The Canadian Union of Postal Workers recently proposed that “[i]nstead of replacing antiquated community mailboxes, the Corporation should provide door-to-door delivery”, in order to, among other things, “save the jobs being eliminated as a result of the technological changes being introduced by the Corporation”. This old anti-technology boogieman has been vanquished through both theory and experience over the centuries, yet it continues to rise from its own ashes; a true phoenix of fallacies. Henry Hazlitt perhaps has the most thorough and artful argument against this belief. First published in his seminal Economics in One Lesson, reprinted in the Freeman in August of 1964.
The Curse of Machinery
Among the most viable of all economic delusions is the belief that machines on net balance creÂate unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. Whenever there is long-conÂtinued mass unemployment, maÂchines get the blame anew. This fallacy is still the basis of many labor union practices. The public tolerates these practices because it either believes at bottom that the unions are right, or is too conÂfused to see just why they are wrong.
The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. Not only must we be causing unemployment with every technological improveÂment we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.
To go no further back, let us turn to Adam Smithâ€™sÂ The Wealth of Nations, published in 1776. The first chapter of this remarkable book is called â€œOf the Division of Labor,â€ and on the second page of this first chapter the author tells us that a workman unacquainted with the use of machinery emÂployed in pin-making â€œcould scarce make one pin a day, and certainly could not make twenty,â€ but that with the use of this maÂchinery he can make 4,800 pins a day. So, already, alas, in Adam Smithâ€™s time, machinery had thrown from 240 to 4,800 pin-makers out of work for every one it kept. In the pin-making indusÂtry there was already, if machines merely throw men out of jobs, 99.98 per cent unemployment. Could things be blacker?
Things could be blacker, for the Industrial Revolution was just in its infancy. Let us look at some of the incidents and aspects of that revolution. Let us see, for exÂample, what happened in the stocking industry. New stocking frames as they were introduced were destroyed by the handicraft workmen (over 1,000 in a single riot), houses were burned, the inÂventors were threatened and obliged to fly for their lives, and order was not finally restored until the military had been called out and the leading rioters had been either transported or hanged.
A Short-Sighted Approach
Now it is important to bear in mind that insofar as the rioters were thinking of their own mediate or even longer futures their opposition to the machine was rational. For William Felkin, in hisÂ History of the Machine-Wrought Hosiery Manufactures (1867), tells us (though the stateÂment seems implausible) that the larger part of the 50,000 EnglishÂ stocking knitters and their famiÂlies did not fully emerge from the hunger and misery entailed by the introduction of the machine for the next forty years. But insofar as the rioters believed, as most of them undoubtedly did, that the machine was permanently displacÂing men, they were mistaken, for before the end of the nineteenth century the stocking industry was employing at least a hundred men for every man it employed at the beginning of the century.
Arkwright invented his cotton-spinning machinery in 1760. At that time it was estimated that there were in England 5,200 spinÂners using spinning wheels, and 2,700 weaversâ€”in all 7,900 perÂsons engaged in the production of cotton textiles. The introducÂtion of Arkwrightâ€™s invention was opposed on the ground that it threatened the livelihood of the workers, and the opposition had to be put down by force. Yet in 1787â€”twenty-seven years after the inÂvention appearedâ€”a parliamenÂtary inquiry showed that the numÂber of persons actually engaged in the spinning and weaving of cotÂton had risen from 7,900 to 320,Â000, an increase of 4,400 per cent.
If the reader will consult such a book asÂ Recent Economic Changes, by David A. Wells, published in 1889, he will find passages that, except for the dates and absoluteÂ amounts involved, might have been written by our technophobes (if I may coin a needed word) of toÂday. Let me quote a few:
During the ten years from 1870 to 1880, inclusive, the British merÂcantile marine increased its moveÂment, in the matter of foreign enÂtries and clearances alone, to the extent of 22,000,000 tonsâ€¦ yet the number of men who were employed in effecting this great movement had decreased in 1880, as compared with 1870, to the extent of about three thousand (2,990 exactly). What did it? The introduction of steam-hoistÂing machines and grain elevators upon the wharves and docks, the emÂployment of steam power, etcâ€¦.
In 1873 Bessemer steel in EngÂland, where its price had not been enhanced by protective duties, comÂmanded $80 per ton; in 1886 it was profitably manufactured and sold in the same country for less than $20 per ton. Within the same time the annual production capacity of a Bessemer converter has been inÂcreased fourfold, with no increase but rather a diminution of the inÂvolved labor.
