II. Inference Economics

In this essay

The economics of intelligence are about to undergo a transformation as profound as the shift from craft production to industrial manufacturing. When inference becomes a commodity, the cost curves of cognition-intensive industries will be redrawn from first principles.

There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible. —Henry Ford

The Cost of Thinking

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The history of industrialization is fundamentally a history of cost reduction.1 Steam power did not create new forms of work so much as it made existing forms of work dramatically cheaper. The same logic applies to inference: when the marginal cost of a cognitive operation approaches zero, every industry built on human judgment faces restructuring.

Scaling Laws and Market Structure

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The Energy Question

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Winners and Losers

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  1. Robert C. Allen, The British Industrial Revolution in Global Perspective (2009), demonstrates how relative factor prices—particularly the cheapness of energy—drove the adoption of labor-saving machinery. ↩︎

  2. The energy requirements of large-scale AI inference are analyzed in detail in the International Energy Agency’s World Energy Outlook 2025, which projects that data center electricity consumption will triple by 2030. ↩︎

  3. The distributional consequences of general-purpose technologies are explored in Daron Acemoglu and Simon Johnson, Power and Progress (2023), which argues that the benefits of new technologies are not automatically shared. ↩︎

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