Saturday, November 29, 2014

Death to Machines?

LONDON – At the start of the Industrial Revolution, textile workers in the Midlands and the North of England, mainly weavers, staged a spontaneous revolt, smashing machinery and burning factories. Their complaint was that the newfangled machines were robbing them of their wages and jobs.

The rebels took their name, and inspiration, from the apocryphal Ned Ludd, supposedly an apprentice weaver who smashed two knitting frames in 1779 in a “fit of passion.” Robert Calvert wrote a ballad about him in 1985: “They said Ned Ludd was an idiot boy/ That all he could do was wreck and destroy,” the song begins. And then: “He turned to his workmates and said: ‘Death to Machines’/They tread on our future and stamp on our dreams.”

The Luddites’ rampage was at its height in 1811-12. An alarmed government sent in more troops to garrison the disturbed areas than were then available to Wellington in the Peninsular War against Napoleon. More than a hundred Luddites were hanged or transported to Australia. These measures restored peace. The machines won: the Luddites are a footnote in the history of the Industrial Revolution.

Historians tell us that the Luddites were victims of a temporary conjuncture of rising prices and falling wages that threatened them with starvation in a society with minimal welfare provision. The Luddites, however, blamed their misfortune on the machines themselves.

The new knitting frames and power looms could weave yarn into cloth much faster than the most skilled artisan weaver working in his own cottage. Caught between fixed costs (the hire and upkeep of their domestic appliances) and falling prices for their products, tens of thousands of families were doomed to become paupers.

Their plight evoked some sympathy (Lord Byron made a brilliant speech in their defense in the House of Lords); their arguments, however, did not. There could be no rejecting progress: the future lay with machine production, not with old-fashioned handicrafts. Trying to regulate trade, Adam Smith taught, was like trying to “regulate the wind.”

Thomas Paine spoke for middle-class radicalism when he said, “We know that every machine for the abridgment of labor is a blessing to the great family of which we are part.” There would, of course, be some temporary unemployment in the technologically advancing sectors; but, in the long run, machine-assisted production, by increasing the real wealth of the community, would enable full employment at higher wages.

That was the initial view of David Ricardo, the most influential economist of the nineteenth century. But in the third edition of his Principles of Political Economy (1817), he inserted a chapter on machinery that changed tack. He was now “convinced that the substitution of machines for human labor is often very injurious to the class of laborers,” that the “same cause which may increase the net revenue of the country, may at the same time render the population redundant.” As a result, “the opinion entertained by the laboring class, that the employment of machinery is frequently detrimental to their interests, is not founded on prejudice and error, but is conformable to the correct principles of political economy.”

Just consider: machinery “may render the population redundant”! A bleaker prospect is not to be found in economics. Ricardo’s orthodox followers took no notice of it, assuming it to be a rare lapse by the Master. But was it?

The pessimistic argument is as follows: If machines costing $5 an hour can produce the same amount as workers costing $10 an hour, employers have an incentive to substitute machines for labor up to the point that the costs are equal – that is, when the wages of the workers have fallen to $5 an hour. As machines become ever more productive, so wages tend to fall even more, toward zero, and the population becomes redundant.

Now, it did not work out like that. Labor’s share of GDP remained constant throughout the Industrial Age. The pessimistic argument ignored the fact that by lowering the cost of goods, machines increased workers’ real wages – enabling them to buy more – and that the rise in labor productivity enabled employers (often under pressure from trade unions) to pay more per worker. It also assumed that machines and workers were close substitutes, whereas more often than not workers could still do things that machines could not.

However, over the last 30 years, the share of wages in national income has been falling, owing to what MIT professors Erik Brynjolfsson and Andrew McAfee call the “second machine age.” Computerized technology has penetrated deeply into the service sector, taking over jobs for which the human factor and “cognitive functions” were hitherto deemed indispensable.

In retail, for example, Walmart and Amazon are prime examples of new technology driving down workers’ wages. Because computer programs and humans are close substitutes for such jobs, and given the predictable improvement in computing power, there seems to be no technical obstacle to the redundancy of workers across much of the service economy.

Yes, there will still be activities that require human skills, and these skills can be improved. But it is broadly true that the more computers can do, the less humans need to do. The prospect of the “abridgment of labor” should fill us with hope rather than foreboding. But, in our kind of society, there are no mechanisms for converting redundancy into leisure.

That brings me back to the Luddites. They claimed that because machines were cheaper than labor, their introduction would depress wages. They argued the case for skill against cheapness. The most thoughtful of them understood that consumption depends on real income, and that depressing real income destroys businesses. Above all, they understood that the solution to the problems created by machines would not be found in laissez-faire nostrums.

The Luddites were wrong on many points; but perhaps they deserve more than a footnote.

