“Capital isn’t scarce; vision is.” Sam Walton
Every Economics 101 student learns the four factors of production: land, labor, capital, and entrepreneurship. I’d argue there has always been a fifth: government. Not because government creates wealth. In fact, it’s oftentimes the biggest impediment to wealth creation. Rather, competent government provides the framework that allows wealth to be created in the first place. Property rights. Contract enforcement. An independent judiciary. Stable institutions. The rule of law. Public safety. Without those, the other four factors don’t amount to much.
Take Venezuela. It has enormous oil reserves, natural gas, precious metals, minerals, fertile farmland, seaports, and an educated workforce. On paper, it should be one of the wealthiest countries in the Western Hemisphere. Instead, millions have fled, and much of the population remains poor. Venezuela didn’t run out of land, labor, or natural resources. It destroyed the institutional framework that allowed those resources to be productively employed. Once property rights became conditional, capital fled. Once contracts became political, investment stopped. Once entrepreneurship was punished instead of rewarded, entrepreneurs disappeared. Eventually, labor followed.
So, which factor of production is most important? That’s like asking what’s more important to an automobile: the battery, gasoline, or spark plugs. Remove any one of them and you’re walking.
Healthy economies don’t succeed because one factor dominates the others. They succeed because the factors remain in reasonable balance.
Capital needs labor. Labor needs capital. Entrepreneurs organize both. Government establishes and enforces the rules under which they cooperate.
Historically, things tend to go sideways when either labor or capital gains too much power. When capital holds all the cards, competition declines, economic mobility suffers, and wealth becomes increasingly concentrated. When labor holds all the cards, productivity falls, investment retreats, and businesses move—or disappear. Neither extreme works particularly well.
A healthy economy requires tension between labor and capital, not the complete surrender of one to the other. Which brings us to artificial intelligence.
Judging by the headlines, AI is preparing to march through corporate America like the Grim Reaper, eliminating accountants, programmers, attorneys, analysts, customer-service representatives, and just about anyone else who works near a keyboard. The job apocalypse, we’re repeatedly told, is right around the corner. Maybe. But thus far, it hasn’t happened. And history suggests we should be cautious about assuming technological disruption permanently reduces employment.
The automobile eliminated much of the horse-and-buggy economy but created automobile manufacturing, dealerships, mechanics, trucking, road construction, tourism, suburbs, motels, gas stations, and thousands of related businesses. Computers eliminated countless clerical positions while creating software engineering, cybersecurity, digital media, data analytics, semiconductor manufacturing, and industries that would have sounded like science fiction a generation earlier.
Creative destruction destroys. That’s the first half of the phrase everyone remembers. It also creates. Technological progress has historically eliminated lower-productivity work while creating more productive, better-paying work. That doesn’t mean the transition is painless, particularly for workers whose skills suddenly become less valuable. But the broader economic record is difficult to dispute. AI may follow the same pattern.
What’s far more interesting is whether everyone is focused on the wrong victim. What if AI ultimately poses a greater threat to capital than to labor?
Historically, starting a meaningful business required substantial capital. You needed office space, employees, computer systems, software, advertising, accountants, attorneys, administrative personnel, and distribution. Even a relatively modest company could require hundreds of thousands—or millions—of dollars before producing its first nickel of profit. That barrier protected existing businesses and rewarded those with access to capital. AI is rapidly lowering it.
Today, one competent entrepreneur can use AI to write software, build a website, create advertising, conduct market research, prepare financial projections, draft contracts, answer customer inquiries, and perform tasks that previously required an entire team. A founder sitting at a kitchen table may now possess capabilities that would have required 20 employees a decade ago. That’s obviously good news for entrepreneurship. It may be less wonderful for capital.
When businesses require less money to launch and operate, access to capital becomes less of a competitive advantage. The moat surrounding well-funded incumbents becomes shallower. Small competitors can emerge faster, operate with lower overhead, and attack profitable niches that were previously too expensive to enter. In other words, AI may not eliminate capital. It may commoditize it.
For centuries, capital earned attractive returns partly because it was scarce. If AI allows entrepreneurs to create more value with dramatically less capital, the returns available merely for possessing money could decline. The irony is hard to miss.
While labor worries that AI will make workers interchangeable, AI may make money more interchangeable. If that happens, the winners won’t necessarily be those with the deepest pockets. They may be those with the best ideas, the clearest judgment, the strongest execution, and the ability to identify opportunities before everyone else.
The internet made information abundant. As a result, merely possessing information became less valuable. The ability to interpret it became more valuable. AI may do something similar to capital.
Capital will still matter. So will labor, land, and entrepreneurship. But AI may reprice all of them—and not equally. For generations, those who controlled scarce capital could earn attractive returns simply by controlling access to it. If technology allows entrepreneurs to create more value with less money, some of those rents may disappear. The factors of production aren’t going away. But the winds—and the balance of power—are changing.
In a world where capital is plentiful and the cost of creating businesses continues to fall, the premium may shift away from simply providing money and toward knowing whom to back, what to finance, how to structure the deal, and when to walk away.
AI may threaten labor, but it may also reprice capital. And history suggests the greatest disruptions are often the ones almost everyone is watching from the wrong direction.
Mark Lazar, MBA
CERTIFIED FINANCIAL PLANNER™
