Further Thoughts on the Use of Machines 1. the cutthroat knife, a fuel's paradox and fantastical credit Marx, that wily trickster, shanghaied Bill Sikes, the unkempt, scowling, growling, murderous, dog-abusing Dickens villain from Oliver Twist, and contrived for him the following mock-ingenuous plea to an imaginary jury: …no doubt the throat of this traveling salesman has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife—you hurl us back into the depths of barbarism. The occasion for the ruffian's cameo appearance was a section in Das Kapital dealing with what Marx labeled "the theory of compensation as regards the workpeople displaced by machinery" – a topic that had been dear to the hearts of political economists since at least the anti-machinery riots of 1779 and which remains an article of faith among contemporary economists in spite of Herr Marx's sarcasm. As University of California economics professor, Carl Walsh
1. the cutthroat knife, a fuel's paradox and fantastical credit
Marx, that wily trickster, shanghaied Bill Sikes, the unkempt, scowling, growling, murderous, dog-abusing Dickens villain from Oliver Twist, and contrived for him the following mock-ingenuous plea to an imaginary jury: …no doubt the throat of this traveling salesman has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the
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Further Thoughts on the Use of Machines
1. the cutthroat knife, a fuel's paradox and fantastical credit
Marx, that wily trickster, shanghaied Bill Sikes, the unkempt, scowling, growling,
murderous, dog-abusing Dickens villain from Oliver Twist, and contrived for him the
following mock-ingenuous plea to an imaginary jury:
…no doubt the throat of this traveling salesman has been cut. But that is not my
fault; it is the fault of the knife! Must we, for such a temporary inconvenience,
abolish the use of the knife? Only consider! Where would agriculture and trade be
without the knife? Is it not as beneficial in surgery as it is in anatomy? And in
addition a willing help at the festive table? If you abolish the knife—you hurl us
back into the depths of barbarism.
The occasion for the ruffian's cameo appearance was a section in Das Kapital dealing with
what Marx labeled "the theory of compensation as regards the workpeople displaced by
machinery" – a topic that had been dear to the hearts of political economists since at least
the anti-machinery riots of 1779 and which remains an article of faith among contemporary
economists in spite of Herr Marx's sarcasm. As University of California economics
professor, Carl Walsh explained, "there is little debate among economists about the long-
run effect of productivity on employment. [...] In the long run, faster productivity growth
should translate into an increase in the overall demand for labor in the economy."
That "there is little debate" may itself be debatable. But what debate there is has a peculiar
configuration. An odd twist was added by Stanley Jevons in 1865 when he requisitioned
the said theory of compensation to answer a question about the supply and demand for
coal. In The Coal Question, Jevons exclaimed, "It is wholly a confusion of ideas to suppose
that the economical use of fuel is equivalent to a diminished consumption. The very
contrary is the truth [emphasis in original]." He went on to explain:
As a rule, new modes of economy will lead to an increase of consumption
according to a principle recognised in many parallel instances. The economy of
labour effected by the introduction of new machinery throws labourers out of
employment for the moment. But such is the increased demand for the cheapened
products, that eventually the sphere of employment is greatly widened. Often the
very labourers whose labour is saved find their more efficient labour more
demanded than before.
The difference between the well-trodden compensation theory and the paradox outlined by
Jevons is that the former is seen as a blessing by its proponents, while the latter is
supposed to be a curse. As is their wont, optimistic economists are inclined to seek out
evidence supporting the first proposition or discounting the second, while pessimists do the
opposite. Confirmation bias ensures that the search for such evidence often succeeds, thus
controversy persists. But is the post hoc increased demand necessarily propter hoc the
cheapened price? It is if we assume the expansion of trade beyond some current,
artificially-fixed barriers, as did Dorning Rasbotham in his 1780 response to the 1779
machinery riots in Lancashire:
There is not a precise limited quantity of labour, beyond which there is no demand.
Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our
goods cheaper and better to market, we open new markets, we get new customers,
we encrease the quantity of labour necessary to supply these, and thus we are
encouraged to push on, in hope of still new advantages. A cheap market will always
be full of customers.
Rasbotham envisioned opening new markets and getting new customers while Jevons did
not specify where the increase in consumption and increased demand would come from.
This latter raises the possibility of an increased demand coming from existing customers in
existing markets. Actually, the two situations are not all that different. After all, what is
"the expansion of trade," other than the expansion of the means for trading? The key to
increased demand, either from new markets or from the increased consumption of existing
customers is purchasing power. 2
Cheap prices may indeed increase the demand for a product but, as Charles D'Avenant
pointed out in 1699, increased demand doesn't always translate into larger total revenue
from sale of that product. A bumper crop in wheat, for example, may lead to a fall in
revenue for farmers and a poor harvest may result in an increase. Furthermore, increased
demand for commodities is not the same as increased demand for labor. So cheapness of
the products is not a sufficient cause for a compensation effect or "rebound," especially
when it is assumed that "the introduction of new machinery throws labourers out of
employment for the moment." Even if their distress is only temporary, for the moment
those unemployed workers have diminished means for purchasing a portion of the
expanded quantity of consumer goods that machinery makes possible.
