Deflationary tech in an inflationary world

By Mark Hinds, Charles Stanley Wealth Managers
We think of technology in modern terms, focussing on items like laptops, smartphones and tablets. Yet, the definition is wider and considers the ‘application of scientific knowledge for practical purposes’, or in my words ‘technology seeks to solve human problems to make things better than they would otherwise be’.
Published in Norfolk Director Magazine Winter 2023

Financial Planning & Investments: Charles Stanley

Thus, from a human-flourishing perspective, our world is immeasurably better now than at any other time, because technology allows us to master what would otherwise be a difficult and dangerous place to live.

The reality of human development is that we embraced and used technology hundreds of thousands of years before we even knew what science was. Three early technologies we mastered were fire (for protection, warmth and cooking), missiles (using rocks and other objects with slings and bows for hunting prey), and hydraulics (providing drinking water, irrigation, transportation, protection and sanitation).

So, technology is not new. But we have come a long way, and the rate of change is faster now as this compounded knowledge has led to the exponential technological progress we see today.

Tech makes us more productive

Technology is about increasing human productivity. Most applications are tools or machines that let us do things that would not have been possible (e.g. flying) or free up our time (e.g. farming practices vastly reduced the number of people involved in food production). This has unleashed the incredible world we see today. Technology is, therefore, a highly positive deflationary force, meaning either new, the same, or better goods and services are available at lower costs, allowing more people to benefit.

This fantastic progress is present in all areas of human life. The mobile telephone is an excellent example of how much things have changed in just a few decades. The first mobile phone, the ‘Vodafone VT1 Transportable’, was launched in January 1985. It cost £1,650 (nearly £6k in today’s money) with 33p per minute call charges (about £1.18 today) and weighed 5kgs. A 10-hour charge provided 30 minutes of talk time, and network coverage was anywhere… provided you were within the M25!

Compare that to today’s mobiles. You get unlimited calls and texts, vastly better talk time, greater portability (>95% lighter) and global network coverage. Never mind the incredible extras, including camera, video, book, calendar, banking, satellite navigation, payments, shop, Candy Crush – you get the idea and all for less than £30 per month.

Today, high inflation has returned after more than 30 years. As businesses, investors, politicians and central bankers consider how to navigate these challenging times; it is worth remembering that productivity gains through investment in technology have, throughout human history, been an important lever to combat inflation, because of its powerful positive deflationary impact.

The value of investments, and any income derived from them, can fall as well as rise. Investors may get back less than originally invested. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.

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Mark Hinds is an Investment Manager and Branch Manager at Charles Stanley, Norwich. Contact our team to discuss any of the themes raised in this article or to find out how Charles Stanley could help you create a more secure financial future.

T: 01603 856 932
E: norwichbranch@charles-stanley.co.uk
Or visit www.charles-stanley.co.uk

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