannot create it. Capitalists can obtain more tools, machines, or workers but they can’t independently create these things out of thin air.
Through his theory of rent, Ricardo demonstrates the natural tension that exists between landlords and capitalists at the expense of workers. Land is finite and workers must be fed. While landlords own land, they aren’t independently creating revenue from that land.
That leaves entrepreneurial capitalists to put labor and capital goods to work. If there are more mouths to feed necessitating the cultivation of more land, rent still has to be paid one way or another. The capitalist can’t pay higher rent and higher wages without surrendering most of his profit. It’ll be the workers who ultimately bear the cost of production, not the landlords or the capitalists.
In Ricardo’s assessment of 19th century Britain, he makes the case for why it’s imperative for capitalists to generate profits. It’s not so much about hoarding capital for personal enrichment, it’s the fundamental belief that profit and its ability to accumulate capital is the only mechanism that can drive the economy forward.
Productivity generates value but that value is rarely passed on to workers. Instead, it’s held in trust by capitalists who Ricardo believes are the drivers of innovation and progress that benefits society as a whole.
One of the central tenets of capitalism is growth. In the modern context, growth is understood as hoarding. Today’s capitalists accumulate wealth for personal gain at the expense of everyone else.
In reality, growth is rooted in the natural drive to survive. Maintaining the status quo is not an option. If you’re not constantly pushing your company forward, your competitors will eventually surpass you, putting you out of business. The need to survive is what drives the pursuit of profit and capital accumulation. In turn, competition to maintain market share and stay at the top of your industry is what fuels innovation.
Ricardo believed that capital accumulation was the only way to grow an economy. Because capitalists have a motive to generate profit to propel a company forward, they’re more likely to reinvest their capital into hiring more workers. And because workers buy things, they generate new demand for products, increasing the need for capitalists to produce even more.
This could explain why the economy is structured in such a way that capitalists tend to come out ahead. 19th century economists believed workers were cut from an inferior moral fabric and had a predilection for wasting their money on frivolous consumer goods. In other words, workers couldn’t be entrusted with the responsibility of generating growth in the economy because they were too focused on meeting vapid, short-term needs.
But neither could landlords. Ricardo believed that without the means of production, raw materials couldn’t be converted into finished goods that had value. Landlords could own all the land they wanted but without a capitalist’s direction on how to best cultivate the land, the landlords in and of themselves didn’t have an imperative to generate revenue from it.
It was up to the capitalists – motivated by profit – to take risks that would lead to economic growth, improving the well-being of all of society as a result. Even until today with the rise of philosophies like effective altruism, capitalists believe they are the only ones with the means and impetus to carry the mantle of civilization forward.
But while Ricardo believed economic growth was necessary and capitalists played a central role in it, he didn’t have a complete perspective on how to make that happen. That could be because he was living in the midst of massive technological changes. He didn’t see how advances in technology would change the relationship between profits, wages, and rents and thus, the power dynamic between capitalists, workers, and landlords.
Six years after publishing Principles, Ricardo added Chapter 31 which looks at the impact of technological change on labor. In it, he refutes his own thesis that capital accumulation alone stimulates. When machinery is introduced into the production process, workers are pushed out. While capital accumulation can provide an incentive to hire more workers, that isn’t always the case:
Laborers initially would be diverted from the production of wage goods to the production of capital goods…there would be fewer wage goods and hence a reduced demand for labor because the demand for labor was limited by the availability of wage goods. When the new machinery was put into use, it would require some laborers, but not nearly as many would be put back to work as were previously fired. (Hunt & Lautzenheiser, 118)
During his time, labor was a key input for profit generation but because of technological advances, it was no longer the only input. Because profit is constantly under threat of being eroded by rising rents and demands for higher wages, capitalists have an incentive to protect their profit. Outsourcing production to machines is one way to do just that.
The introduction of machines and new technologies gives capitalists an opportunity to preserve profit by replacing human workers with non-human instruments of production. This happened during the industrial revolution and it’s happening with AI today.
While Ricardo’s theories weren’t perfect, he added valuable insights into the forces shaping rent, wages, and profit within an economy. Understanding these three things reveals the power dynamics that shape a society and the incentives that motivates competing groups of individuals to take action.
Final takeaway.
As the AI revolution unfolds it’s going to profoundly change how modern civilization is structured. A new economic framework will emerge as a cognitive labor force challenges human knowledge workers for supremacy. As a result, the norms and values society governs itself by will inevitably change just as they did in Europe during the late 18th century.
The theories generated by the classical economists demonstrate how and why change happens. Capitalism emerged and reached maturity just as a state of political and social revolution sprung up across Europe. As capitalists gained power, they were able to supplant the landed gentry who had dominated Europe in the centuries prior.
The ability to not only generate profit but to accumulate capital enabled the average person to build wealth for the first time. And because that wealth could be translated into social status and political influence, it allowed a new group of people – the middle class – to shape the world around them.
But while a new capitalist class emerged, it came at the expense of workers.