In a closed system, the loss of income by the displaced workers would lead to a decrease in
demand, not an increase, regardless of the cheapness of products. This decrease of income
– and consequently of demand – would not be made up by the incomes of newly employed
workers constructing the machines. If it did, then the end products would not be cheaper
and we would be back in the same predicament of insufficient means for purchasing the
expanded production. The increased demand thus can only come from outside the closed
circuit of employment and income. But from where?
The answer to that riddle is yet another riddle: credit. D'Avenant described credit as
"fantastical":
Of all Beings that have Existence only in the Minds of Men, nothing is more
fantastical and nice than Credit; 'tis never to be forc'd; it hangs upon Opinion; it
depends upon our Passion of Hope and Fear; it comes many times unsought for,
and often goes away without Reason; and when once lost, is hardly to be quite
recover'd.
But, take heart! This fantastical being resolves the other two paradoxes – of labor displaced
by machinery and the economy of fuel, respectively – and sets the stage for a grand
resolution of the triple paradox, all tied up in a neat bundle!
3
In a 1934 BBC radio address, John Maynard Keynes outlined his objections to the notion,
prevailing among "almost the whole body of organized economic thinking and doctrine of
the last hundred years" that "the existing economic system is in the long run self-adjusting
[…]" Keynes must not have read Marx's section on the theory of compensation because he
attributes to Marxism, the fervent acceptance of the "essential elements" of the orthodox
faith in self-adjustment, with the proviso that Marxists make the "highly plausible
inference" from the doctrine that "capitalistic individualism cannot possibly work in
practice."
What Marx wrote about the theory of compensation – his label for what Keynes called
self-adjustment – however, was this:
The labourers that are thrown out of work in any branch of industry, can no doubt
seek for employment in some other branch. If they find it, and thus renew the
bond between them and the means of subsistence, this takes place only by the
intermediary of a new and additional capital that is seeking investment; not at all
by the intermediary of the capital that formerly employed them and was afterward
converted into machinery [emphasis added].
For his part, Keynes attributed the "fatal flaw" in the orthodox self-adjustment doctrine to
its failure to "develop a satisfactory and realistic theory of the rate of interest":
Now the school that believes in self-adjustment is, in fact, assuming that the rate
of interest adjusts itself more or less automatically, so as to encourage just the
right amount of production of capital goods to keep our incomes at the maximum
level that our energies and our organization and our knowledge of how to produce
efficiently are capable of providing. This is, however, pure assumption. There is
no theoretical reason for believing it to be true [emphasis added].
The difference between Marx's argument and Keynes's is one of perspective. Where Marx
focused on the quantity of "new and additional capital that is seeking investment," Keynes
considered the rate of interest required to encourage the "right amount of production of
4
capital goods." Marx thus presented the case from the perspective of the creditors while
Keynes assumed the point of view of the entrepreneur taking on debt. In both cases, they
targeted the easing of credit, not the cheapening of prices, in order to stimulate new
demand.
In his radio address, Keynes went further, stipulating that when interest rates had been low
enough for a sufficiently long time so as to indicate "there is no further capital construction
worth doing even at that low rate" then "drastic social changes" would become necessary
to increase consumption. "The full employment policy by means of investment," he wrote
to T.S. Eliot, a decade later, "is only one particular application of an intellectual theorem.
You can produce the result just as well by consuming more or working less. Personally I
regard the investment policy as first aid. […] Less work is the ultimate solution."
It is with regard to this projected "ultimate solution" that Keynes's comment about
Marxism inferring "capitalist individualism cannot possibly work in practice" may have
some validity. In the section of the Grundrisse that has come to be known as the "fragment
on machines," Marx highlighted the tendency of capitalism "to reduce labour time to a
minimum, while it posits labour time, on the other side, as sole measure and source of
wealth." This tension he called the "moving contradiction" of capital, a developmental
process that appears to capital as "mere means" of expanded accumulation but in fact
contains "the material conditions to blow this foundation sky-high" because if capital
becomes too successful in its drive to create disposable time "then it suffers from surplus
production, and then necessary labour is interrupted, because no surplus labour can be
realized." So instead of working less, as Keynes envisioned the ultimate solution to
unemployment, it becomes increasingly necessary, under capitalism, for people to work
superfluously.
To recap and sum up the argument thus far: first, it is not cheap prices but easy credit that
stimulates new demand, whether for labor or for the consumption of fuel and other natural
resources. Second, it is not unemployment per se that is the scourge of labor but
specifically unemployment in the face of an increasingly superfluous expenditure of
working time. That's the bad news. The good news is that if it becomes possible to 5
conceive of a great deal of current work as superfluous, then the energy and other natural
resource consumption directly associated with that labor could also be reduced
substantially without a diminution in standards of living.
