The Curse of Machinery   2 comments

The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group, but for all groups.

This is an ongoing series of posts on Henry Hazlitt’s Economics in One Lesson. You can access the Table of Contents here. Although written in 1946, it still touches on many of the issues we face in 2017, particularly the fallacies government economic programs are built upon.

 

Among the most viable of all economic delusions is the belief that machines on net balance create unemployment.Destroyed a thousand times, it has risen a thousands times out of its own ashes as hard and vigorous as ever.

Wow, the more things change, the more they stay the same. A while back someone asked me if I was worried that novelists would be replaced by software. Uh, no!

Image result for image of unemployment caused by automation

The belief that machines cause unemployment leads to preposterous conclusions. We wouldn’t be able to have any technological improvements if that were the case. Logically, primiative man “must have started causing it with the first efforts he made to save himself from needless toil and sweat.”

Rather than look at how Cain slew Abel to improve his economic situation, Hazlitt looked at Adam Smith’s The Wealth of Nations, published in 1776. Chapter 1 is “Of the Division of Labor,” and on Page 2, the author tells us that a workman unacquainted with the use of
machinery employed in pin making “could scarce make one pin a day, and certainly could not make twenty,” but that with the use of this machinery he can make 4,800 pins a day. Less than 200 years before Hazlitt’s writing, machinery had thrown from 240 to 4,800 pin makers out of work for every one it kept. In the pin-making industry there was already 99.98 percent unemployment.

Image result for image of unemployment caused by automationOh, my! The Industrial Revolution was just in its infancy. What happened in the stocking
industry? New stocking frames were introduced so the handicraft workmen rioted, burning houses, threatening the inventors who were obliged to flee for their lives. Order was not finally restored until the military had been called out and the leading rioters had been either transported or hanged.

The rioters were thinking of their own immediate or even longer futures. Their opposition
to the machine was rational. The larger part of the 50,000 English stocking knitters and their families did not fully emerge from hunger and misery entailed by the introduction of the machine for the next 40 years. It turned out, however that rather than the machine permanently workers, before the end of the 19th century the stocking industry was employing at least 100 worker for every man it employed at the beginning of the century.

Related imageSimilarly Arkwright invented his cotton-spinning machinery in 1760. There were approximately 5,200 English spinners using spinning wheels, and 2,700 weavers—in all, 7,900 persons engaged in the production of cotton textiles. The introduction of
Arkwright’s invention was opposed on the ground that it threatened the livelihood of the workers. The opposition had to be put down by force. Yet 27 years after the invention appeared, a 1787 parliamentary inquiry showed that the number of persons actually engaged in the spinning and weaving of cotton had risen from 7,900 to 320,000, an increase of 4,400 percent.

Hazlitt gave other examples as well and wondered that there was any employment left in the world. His last example was of the Great Depression Technocrats who returned to this error like those who cannot remember the past, so are always doomed to repeat it. The Technocrats doctrine was still around, however, reflected in hundreds of make-work rules proposed by labor unions and then tolerated and even approved in the public mind.

In 1941, New York City electicians refused to install electrical equipment not made in New York States. In Houston Texas, master plumbers insisted upon cutting off the factory-installed threads of pipes to retread the pipe themselves. Painters’ unions had rules against using spray guns while out of state truck drivers had to turn their rigs over to New York truckdrivers upon entering the city. My husband is an electrician in 2017. As a fully-licensed journeyman electrician, he could not own his own company because he lacked a license to supervise himself. He had to have an administrator to oversee his journeyman work. So he took the administrator’s test and can now oversee his own work. There is a move in the state to make that illegal.

One might pile up a mountain of figure to show how wrong where the technophobes of the past. But it would do no good unless we understood clearly why they were wrong.

If a clothing manufacturer employs a machine that can make overcoats for half as much labor, it would seem to cut the labor force by half, but the machine itself requires labor to make it, persons to operate it, others to check the quality of the overcoats, so the loss of employment is not as great as first thought. Overtime, as the machine improves the profits of the manufacturer, there is a very real possibility that the manufacturer will expand his operations and hire more people. Because of the labor-saving machine, the manufacturer now has profits he would not otherwise have had and so can hire more people that he otherwise would not have hired.

Image result for image of unemployment caused by automationHis profitability will also prompt his competitors to purchase the machines, which will, in the long run, improve their profitability and cause them to expand their operations, hiring more people.

But there’s another unseen blessing. Overcoats are now cheaper to make and competition among the companies will cause prices to fall, so that more people can afford to buy overcoats. It takes fewer people to make the same number of overcoats, but more peole can afford to buy them, which creates a demand not only for overcoats, but for the stores where overcoats are sold and trucks to transport the overcoats from the factory to the store, and then for boots, hats and gloves to go with the overcoats.

[O]n net balance, machines, technological improvements, economies and efficiencies do not throw men out of work. They merely cause shifts in the type of employment available. This does not mean that some industries now operate with far fewer people employed due to automation, but that overall, machines have increased the rate of production, which has raised the standard of living and improved economic welfare. They may create more voluntary unemployment, but they allow people to work fewer hours. A clear benefit of that is that children now have a childhood and the elderly can retire.

Hazlitt then, brilliantly, recognized that some people will lose their jobs in the new market created by machines. Some people will find their dearly-acquired, highly developed skills are no longer marketable, essentially rendering them unskilled workers once again. We shouldn’t ignore these displaced workers, but we should allow them the dignity of choosing their own means to adapt to this new paradigm. Hazlitt did not try to solve this issue in his essay, though he acknowledged that it should be addressed.

 

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Posted January 19, 2017 by aurorawatcherak in economics

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