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    1. CommentedJoshua Lee

      The biggest disruption to come next will be with autonomous vehicles. Truck drivers, bus drivers, taxi, limo, delivery vehicles, even planes, trains and ships. The technology exists now, it is a matter of legislation and liability insurance. Different jurisdictions will surely adapt in different ways. Business owners will be driving the agenda but the capital costs will be large. Consumers might improve efficiency and productivity however being able to work or sleep en route. Car sharing schemes are proliferating undermining protected taxi regimes. Will the economy absorb these workers fast enough? Will there be political pressure for expanded safety nets? If you think technology through occupation by occupation I think we can be optimistic. Doctors for example wont be going anywhere as the regulate their own profession. They have the keys to the medicine chest and regulate their own numbers and practices. I cant see robots taking over most of the trades except maybe welding. It would be extremely expensive to make plumber and electrician robots. Perhaps in limited factory type settings like modular yards. And again that work is somewhat protected in North America. Im not sure if a company that wanted to use bipedal construction robots would be welcome by consumers or be given the legal right to do so. I cant even speculate on the effects on white collar corporate and government employees. They seem relatively safe in the short term at least. I dont think education or health care workers have too much worry. Natural resourses has seen huge technological change especially agriculture. But there are plenty of high paying jobs in energy extraction which will require manpower.

    2. CommentedJoan Miro

      Of course the population is redundant. This is capitalism we are taking about. In periods of inevitable crisis wealth must either be destroyed (Marx/Schumpeter "creative destruction") or a mass of unemployed must be subjected to a prolonged period of relative poverty.
      What could conceivably be more disastrous in a capitalist economy than the now feasible prospect of machines taking over nearly all types of manual labor. Econ 101: capitalism exists to transfer wealth from those who labor to those who don't. Obviously, under capitalism those without labor (those displaced by machines) are redundant.

    3. CommentedJose araujo

      Limits to the machines comes from the fact that machines don't consume hece don't create kinetic value.

      Value is created in the moment of consumption, and well machines still don't consume, so all value created is potential, not real.

      I don't think it will take much more time to abandon all the supply side non-sense and look at demand has the source of value.

    4. CommentedJoseph Savon

      Labour surpluses occurred prior to 1811. The Pharaohs used them to build and maintain pyramids. The Romans had guaranteed minimum wage in form of bread & circuses.

        CommentedStefan Siewert

        your comment: Are you saying that "two world wars & ... communism" were caused by substitution of machines for human labor in early years of20th century? In the early years of 20th century institutions and conflict solution mechanism were not adequate for problem solving and required a new equilibrium and institutional landscape, substitution of machines were part of the destruction of the old equilibrium, a very complex phenomenon.

    5. CommentedJoseph Savon

      Laws of physics set limits to "productivity" of machines. For example, making a kilo of aluminum from ore requires 6kWh of energy just to to break the chemical bonds, &no amount of cleverness can reduce this figure. Rising real cost of energy may reach point where machines loose competitive edge.

    6. CommentedJoseph Savon

      A] "increase in US consumer surplus due to Walmart is ..."
      Not least cause Walmart ( & most businesses) manufacture consumers illusion of surplus by advertising buzzwords such as"reduced" "was" "regular price" "compare at".
      B] Retailers, especially on-line retailers, only need humans to face shelves, count inventory, and (sometimes) pick orders and checkout. Almost all 'backoffice' operations can be computerised.

    7. CommentedJoseph Savon

      "workers could still do things that machines could not."

    8. CommentedVan Poppel charles

      sir,the last sentence of your article is the most important; the luddites were no economists; but science will not stop - let us hope - and in future there will be more changes than we can imagine now.

    9. CommentedStefan Siewert

      Excellent article. One question emerges: We need less than 1 % of employment to produce food and less than 10 % to produce goods. What the rest of us is doing, when machines take over our jobs? We need to recalibrate the society in order to include new activities, new paradigm, new views about work and leisure, new ways to live and work in an interconnected world. 100 years ago a similar alignment took place, but the costs included two world wars and the emergence of communism before a stabile institutional equilibrium was found. It worked well for over 60 years, even if it was a bit irrational (arms race, 2 superpowers). Maybe we might expect major institutional innovations for the upcoming 20 years? The Occupy-movement went to nowhere. Taxing the rich has its limits as well. More questions than answers at the moment. One can only agree that previous conflicts deserve more than a footnote.

        CommentedJoseph Savon

        Are you saying that "two world wars & ... communism" were caused by substitution of machines for human labor in early years of20th century?

    10. CommentedMr Econotarian

      I would like to see the scientific data that Walmart "drives down workers wages." Certainly Walmart doesn't pay their workers very much, but they may pay more than the less efficient retailers that they drive out of business.

      On the consumption side, studies have estimated that Walmart's efficient operations increase the consumer surplus in the US by about $2500 per year.

        CommentedRobert Snashall

        Don't be pedantically stupid, it's basic common sense that is undoubtedly true across the board.
        Who cares about consumer surplus when many workers don't have the wages to afford the goods even at the lower cost.
        It's more important than simple supply and demand dynamics, this is the structure of society and the welfare of a huge swathe of the population that can't necessarily be measured in monetary terms.

    11. CommentedArmin Schmidt

      Maybe a logical response to the problem of unemployment from machinization of human labor should be a tradition to use some of the gains by machinization for helping the newly unemployed. Developed countries have social security to do that, but in poor countries such an event can still easily mean existential crisis for individuals and their families.