Monday, February 11, 2013

Do Machines Make Us Poor?

Where does the answer lie
Living from day to day
If it's something we can't buy
There must be another way
--The Police

Nice discussion by Gary North on the flawed thinking that machines make us poor. Sometimes called the Luddite Fallacy, the premise is that employing machines in production processes makes us worse off, because those machines often do the work of much manual labor. Those who lose their jobs to productivity-enhancing machinery must somehow be protected or compensated.

The premise is obviously false because, taken to its logical conclusion, it requires scrapping all machines and tools in favor of manual labor. Such action would reverse hundreds of years of progress, returning us to widespread poverty. The population of the world would shrink to a fraction of its current size as economic resources that support standard of living disappear.

As GN observes, anything that can be done profitably by machine should be done by machine. This frees up labor, the most flexible of all productive resources, for more productive use.

Permanent unemployment due to the use of tools in production can only occur when a) there is no additional demand to be satisfied after the implementation of machines, or b) some other factor of production runs dry, thus restraining further production with labor.

Because human desires are insatiable, a) seems forever unlikely. Currently, there is need in the world that can be satisfied by more production.

Because economic resources are scarce and some of them (e.g., fossil fuel) not easily replaceable, b) seems a more plausible scenario. But in free markets, higher prices of increasingly scarce resources drive entrepreneurs to bring new technologies to market that alleviate resource restraints.

Thus, if markets are allowed to work (yes, increasingly a bigger 'if'), then b) seems unlikely as well.

Viewed thru this lens, what we face in this world is not a labor glut, but a labor shortage--a shortage that machines help us manage.

1 comment:

dgeorge12358 said...

Suppose that the French people buy ten million hats at fifteen francs each; this gives the hatmaking industry an income of 150 million francs. Someone invents a machine that permits the sale of hats at ten francs. The income of this industry is reduced to 100 million francs, provided that the demand for hats does not increase. But the other fifty million francs are certainly not for that reason withdrawn from the support of human labor. Since this sum has been saved by the purchasers of hats, it will enable them to satisfy other wants and consequently to spend an equivalent amount for goods and services of every kind. With these five francs saved, John will buy a pair of shoes; James, a book; Jerome, a piece of furniture, etc. Human labor, taken as a whole, will thus continue to be supported to the extent of 150 million francs; but this sum will provide the same number of hats as before, and, in addition, satisfy other needs and wants to the extent of the fifty million francs that the machine will have saved. These additional goods are the net gain that France will have derived from the invention. It is a gratuitous gift, a tribute that man's genius will have exacted from Nature. We do not deny that in the course of the transformation a certain amount of labor will have been displaced; but we cannot agree that it will have been destroyed or even lessened.
~Frederic Bastiat