The Venus Flytrap - Automated Unemployment

Does automation create unemployment?

Through his writings, video clips and The Venus Project website, Jacque Fresco forecasted several times that the current system will collapse soon. This collapse seems to be caused mainly by automation and "reduction of most of purchasing powers" caused by automation. However, is such forecast really appropriate? I have already handled this problem in Chapter 10 of the body. It is not.

10-09 Those who claim that automation will generate unemployment tend to forget the fact that automation increases production per hour of labor and leads to increased wage per hour. Once the value created by unit labor increases, competing entrepreneurs would try to employ as many laborers as possible and offer higher wages. Short-term effect of automation is increase, not decrease, in demand for labor. 10-10 Entrepreneurs are not interested in how many hours of labor they are to employ. They are interested in the value they can produce through labor. Wage determined in free market is proportional to productivity, not to labor time. If we can create the same value as we do by 8 hours of labor now in 4 hours someday, the price for 4 hours of labor will be identical to the price for 8 hours of labor now. 10-11 Thus, the essential question is as follows: Will we be willing to continue the same amount of labor under increased wage rate? Are we going to prefer working 8 hours to receive twice as much real wage than working 4 hours? Of course, we might choose the former until our savings reach particular level. However, we will end up reducing labor hours because the utility of added wage does not reach disutility of labor.

However, Chapter 10 in general focused on showing that problems pointed out by Jacque Fresco can be settled by simple measures, even if they actually existed in the market economy. The relationship between free market and automation was mentioned incompletely compared to its importance, which in turn caused great confusion. Some people pointed out that the conclusion I reached in the body is different from the conclusion by free market economists, for instance, Austrian school economists about the same topic. In fact, the Austrian school came up with a different scenario. According to them, unemployment cannot be caused by automation because a different employment must be created somewhere else to replace the removed employment.

Why did they argue so? Let us first review the most fundamental assumption. When productivity is increased by a factor of 4 due to automation, clearly no unemployment will be created if everyone were to spend 4 times as much goods as they did in the past. Goods will simply be produced 4 times more and spent 4 times more. All the complex problems are generated because actual consumption will not increase as much as the increase of productivity by 4 times due to automation. Where do remaining goods go? They are saved. After introduction of automation system, entrepreneurs will gain additional profit by employing less number of laborers at first. Later on, laborers will gain additional income by receiving higher wage compared to the past. There is no problem if they were to spend all of these additional profits and incomes. All complicated problems occur only because they save these additional profits and incomes.

Thus, the problem raised by Fresco, in all essence, exactly identical to the more famous problem raised long ago by mercantilists. "If the propensity to consume were decreased and people preferred saving over consumption, will unemployment occur and economy come to collapse?" Of course, the answer is no. In the free market, saving draws the same amount of investment through reduction of interest rate. The number of workplaces reduced in the consumer goods industry will simply be offset by the number of workplaces increased in the capital goods industry.

Now only one question remains: "Is the opportunity for new investment really sufficient to absorb all employments reduced by automation?" The answer is as we already know. It is obviously yes. We have handled this problem already in Appendix A. The technological possibility we have that has not yet been materialized is limitless, but this possibility was not unable to be materialized because of a fundamental contradiction in capitalism. It was not materialized because scarce production factors were serving to satisfy the current demand. Ironically, this conclusion becomes more unquestionable if the arguments of Fresco about technology were true. Think about the enormous utility promised by Fresco's plans. And at the same time, think about the gigantic investment they require. Scarcity of production factors is preventing realization of such possibilities today, and entrepreneurs would have promptly made investment, attracted by the enormous initial profit, if scarcity did not exist.

Exactly because of the reason why we have a long way to go, labor is still one of the most scarce production factors, let alone being abundant. If we can save it through automation, there would be no greater blessing than that to the future of free market economy. (This is the reason we need to doubt interference policies by the government rather than automation in relation to unemployment.) If you know this fact, it is not difficult to understand why the Austrian school economists treated the argument that unemployment will be caused by automation as beneath notice.

Of course in Chapter 10, I assumed a slightly different situation. I assumed that all laborers are completely satisfied with the current standard of living and therefore will not increase spending despite an increase in currency wage. Also, more importantly, I assumed that entrepreneurs did not have any room for new investment and therefore will not use savings as loans to expand their business. It is not a surprise that most of Austrian economists did not discuss such case, because it is clearly not the present state. However, I did not develop a new theory. All of my conclusions are naturally born from the fundamental laws of economics that 'wage is identical to marginal production of labor' and 'human beings only work when marginal utility of wage is greater than marginal utility of leisure'. (The fact that nobody has ever calculated 579+45+3703 does not turn calculation of this addition into a new thing.)

