Some people say to invest in land because land prices keep going up. But I can’t help but wonder if there’s a pyramid scheme element to this. In the end, we’d expect land to increase in value because people who need land get more productive and can therefore afford to bid it higher, but if the value of human labor drops, shouldn’t we expect the value of land to drop too?
In the macroeconomic division of an economy into ‘labor’, ‘capital’, and ‘land’, ‘land’ is a rather misleading sort of term (similar to ‘non-shared environment’ in behavioral genetics). It’s basically a residual definition, ‘all fixed facts about the world which are not a human doing work (“labor”) or an improvement/change (“capital”)’. To help distinguish the two, I’ll capitalize the factors. To quote WP:
In economics, Land comprises all naturally occurring resources as well as geographic land. Examples include particular geographical locations, mineral deposits, forests, fish stocks, atmospheric quality, geostationary orbits, and portions of the electromagnetic spectrum. Supply of these resources is fixed.[1]
So when someone says ‘maybe you should invest in Land if AGI’, what you’re thinking is something vaguely like “buy land”? ‘I should buy suburban houses or random patches of desert in Arizona because someone will buy them from me because… AI??? but why? can’t people just build their houses somewhere else or put on another story if they need an additional bedroom?’ That is indeed confusing.
But what you should actually be thinking is something like ‘”Land” is the price of a cubic meter of space in central Manhattan next to the stock exchange which minimizes latency for AI HFT traders due to the fixed speed of light’, or ‘Land right now is an acre of land in the Appalachians where the only ultra-pure quartz in the world can be mined and which is a critical irreplaceable rate-limiting input to the TSMC chip fabs churning out the most advanced GPUs which run the AIs’, or possibly, ‘Land has become an apartment building in Cerebral Valley where the handful of AI researchers still capable of meaningfully improving DL architectures will reside next to their office building and willingly pay rents of hundreds of thousands of dollars, because, with their annual incomes of hundreds of millions of dollars, they don’t want to waste even an extra precious minute commuting to the office in the final days left (or aren’t allowed to work remote)’.
Essentially, in the slow takeoff, as there is a tsunami of Labor and Capital pent up behind a few bottlenecks (almost by definition for a ‘slow’ takeoff—if there were no bottlenecks, it’d be ‘fast’), whoever owns those bottlenecks may be able to extract enormous profits. By definition those bottlenecks are now ‘Land’ (because that’s all that’s left if you assume abundant Labor and Capital), and so something in it must become extremely valuable. Concretely, if the world goes into hypergrowth where all deployment and economic activity becomes gated by getting more GPUs, then if you control some unique resource for GPU manufacturing, you may be able to exact a toll of billions or trillions, like the quartz mines. You still produce the same quartz, but now it’s worth vastly more because it limits growth, rather than Labor or Capital components. (Imagine in this scenario that each ton of quartz you sell is worth a thousand immortal von Neumanns running 24⁄7, and that is now the major contributor to how Capital is turned into more Labor—no quartz, no von Neumanns—you could probably charge a lot for it, right? Millions, at least.)
Hopefully put that way, it’s more obvious both why Land might become super-valuable and also why you, as an individual, may have serious trouble investing in the right Land. (There is no ‘Land ETF’ on Vanguard, any more than there is a ‘Capital ETF’ or ‘Labor ETF’.)
I don’t think one should ‘do’ anything about it. It is simply an implication of one model of economic growth. On a personal level, equities are so much better in many ways that even if they would be outperformed by some hypothetical ideal ‘land’ portfolio, that you’ll be just fine investing solely in equities. (What must be avoided is stuff like cash, which won’t grow or benefit, or investing into fixed instruments like debt—if you expect any sort of takeoff soon with any probability, investing in a 30-year Treasury or something would be insane. You would want to be taking out 30-year loans instead!)
You might capture value out of that relative to broad equities if the world ends up both severely deflationary due to falling costs, and where current publicly traded companies are mostly unable to compete in the new context.
In the macroeconomic division of an economy into ‘labor’, ‘capital’, and ‘land’, ‘land’ is a rather misleading sort of term (similar to ‘non-shared environment’ in behavioral genetics). It’s basically a residual definition, ‘all fixed facts about the world which are not a human doing work (“labor”) or an improvement/change (“capital”)’. To help distinguish the two, I’ll capitalize the factors. To quote WP:
So when someone says ‘maybe you should invest in Land if AGI’, what you’re thinking is something vaguely like “buy land”? ‘I should buy suburban houses or random patches of desert in Arizona because someone will buy them from me because… AI??? but why? can’t people just build their houses somewhere else or put on another story if they need an additional bedroom?’ That is indeed confusing.
But what you should actually be thinking is something like ‘”Land” is the price of a cubic meter of space in central Manhattan next to the stock exchange which minimizes latency for AI HFT traders due to the fixed speed of light’, or ‘Land right now is an acre of land in the Appalachians where the only ultra-pure quartz in the world can be mined and which is a critical irreplaceable rate-limiting input to the TSMC chip fabs churning out the most advanced GPUs which run the AIs’, or possibly, ‘Land has become an apartment building in Cerebral Valley where the handful of AI researchers still capable of meaningfully improving DL architectures will reside next to their office building and willingly pay rents of hundreds of thousands of dollars, because, with their annual incomes of hundreds of millions of dollars, they don’t want to waste even an extra precious minute commuting to the office in the final days left (or aren’t allowed to work remote)’.
Essentially, in the slow takeoff, as there is a tsunami of Labor and Capital pent up behind a few bottlenecks (almost by definition for a ‘slow’ takeoff—if there were no bottlenecks, it’d be ‘fast’), whoever owns those bottlenecks may be able to extract enormous profits. By definition those bottlenecks are now ‘Land’ (because that’s all that’s left if you assume abundant Labor and Capital), and so something in it must become extremely valuable. Concretely, if the world goes into hypergrowth where all deployment and economic activity becomes gated by getting more GPUs, then if you control some unique resource for GPU manufacturing, you may be able to exact a toll of billions or trillions, like the quartz mines. You still produce the same quartz, but now it’s worth vastly more because it limits growth, rather than Labor or Capital components. (Imagine in this scenario that each ton of quartz you sell is worth a thousand immortal von Neumanns running 24⁄7, and that is now the major contributor to how Capital is turned into more Labor—no quartz, no von Neumanns—you could probably charge a lot for it, right? Millions, at least.)
Hopefully put that way, it’s more obvious both why Land might become super-valuable and also why you, as an individual, may have serious trouble investing in the right Land. (There is no ‘Land ETF’ on Vanguard, any more than there is a ‘Capital ETF’ or ‘Labor ETF’.)
This sounds correct, though this also raises the question of what to do about it.
I don’t think one should ‘do’ anything about it. It is simply an implication of one model of economic growth. On a personal level, equities are so much better in many ways that even if they would be outperformed by some hypothetical ideal ‘land’ portfolio, that you’ll be just fine investing solely in equities. (What must be avoided is stuff like cash, which won’t grow or benefit, or investing into fixed instruments like debt—if you expect any sort of takeoff soon with any probability, investing in a 30-year Treasury or something would be insane. You would want to be taking out 30-year loans instead!)
You might capture value out of that relative to broad equities if the world ends up both severely deflationary due to falling costs, and where current publicly traded companies are mostly unable to compete in the new context.