Question: Some machines/robots replace the work of 5 people, but are cheaper to operate than to employ those 5 people. What do you conclude from this? Are machines bad? Do they make us poorer or richer?
The bottom line comes down to the concept of wealth itself. Wealth is production, if a process is made more efficient it can be produced at higher frequency for the same cost, same frequency for less cost or higher frequency for less cost. Any one of these increases of efficiencies increases the wealth and prosperity for all involved in that economy, including those associated through foreign trade, because the price of each new unit produced will now be cheaper, which will now require less wealth in exchange for this product/service.
For those who are replaced can retool to learn a new trade or adapt to the new production system as some suggested before to fix, repair or even make the new machines.
For those who doubt this argument. Let’s destroy all machines so that more people can have jobs! This is part of an argument by Karl Marx from an erroneous Labor Value Theory, who suggested that services and products derived their value from the cost that was required to provide/produce them. This theory is actually a base of his communist/socialist theories and the mantra “workers of the world unite”.
OK, so back to destroying machines. Let’s start with locomotives. Instead of having locomotives move those train cars, let’s get the equivalent man power to move the millions in tons of freight across the country. Can you imagine how many we could employ to do this job? Let’s go a step further and destroy the machines that are the freight cars themselves! Wow, we’re all going to be rich! So many people will now be employed!
One problem, the opposite will now be true. We will all be the poorer for it. Can you imagine the cost of transporting these goods, raw materials and so forth? Can you now imagine what the cost of these finished goods will be as a result? It would require a massive amount of wealth (production) to purchase any good that relies on trains to either receive raw materials for production or to ship out their finished goods to the market.
Machines make us richer by increasing the amount of wealth that we can produce with the same capital as before (time, resources, energy/labor). This goes for any increase in efficiency, assuming we are producing wealth in the first place. The savings in time, resources and energy can either be saved for further capital investment or produced into new products/services that we would not have had before for the lack of capital to produce them. (See also the broken window fallacy)
Side Note: Money/Paychecks are not wealth, which is why government stimulus is making us poorer, not richer. If we are not increasing wealth production in this country of real goods or are able to provide services to other economies which exchange a portion of their production for our services, we will not achieve prosperity, but poverty.
This series is based on the book “Economics in One Lesson” by Henry Hazlitt.
The Curse of Machinery: http://jim.com/econ/chap07p1.html
Additional Reading:
Fredric Bastiat, Essays on Political Economy
This is also related to individuals who are willing to do jobs for less cost, in our case, immigrant labor.