The power capacity already being exerted by the steam engines of the world in existence and working in the year 1887 has been estimated by the Bureau of Statistics at Berlin as equivalent to that of 200,000,000 horses, representing approximately 1,000,000,000 men; or at least three times the working population of the earthâ€¦.
One would think that this last figure would have caused Mr. Wells to pause, and wonder why there was any employment left in the world of 1889 at all; but he merely concluded, with restrained pessimism, that â€œunder such cirÂcumstances industrial overproducÂtion â€¦ may become chronic.â€
Technocrats Revive Old Errors
In the depression of 1932, the game of blaming unemployment on the machines started all over again. Within a few months the doctrines of a group calling themÂselves the Technocrats had spread through the country like a forest fire. I shall not weary the reader with a recital of the fantastic figures put forward by this group or with corrections to show what the real facts were. It is enough to say that the Technocrats returned to the error in all its native purity that machines permanently disÂplace menâ€”except that, in their ignorance, they presented this error as a new and revolutionary discovery of their own. It was simply one more illustration of Santayanaâ€™s aphorism that those who cannot remember the past are condemned to repeat it.
The Technocrats were finally laughed out of existence; but their doctrine, which preceded them, lingers on. It is reflected in hunÂdreds of make-work rules and featherbed practices by labor un- ions; and these rules and practices are tolerated and even approved because of the confusion on this point in the public mind.
Testifying on behalf of the United States Department of Justice before the Temporary National Economic Committee (better known as the TNEC) in March, 1941, Corwin Edwards cited innumerable examples of such practices. The electrical union in New York City was charged with refusal to install electrical equipment made outside of New York State unless the equipment was disassembled and reassembled at the job site. In Houston, Texas, master plumbers and the plumbing union agreed that piping prefabricated for installation would be in- stalled by the union only if the thread were cut off one end of the pipe and new thread cut at the job site. Various locals of the paintersâ€™ union imposed restrictions on the use of spray guns, restrictions in many cases designed merely to make work by requiring the slower process of applying paint with a brush. A local of the teamstersâ€™ union required that every truck entering the New York metropolitan area have a local driver in addition to the driver already employed. In various cities the electrical union required that if any temporary light or power was to be used on a construction job there must be a full-time maintenance electrician, who should not be perÂmitted to do any electrical conÂstruction work. This rule, accordÂing to Mr. Edwards, â€œoften inÂvolves the hiring of a man who spends his day reading or playing solitaire and does nothing except throw a switch at the beginning and end of the day.â€
One could go on to cite such make-work practices in many other fields. In the railroad indusÂtry, the unions insist that firemen be employed on types of locomoÂtives that do not need them. In the theaters unions insist on the use of scene shifters even in plays in which no scenery is used. The musiciansâ€™ union required so-called â€œstand-inâ€ musicians or even whole orchestras to be emÂployed in many cases where only phonograph records were needed.
By 1961 there was no sign that the fallacy had died. Not only unÂion leaders but government offiÂcials talked solemnly of â€œautomaÂtionâ€ as a major cause of unemÂployment. â€œAutomationâ€ was disÂcussed as if it were something enÂtirely new in the world. It was in fact merely a new name for conÂtinued technological advance and further progress in labor-saving equipment.
One might pile up mountains of figures to show how wrong were the technophobes of the past. But it would do no good unless we unÂderstood clearlyÂ why they were wrong. For statistics and history are useless in economics unless acÂcompanied by a basicÂ deductive understanding of the factsâ€”which means in this case an understandÂing of why the past consequences of the introduction of machinery and other labor-saving devicesÂ had to occur. Otherwise the technoÂphobes will assert (as they do in fact assert when you point out to them that the prophecies of their predecessors turned out to be abÂsurd): â€œThat may have been all very well in the past; but today conditions are fundamentally difÂferent; and now we simply cannot afford to develop any more laborÂsaving machinesâ€¦. We have reached a point today where laborÂsaving devices are good only when they do not throw the worker out of his job.â€
If it were indeed true that the introduction of labor-saving maÂchinery is a cause of constantly mounting unemployment and misÂery, the logical conclusions to be drawn would be revolutionary, not only in the technical field but for our whole concept of civilization. Not only should we have to regard all further technical progress as a calamity; we should have to reÂgard all past technical progress with equal horror. Every day each of us in his own capacity is enÂgaged in trying to reduce the efÂfort it requires to accomplish a given result. Each of us is trying to save his own labor, to econoÂmize the means required to achieve his ends. Every employer, small as well as large, seeks constantly to gain his results more economically and efficientlyâ€”that is, by saving labor. Every intelligent workman tries to cut down the effort necesÂsary to accomplish his assigned job. The most ambitious of us try tirelessly to increase the results we can achieve in a given number of hours. The technophobes, if they were logical and consistent, would have to dismiss all this progress and ingenuity as not only useless but vicious. Why should freight be carried from New York to Chicago by railroads when we could employ enormously more men, for example, to carry it all on their backs?
