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The Henry Hazlitt Series: The Curse of Machinery

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The Hazlitt Series

This latest stewardship post is a continuation of our monthly exploration and modern application of the economic writer  Henry Hazlitt, and his seminal work, Economics in One Lesson. This work draws heavily upon the insights of the great French economist Frederic Bastiat.  His key insight was to look at that which is not seen.  So, for example, do not simply look at the benefits of a trade restriction of say wool, but also look at the costs to the rest of the economy.  Hazlitt updates this insight with a more modern take to look not just at the short-run effects on a small group, but also the long-term effects for the whole economy.  Hazlitt then applies this lesson to a variety of topics.  Each installment will pay homage to this superbly clear economic thinker and writer by applying each of his applications to our world today.

The Curse of Machinery

This month this series takes on the all too prevalent fallacy that machines on net create unemployment.  You see this in social media memes that decry the existence of self-checkout lanes in grocery stores, as well as this idea being at the heart of labor union practices; make work schemes, and “featherbedding” (adding unnecessary workers).  You see this exemplified in the consistent calls to keep train crews needlessly large.

The problem is, of course, that there is no historical proof of this being a real phenomenon.  Which is consistent with sound, logical economic theory.  A simple thought experiment will suffice; think about how many more billions of people there are on the planet who are employed compared to the start of the industrial revolution around 1750.  Yet still this fallacy persists.  We must dive a bit deeper into this to explode the mythology surrounding this persistently bad idea.

The Reality of Machinery

As Hazlitt did, I will use the example of a clothing manufacturer who produces coats.  Let’s say this manufacturer invests in a new machine that produces coats with half the labor than was previously needed.  The business owner then promptly fires half the labor force.  This would seem a clear loss of employment.  Indeed, this would likely be the case.  However, initially employment may rise at the business because the machine will take time to “pay for itself”.  In the medium run the business may very well be able to employ fewer people.  So, it looks like a net loss of employment.

In the longer run, however, this would not be so.  First, the machine itself requires labor to manufacture it, as well as service it to keep it running.  Keep in mind that these are jobs that did not exist before and would not but for the rise of mechanization.  Also, the manufacturer will make more profits.  This will allow the business owner to expand operations.  The owner could, and often does, invest in an additional line of production, or another industry.  Also. The owner can use the additional profits to increase their consumption.  The reality is that all these options increase employment.

Additional Realities

The other phenomenon that occurs due to increased use of machines is that the cost of production will drop.  Machines alone will do that, and competition (if the government allows it) will keep the costs down.  These dual phenomena will erode the rate of profit and the savings will accrue to consumers.

These savings due to lower costs will allow people to buy more coats.  So much more, in fact, that the total employment in the coat industry may go up.  The global textile industry employs multiples more people than it did at the start of the industrial revolution precisely because of this phenomenon.

However, let us say that there is only so much demand for more coats, and that the lowering of prices does not stoke much increase in the demand for coats.  This is what economists call “inelastic” demand.  The savings that accrue to the consumer due to machine lowered costs of production will allow money to be spent on other items, increasing employment in other areas.

Even More Realities

Some machines will fall into the category of “non labor saving” devices.  That is, in and of themselves they do not save labor.  They may improve the quality of products, or bring into existence products and services that did not exist before.  These machines will then also increase employment.  Think about new textiles, refrigerators, and autos as reflecting this phenomenon.  This brings about an absolute increase in employment, as well as machines supporting an increased population level. 

It must be kept in mind that the role of machines is to increase production, not jobs.  But by making goods cheaper for consumers, those machines increase real wages by making labor more productive.  This will then allow for more people to be employed, producing more and better goods.

Keep Calm & Mechanize

So, what are we to make of all of this?  First, we should not minimize the real and painful job losses that often occur in the short run.  These are the visible effects of a growing economy.  We should also realize that even though employment in general will grow, there are those that will struggle to find work in the changed environment.

On the other hand, we should realize that while job gains may be less visible and may take more time, they will come.  They will arrive with an increased amount of produced goods and services and an increase in real wages that will make the economy better and more prosperous.

Our response should be to offer charitable help to those who are genuinely struggling with this type of change.  Yet, we should also respond by allowing this change to occur as quickly as possible so that the economy, and workers particularly, will benefit from the increased use of machines.  Far from being a curse, machines, and their use, are a true benefit.  They allow us a vastly increased standard of living, with sustainable, rising real wages, and a work environment that is much less onerous than when the world moved forward by brute human labor.  All this can occur if we simply allow people to cooperatively work together rather than succumbing to the temptation to respond to a fallacy with coercive measures that only make things worse.

Praise Be to God

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