Wednesday, June 22, 2011

Economic Recovery, Part X: The Formation of Capital (5)

Yesterday we noted Harold Moulton's agreement with Say's Law of Markets when Moulton claimed that, "If we are to achieve the goal of satisfactory standards of living for everyone, the first requirement is to increase progressively the total amount of the income to be divided." Consequently, because "productions equals income," the two most important factors in a program of economic recovery are employment and production.

Any rational person will agree that advancing technology displaces human labor from a specific job. True, the employment of new technologies can, and often has resulted in new opportunities for the employment of the displaced human labor. Even the most ardent Keynesian will admit, however, that the new jobs "created" by advancing technology are not the same jobs taken over by technology. They are different jobs, using human labor to do different things than before.

Thus, as Moulton pointed out in The Recovery Problem in the United States (1936), from 1920 to 1930 — a time when millions of new jobs were being created — the objective number of workers employed in direct manufacturing decreased . . . and this at a time when the output of manufactured goods was increasing at a tremendous rate. The new jobs being created were "white collar" positions in support, administration, sales, and so on. For example, as American business expanded rapidly, there was a great increase in the demand for typists — who replaced copyists and scriveners when the typewriter and carbon paper replaced hand-copied documents.

The problem with the new jobs created by advancing technology is that they, in turn, tend to be eliminated when technology advances still further. The Steno and Typists pools that were a feature of business offices until the mid-1960s were either much reduced or disappeared entirely as the fast, new and relatively inexpensive photo- and thermographic copying machines took over from the old, time-consuming photostatic copiers — and didn't burden the reader with a white-on-black or white-on-blue copy. Much of what was left of stenographers' and typists' jobs then disappeared with the invention of the word processor.

Although advancing technologies, especially in computing and robotics, have the potential to remove virtually all human labor from the production of marketable goods and services, the experts continue to insist that "Technology Doesn't Destroy Jobs" (Dr. Russell Roberts, "Obama vs. ATMs: Why Technology Doesn't Destroy Jobs," The Wall Street Journal, 06/22/11, A15). The argument is that "When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn't exist before." (Ibid.)

Perhaps, but reason tells us that technology does, in fact, "destroy jobs," as Dr. Roberts admits by citing many of the jobs that no longer exist, e.g., switchboard operators, egg farmers, textile workers, and so on, all replaced by advancing technology. Nor does Dr. Roberts's analysis explain what happens if the methods and means by which the new products are created don't require as much human labor to accomplish, if any at all.

Yes, advancing technology frees people from unnecessary labor. It does not, however, necessarily mean that any burst of creativity or increase in confidence that results will create new jobs, or will create the same or greater number of jobs that were "destroyed" by technology. For "consumers" to be able to purchase the new products and generate the effective demand necessary to provide a market, those consumers — who in many cases are those same workers whose jobs are disappearing — they must have income. Enslaved by the assumption of the necessity of past savings to finance new capital, that means "jobs."

In other words, in Dr. Roberts's scenario, in order for new jobs to be created, the jobs must already exist! The demand for capital — the means by which the new marketable goods and services are produced and jobs presumably created — as Moulton pointed out in The Formation of Capital, is derived from consumer demand. If consumer demand doesn't exist, that is, workers do not have jobs, there will be no reason for people, no matter how creative or confident, to develop new marketable goods and services. People are not fools (usually), and no rational person wastes his or her effort to produce something that nobody wants or needs — or cannot afford to buy.

Thus, contrary to Dr. Roberts's assertions, no amount of creativity or confidence is going to restore a sound economy if the people freed by technology have no legitimate means to derive the needed benefits provided by that same technology. The answer, of course, is (as Louis Kelso observed in an interview in Life magazine in 1964), "if the machine wants our job, let's buy it," meaning the machine. The only question is, how, when workers don't have the money to buy necessary consumer goods and services, are they to come up with the money to purchase the machines that took their jobs and deprived them of income in the first place?

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