A Case in Point
Theories as false as this are never held with logical consistÂency, but they do great harm beÂcause they are held at all. Let us, therefore, try to see exactly what happens when technical improveÂments and labor-saving machinery are introduced. The details will vary in each instance, depending upon the particular conditions that prevail in a given industry or period. But we shall assume an exÂample that involves the main posÂ sibilities.
Suppose a clothing manufacÂturer learns of a machine that will make menâ€™s and womenâ€™s overÂcoats for half as much labor as previously. He installs the maÂchines and drops half his labor force.
This looks at first glance like a clear loss of employment. But the machine itself required labor to make it; so here, as one offset, are jobs that would not otherwise have existed. The manufacturer, howÂever, would have adopted the maÂchine only if it had either made better suits for half as much laÂbor, or had made the same kind of suits at a smaller cost. If we asÂsume the latter, we cannot assume that the amount of labor to make the machines was as great in terms of payrolls as the amount of labor that the clothing manufacÂturer hopes to save in the long run by adopting the machine; otherÂwise there would have been no economy, and he would not have adopted it.
So there is still a net loss of employment to be accounted for. But we should at least keep in mind the real possibility that even theÂ first effect of the introduction of labor-saving machinery may be to increase employment on net balÂance; because it is usually onlyÂ in the long run that the clothing manufacturer expects to save money by adopting the machine: it may take several years for the machine to â€œpay for itself.â€
After the machine has produced economies sufficient to offset its cost, the clothing manufacturer has more profits than before. (We shall assume that he merely sells his coats for the same price as his competitors, and makes no effort to undersell them.) At this point, it may seem, labor has suffered a net loss of employment, while it is only the manufacturer, the capiÂtalist, who has gained. But it is precisely out of these extra profits that the subsequent social gains must come. The manufacturer must use these extra profits in at least one of three ways, and possiÂbly he will use part of them in all three: (1) he will use the extra profits to expand his operations by buying more machines to make more coats; or (2) he will invest the extra profits in some other inÂdustry; or (3) he will spend the extra profits on increasing his own consumption. Whichever of these three courses he takes, he will inÂcrease employment.
In other words, the manufacÂturer, as a result of his economies, has profits that he did not have before. Every dollar of the amount he has saved in direct wages to former coat makers, he now has to pay out in indirect wages to the makers of the new machine, or to the workers in another capital inÂdustry, or to the makers of a new house or motor car for himself, or of jewelry and furs for his wife. In any case (unless he is a pointÂless hoarder) he gives indirectly as many jobs as he ceased to give directly.
But the matter does not and cannot rest at this stage. If this enterprising manufacturer effects great economies as compared with his competitors, either he will beÂgin to expand his operations at their expense, or they will start buying the machines, too. Again more work will be given to the makers of the machines. But comÂpetition and production will then also begin to force down the price of overcoats. There will no longer be as great profits for those who adopt the new machines. The rate of profit of the manufacturers usÂing the new machine will begin to drop, while the manufacturers who have still not adopted the maÂchine may now make no profit at all. The savings, in other words, will begin to be passed along to the buyers of overcoatsâ€”to theÂ consumers.
But as overcoats are now cheaper, more people will buy them. This means that, though it takes fewer people to make the same number of overcoats as beÂfore, more overcoats are now beÂing made than before. If the deÂmand for overcoats is what econÂomists call â€œelasticâ€â€”that is, if a fall in the price of overcoats causes a larger total amount of money to be spent on overcoats than previouslyâ€”then more people may be employed even in making overcoats than before the new laÂbor-saving machine was introÂduced. We have already seen how this actually happened historically with stockings and other textiles.
But the new employment does not depend on the elasticity of deÂmand for the particular product involved. Suppose that, though the price of overcoats was almost cut in halfâ€”from a former price, say, of $75 to a new price of $50â€”not a single additional coat was sold. The result would be that while consumers were as well proÂvided with new overcoats as beÂfore, each buyer would now have $25 left over that he would not have had left over before. He will therefore spend this $25 for someÂthing else, and so provide inÂcreased employment inÂ other lines.
In brief, on net balance, maÂchines, technological improveÂments, automation, economies, and efficiency do not throw men out of work.