Despite increases in productivity, the surplus value was never passed down to workers. Ricardo’s contemporaries like Thomas Malthus argued population growth would strip the environment’s ability to support it while Ricardo argued that the profit motive was the key to economic growth.
The cost of labor wasn’t predicated on the value of labor, but the actual cost to keep it alive – subsistence. The same is true during our own time. Productivity gains decoupled from labor in the 1970s and ever since then wages have remained stagnant. Workers today earn enough to continue showing up to their jobs but not enough to save for the future much less build businesses of their own.
While that seems like an anomaly today – a result of greedy corporate executives – Ricardo reveals this has been a constant throughout history. Productivity gains have never been passed on to workers because there isn’t an incentive to do so. While boosting wages may benefit workers for a while, eventually the economic engine will grind to a halt and everyone will lose.
Looking ahead, this reveals what will likely happen in an economy dominated by AI. Agricultural landlords have been replaced by technology companies that own critical digital infrastructure while farmers have been replaced by budding founders eager to build on the infrastructure Google, Meta, and Apple has created for them.
Applying Ricardo’s theories today, one can see how competition and capital accumulation will continue to play out in the digital realm. Workers will continue to need to be paid to survive, but they won’t be owed more than that. Once AI becomes mature, it’s inevitable that the profit motive will drive companies to replace human laborers altogether.
The theories of classical economists help us understand how civilization took shape during the 18th and 19th centuries, shedding light on how a new economy could emerge in our own lifetime. While their agricultural-based economic theories no longer apply, they provide insights into the variables that shape economic activity and how competition between different groups of people creates innovation that ultimately drives the economy forward.
Notes
ChatGPT scored this essay as a B and provided the following feedback:
Understanding of the Reading: 4 Your essay demonstrates a strong grasp of Ricardo’s economic theories, particularly his rent theory and its implications on wages and profits. However, at times, the analysis deviates from a direct engagement with Ricardo’s core arguments, particularly in relation to his broader concerns about economic growth and income inequality. While the application of AI and modern capitalism is thought-provoking, a deeper textual engagement with Ricardo’s Principles of Political Economy and Taxation would strengthen the analysis.
Critical Thinking: 5 Your essay excels in critical evaluation, connecting Ricardo’s theories to broader economic and historical developments. The discussion of AI as a modern analog to Ricardo’s rent theory is insightful and demonstrates an ability to apply classical economic thought to contemporary issues. Your analysis of the limitations of Ricardo’s views, especially regarding technological change, is well-developed and nuanced.
Clarity of Writing: 4 The essay is well-structured and ideas are clearly articulated. However, some sections could benefit from tighter organization, particularly where historical context is introduced before linking it explicitly to Ricardo’s theories. A clearer roadmap at the beginning would help guide the reader through the complex ideas.
Use of Evidence: 3.5 The essay makes use of Ricardo’s primary texts and historical context, but more direct citations and textual analysis from Principles of Political Economy and Taxation would strengthen your argument. Some claims about Ricardo’s views (such as his belief in the necessity of capitalists for economic growth) could be better supported with direct quotations. The discussion of AI and modern capitalism is compelling but could be supplemented with more references to economic literature that critiques or builds on Ricardo.
Reflection: 5 Your essay demonstrates deep reflection, making meaningful connections between historical economic theories and present-day challenges. The discussion on AI and wealth distribution is particularly strong and shows an ability to synthesize classical and contemporary economic concerns.
Score: 21.5/25
Grade: B
I feel called out by ChatGPT and rightfully so. I’ll admit, I haven’t devoted nearly enough time to the primary texts of this course as I should have. Especially if this is supposed to be a master’s level course.
When I started this project, I relied on ChatGPT to provide a framework to follow. I feel like I’ve been fumbling my way through the syllabus, but now that I’m halfway through I have a clearer sense of what I’m supposed to be learning.
This course is about economic thought which means I’m studying people, their works, and the societies they lived in. I’m studying their ideas, but I’m not studying those ideas in depth.
For example, I didn’t cover it in this essay but David Ricardo was a free trade advocate. He made important contributions to how we think about trade. While that’s important, I’m not explicitly studying free trade, I’m studying David Ricardo who just happened to provide insights into free trade.
In school, I learned concepts first, then people. While there were some classes that had me read primary source documents, most didn’t. The goal wasn’t to learn the theories to understand then, it was to memorize data that could be regurgitated during a test.
Going through this process of building my own course has made me aware of just how badly higher ed has failed students. Even though students do take tests, that isn’t the ultimate goal. The goal is to learn.
This gives me quite a bit to think about.
in the meantime, I wish I had more time to complete the textbook readings and the primary source material. I wish I could do this full time instead of trying to figure out how I’m going to pay my bills.
I need to do a better job of finding the appropriate passages and chapters to supplement my ChatGPT reading assignments yet. I haven’t done a very good job of that so that’s a lesson for me moving forward.
As I continue working through this material I am realizing how important it is. Knowledge is power after all. Down the road I would love to share everything I’ve learned as a class, but TBD on what that would actually look like.