If that good news story seems a bit of a stretch, look at it this way: formerly we were
confronted with two paradoxes, based on the same principle, whose consequences were
diametrically opposed in terms of desirability. The compensatory employment of labor
displaced by machines was seen as a blessing while the rebound effect from the economy
of fuel was viewed as a curse. From that perspective, solving the problem of
unemployment could only make the problems of resource consumption and environmental
impact worse and vice versa.
Reframing unemployment as primarily a problem of superfluous employment has the
advantage of aligning the environmental and employment dilemmas so that the solution to
one is also the solution to the other. This is not to say that the two problems have somehow
magically been solved or even that the solution is easy – only that a solution has now
become conceivable. It is the knife-wielder, not the knife, which is on trial!
Actual solutions, as opposed to conceptual ones, require a firmer grounding in realism. By
realism, I don't mean resignation or compromise with an unreceptive status quo but
reference to historical, empirical evidence regarding concrete policies and policy
frameworks. There are currently two dominant, competing policy frameworks for
addressing social costs: a market-based approach, exemplified in carbon emissions trading
schemes, and Pigouvian taxation and subsidies, which seek to correct pricing by charging
for the social costs of negative externalities or compensating for the social benefits of
positive ones. The analysis in the next section (forthcoming in Marshall Studies Bulletin)
demonstrates that besides working less being "merely" the ultimate solution to the problem
of unemployment, the analysis of working time provides a fundamental key to
understanding the underlying dynamics of social costs and environmental externalities in
general.
6
2. The hours of labour and the problem of social cost
In "The Problem of Social Cost," Ronald Coase (1960) examined one variety of presumed
market failures – outcomes that Cecil Pigou (1952) had described as “incidental uncharged
disservices” (or uncompensated services) but are now commonly referred to as
"externalities." The incidental quality of these effects makes them a social cost. The
economic analysis Coase challenged and the standard examples he re-examined were taken
from Pigou's discussion in part II of The Economics of Welfare. Coase argued that the
suggested courses of action in the Pigovian tradition – liability, taxation or regulation –
were inappropriate and often undesirable.
Coase claimed that the traditional approach to the problem of social cost "tended to
obscure the nature of the choice that has to be made" (1960, 2). He characterized the
question posed by the approach as "one in which A inflicts harm on B and what has to be
decided is: how should we restrain A?" He objected that the problem was really a
reciprocal one and the real question should be "should A be allowed to harm B or should B
be allowed to harm A? The problem is to avoid the more serious harm."
However, Coase didn't consider the full range of Pigou's examples and analysis. While
Coase’s restatement of the problem may have been appropriate to the specific externality
problems discussed by Pigou in part II, it entirely overlooked the radically different labour-
market problem encountered in part III, in which competitive pressure compels an
employing firm to inflict harm on both itself and its employees and thus regulatory
restraint of the firm (and competing employers) may benefit both.
Along with the majority of the preceding Pigovian tradition, Coase evaded the thorny
questions of working conditions and unemployment. Whatever gains in tractability may be
accomplished by such a maneuver are more than offset by a forfeit of realism and of
insight into the complex interdependency of economic factors in the long period. The
determination of the hours of work provides a particularly compelling example of a
circumstance in which mutual benefit could result from an imposed non-market restraint.
7
In part III of Economics of Welfare, Pigou argued that "after a point, an addition to the
hours of labour normally worked in any industry would, by wearing out the work people,
ultimately lessen rather than increase the national dividend" (1952, 462). That observation
derives from the theoretical exposition performed by another of Alfred Marshall's star
pupils, Sydney J. Chapman. Chapman's theory of the hours of labour (1909) and his
historical study of the Lancashire cotton industry (1904) that foreshadowed it offer a
suggestive counter-example of the largely unrealized potential of Marshall's industrial
economics. This paper argues that Chapman's analysis provides greater insight into the
problem of social cost than does either Coase's or Pigou's.
As Chapman demonstrated, under competitive conditions, employers would tend to prefer
hours of work that exceed the length that would be optimal for output. If an individual
employer and workers were able to negotiate more optimal hours of work, it would involve
a present investment by the employer in the workers future productivity. Well-defined
property rights to that future capacity could not be transferred to the employer and thus the
arrangement could be upset by a future offer of higher wages from a competing employer.
If we assume an optimal length of working day of eight hours for a given technology,
during which an average worker could produce nine units of output but a longer actual
working day of ten hours, during which the same worker produces only eight units, then
Table 1, below, illustrates in simplified fashion the dilemma confronting the progressive
employer seeking to reduce the hours to the optimal level.
Table 1
Month 0 1 2 3 4 5… 12
Units of output 6.4 7.05 7.7 8.35 9 9
Cost per unit 15.63 14.18 12.99 11.98 11.11 12.29
Value of daily output 80.00 88.13 96.25 104.38 112.50 112.50