Tomorrow 3.0: the sharing economy.

• Author: Munger, Michael C.
• Position: Report

Right now, we own stuff. I do, you do, the people across the street who can't get their car in the garage do ... we own a ton of stuff. The self-storage industry in the United States has nearly fifty thousand facilities, with more than 15 billion cubic feet of space (Clark 2014) cluttered with ... stuff.

But people don't fundamentally want stuff. What they want is the stream of services that stuff provides over time. So if people own stuff--clothes, tools, cars, houses--rather than rent that stuff, it is because owning secures services more reliably and at lower transaction costs than renting. But this "preference" for owning is not real. It might change quickly if entrepreneurs were able to figure out a way to sell reductions in transaction costs.

And that's the thesis of this essay. The future will look very different from the past and the present because in the future entrepreneurs will have figured out how to sell reductions in transaction costs. Almost everything we own will soon be a potential rental item, or we won't own it all because we'll rent it from someone else. And (almost) everything will be better. Except for the things that will be worse.

Revolution Is Disruptive

There have been two enormous "revolutions" in human history. The first was the Neolithic Revolution, or the wide-scale switch from a nomadic hunter-gatherer lifestyle to fixed agriculture. The second was the Industrial Revolution, or the wide-scale concentration of production in processes that took advantage of division of labor and capital-intensive work. The most salient feature of both revolutions was unprecedented expansion: after the Neolithic Revolution, cities developed, and populations increased in ways that transformed the landscape.

After the Industrial Revolution, production processes developed in ways that within just a few generations afforded a set of consumer items for the poor that had been unattainable even for the wealthy just a century earlier. So where the Neolithic Revolution resulted in an explosion of population, the Industrial Revolution resulted in an explosion of capital accumulation and cheap consumer products.

Jared Diamond (1987) called the move to fixed agriculture a "mistake," perhaps tongue in cheek. Still, it is true that liberty, nutrition, and hygiene suffered. But for something to be a mistake there has to have been an alternative. For both revolutions, things could not have been otherwise. Suppose we grant that people were individually worse off for a few generations at least. The consequences of realizing economies of scale in military action and the benefits of access to the products of increased specialization overwhelmed the ability of any but the most isolated tribes to choose any other form of society (see Hummel 2012 for background).

Adam Smith summarized the larger economic reasons that division of labor is important, and Emile...