This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 7. Effect of machinery in different industries. Every new machine or process compels some readjustment of employment, the number in some industries increasing, in others diminishing. If extreme examples are taken, it may be made to appear either that an increase or that a decrease of employment results from machinery. Labor-saving machines may be roughly divided into three classes: those that create more employment in the particular industry than they take away; those that leave employment unchanged; those that reduce the amount of employment. To allow for changes in population these classes may be expressed as percentages of the whole population, (1) those labor-saving machines that call for a larger percentage of workers than before in the particular industry, (2) the same percentage, (3) a smaller percentage. The superficial appearance of "saving of labor" is greater than the reality in every industry where the new machines are more elaborate and costly than the former tools or machines. Labor is required to get out the material for the new machines, to make, repair and maintain them, and to supply them with power. But of course they would not be "labor-saving" if the labor thus required in new ways were equal to that released by the new process.
The chief changes of employment result from the shift of demand for products. The demand for different products is more or less elastic. Industries grade off from those that are capable of developing a great demand for labor to those at the other extreme that are capable of a very slight increase, as a result of a lowering of the price. There is hardly any assignable limit to the consumption of textiles, provided their price falls; the demand for dress alone is indefinitely expansible. Queen Elizabeth, who had a different dress for every day in the year, has many potential imitators. It is a striking fact, in view of the prominent part labor-saving machines had in the textile industries, that there were more handlooms in use in England in 1850 than fifty years before, tho in the meantime power-looms had displaced the handlooms in all the great factories. There was still room for variety of patterns and processes. There is a constant increase relatively, as well as absolutely, in the number employed in transportation, as each census shows; there are more railroad employees relative to the population than there were stage-drivers and teamsters before the day of railroads. The proportion of people now engaged in printing books and papers is larger by far than in the days when all the books of the world were written by the old monks in their cloisters. The proportion of workers in agriculture, on the other hand, is less than it formerly was. In part this is a change in appearance only, for the farmer once made a large part of his tools which are now made by workers employed in manufactures, yet who in a very real way are aiding in agriculture. In part the change is, however, the effect of the use of machinery and other improvements in agricultural processes. The amount of raw-food products required for each hundred persons is quite inelastic. As it becomes possible to expend more for food, the change is made in quality and in variety rather than in quantity. The greater part of the saving in the cost of food is, however, expended in other products, and the labor saved in agriculture finds employment in supplying new desires. In other cases, also, new industries are made possible as machines liberate energy from the production of the more necessary goods. At each census it is necessary to change the schedule of occupations, because men have adopted callings unknown before. The desires of men are variable and indefinitely ex-pansible, and as the products of machines increase and the prices fall, income is expended in other directions. Between 1890 and 1910 the proportion of the population engaged in art, music, travel, social festivities, etc., in America has increased as is indicated in the following:
46 per cent
Printers and lithographers.
68 per cent
(While the linotype, revolving presses, etc., were increasing-)
80 per cent
Journalists, scientists .............
124 per cent
150 per cent
(While the "movies" increased more rapidly.)
Employees of railroads....
158 per cent
(While great improvements were made in locomotives, etc.)
§ 8. Beneficial effect of machinery upon wages. Now let us look at the fundamental theory in the problem. The introduction of machinery has taken place along with changes in other dynamic forces, some of them doubtless in themselves "tending" to raise, others to lower, the level of real wages. Our question may take this form: What is the effect, given a stationary population, on a fixed area, with other resources unchanged ? To an unchanging population come better, more efficient machines. It is as if the land became richer, the materials easier to get, the workers stronger and swifter. It is a richer economic environment. The owners of machines, competing for the sale of machine uses, have more to offer to each laborer. It is the converse of the decreasing returns when population grows and decreasing returns result; here the material equipment grows and increasing returns result. The application of labor stops at the higher uses or services of agents and is not forced to the lower. The more perfect the economic environment, the higher the incomes even of those who own no part of the machinery. A part of this benefit may appear in the form of higher money wages received, a part in the form of the lower prices of things bought. Real wages are the essential thing. As a consumer the laborer shares with every other member of society in the benefits of improved machinery. The benefits resulting from great abundance are diffused, and as goods are brought from the high, or scarcity, end of the scale of value down toward the level of free goods, everybody in the long run gains by the abundance and cheapness.
§ 9. Dependence on abstinence. The gain to the general welfare, however, can result only when the new inventions are actually embodied in machines. An invention is only an immaterial idea, and the machines in which inventions are incorporated are wealth which has a capital value. Further, a gain can result only when the usance of the machines is not so high as to absorb the larger part of the gain in efficiency. Not all labor-saving inventions call for more elaborate or more costly machines. Some are merely better methods, and require no more equipment - or even less. Some of them are simpler and less costly than the forms they displace. These (unless patented) are free goods, uplifting the efficiency of production "without money and without price." But some inventions call for a larger and longer investment. Unless the rate of time-preference is low enough the new invention will not be embodied in machines that will displace the old, less-efficient forms. (See Chapter 21.) Labor-saving inventions thus simply enlarge the range of choice of means of production among which enterprisers and investors may choose, within the limits of their rates of time-preference. The gain in product by the new method as compared with the old may be so small that it only suffices to recompense the abstinence required for the larger investment. (The new method will not be used if it produces less than the old for a given outlay.) Thus as machines call for larger and longer investments, unless the gain in productive efficiency is large,a larger proportion of the total product must go to capital, while larger absolute amounts go both to labor and to capital. (But see below, on opposing tendencies.)
§ 10. Grades of labor, and gains from machinery. The general, or average, gain is not to be judged by comparing the conditions of the lowest grade of labor with those of fifty years ago, for while that grade may have been bettered only a little, it has been possible for large numbers to rise to higher grades because of the use of machinery. The physical tasks are to-day much lighter than ever before, and a larger proportion of society is engaged in industries that require skill and thought rather than physical labor. That portion of the work is being more and more shifted upon machines. A machine is "an iron man," it has been said, and comes into competition with other men to lower their wages by outworking and underbidding them. But this iron man can do only automatic tasks; it is not capable of exercising judgment. Every intelligent laborer who can adjust, adapt, fit himself for more intelligent action, will rise above the machine and profit by its presence. But crude physical labor which can compete only on the plane of automatic machines must find its field of employment more and more hedged in. If, however, even a portion of the workers (or of their children) are able to change to new or to rise to more skilled occupations, they reduce by so much the presence of competition below, and make possible a rise of wages there also. (See the doctrine of non-competing classes.)
§ 11. Opposing tendencies. It appears from this survey, that the logical effect of labor-saving machinery is to lift the level of efficiency and productiveness on which labor operates. A richer world relative to population means a higher income to the average man. The benefits are unequally distributed, but nearly all share to some degree.
But it must not be overlooked that certain conditions are assumed and if they are curtailed or absent the general benefits which machinery in itself tends to create may be reduced and be more unequally distributed. These conditions are:
(a) Competition among the owners of machines. So far as machines favor large industry, and large industry widens the scope of monopoly power (Chapter 31), prices may be raised to the benefit of the monopolist so as to cancel a large part of the general gain.
(b) A population increasing but slowly, so as not to neutralize the gain from machinery. An increase in population driving the cultivation of the soil to lower levels, may increase food prices enough to offset the gain from lower prices in manufacturing and transportation.
(c) Natural resources not decreasing through consumptive use. The waste, destruction, and inevitable using up of basic material resources is a change which, like the preceding, •operates to offset the gain from improving machinery.