Mechanization and automation have increased marginal production of labor to the extreme. This is self-evident, even in theory. The more capital is allocated to unit labor, the greater marginal production of labor becomes. Let's assume that 200 laborers were needed for a production line in the past and now it only requires 2 laborers in charge of inspection and management on the automated device. What's increased is not marginal production of capital. (In fact, it actually has a tendency to decrease.) It is marginal production of labor.

Wage is the same as marginal production of labor. Thus, mechanization and automation, as they always have been, will increase the wage rate of laborers for unit labor. Think about this. Laborers can now receive the same level of real wage by working 1/4 as hard as they did in the past. In this case, are they really willing to work the same amount as they did? We already assumed that laborers are sufficiently satisfied with the existing real wage. If there is nothing to buy by making more money, why would they endure tedious labor?

Of course if laborers do not have sufficient savings or psychological satisfaction of increasing their saving by doing more labor is greater than enjoying leisure time, they will continue doing labor. I acknowledged in the body that such tendency, if there cannot exist an investment to offset the increased saving, can bring temporary recession. [1] But why was this temporary recession created? It was created because we began by assuming that automation simultaneously occurs in all areas of production. In reality, automation is progressed at a different rate in each area of production. The construction industry is not automated at the same time as the clothing manufacture industry. The clothing manufacture industry is not automated at the same time as the agricultural industry.

It would be educational to think about what would happen if automation were to only occur in one industry. Production, which became easier by automation, will greatly reduce relative price of goods produced by the industry against other goods. As a result, value produced by the small number of laborers who still remain in the industry is, despite the fact that physical amount of goods actually produced has become much larger, is expected not to change much compared to the past. However, a change occurs to overall laborers. Reduced price of a good will increase the quality of life for all laborers, and if all laborers were to be satisfied with their standards of saving and living, they are going to reduce labor time and increase leisure instead of increasing consumption or saving. As a result, new employment (with actual employment reduced) enough to absorb the persons unemployed by automation in an industry is created in another area.

Let's summarize. In general, increase in productivity and inevitably followed increase in wage rate seem to draw one of the following three outcomes. First, the public uses the increased wage on spending. In this case, increase in wage rate directly contributes to improving the standard of living for people. Western laborers today are definitely enjoying material comfort and stability at the level never imagined as possible 100 years ago.

Second, the public saves the increased wage. Increase in saving will reduce interest rate. In the end, under the condition of even lower interest rate, savings by the public will be borrowed by entrepreneurs to help them attempt new technological possibilities that could not be attempted in the past due to lack of capital investment. It will further increase future productivity, and in turn helps create greater investments in the future. In the market economy, productivity did not simply develop linearly. It often increased exponentially (or even faster), and this explains the reason well.

Third, the public enjoys more leisure time by reducing labor time while maintaining wage rate. "Better supplied with the amenities of life as he is, he sooner reaches the point at which he looks upon any further increment in the disutility of labor as an evil which is no longer outweighed by the expected further increment in labor's mediate gratification. He is eager to shorten the hours of daily work and to spare his wife and children the toil and trouble of gainful employment. It is not labor legislation and labor-union pressure that have shortened hours of work and withdrawn married women and children from the factories; it is capitalism, which has made the wage earner so prosperous that he is able to buy more leisure time for himself and his dependents. The nineteenth century's labor legislation by and large achieved nothing more than to provide a legal ratification for changes which the interplay of the market factors had brought about previously."

Of course, these three factors occur simultaneously in reality. When productivity is increased by mechanization or automation, a part of the increased productivity contributes to improving the standard of living for the public, some are used for future investments, and some are used to help the public enjoy more leisure time. The ratio of each is always determined by the decision of the public - whether to spend it now, save it for the future, or simply enjoy leisure. In theory, clarity of this does not leave any room for nonsense of collectivists to step in. The market spends as much as the public wants to spend, accumulates as much as they want, and rests as much as they want.

One day, we will only need to work 30 minutes a day to maintain our living. But since human desire is unlimited, people will begin to find new demands as life gets easier. Perhaps we might end up wishing to have a CNC machine at home in the future. However, anything - unless prohibited by law - will be produced as long as there is demand, and the result of this will be beyond our imagination, as well as Jacque Fresco's imagination. The vision provided by the free economy surpasses the vision of Jacque Fresco. However, there is no reason for us to overcome something like 'economic and social collapse' in order to gain such future.

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[1] Maybe even this acknowledgement is wrong. If there were no opportunity for investment at all, no entrepreneurial loan would have occurred. Interest rate would drop almost to 0. Is there a reason to increase saving when you can borrow money without interest in emergency?