(1) Effects of Machinery upon the number of Employed.—The motive which induces capitalist employers to introduce into an industry machinery which shall either save labour by doing work which labour did before, or assist labour by making it more efficient, is a desire to reduce the expenses of production. A new machine either displaces an old machine, or it undertakes a process of industry formerly done by hand labour without machinery.
In the former case it has been calculated that the expenses incurred in making, maintaining, and working the new machines so as to produce a given output will be less than the corresponding expenses involved in the use of the old machines. Assuming that the labour of making and working the new machines is paid at no lower rate than the labour it displaces, and that the same proportion of the price of each machine went as wages and as profits, it must follow that the reduction of expenses achieved signifies a net displacement of labour for a given quantity of production. Since the skilled labour of making new machines is likely to be paid higher than that of making more old machines, and the proportion of the price which goes as profit upon a new invention will be higher than in the case of an old one,[174] the actual displacement of labour will commonly be larger than is represented by the difference in money price of the two machines. Moreover, since in the case of an old manufacturing firm the cost of discarding a certain amount of existing machinery must be reckoned in, the substitution of new machinery for old will generally mean a considerable displacement of labour.
Similarly, when a new process is first taken over by machinery the expenses of making and working the machines, as compared with the expenses of turning out a given product by hand labour, will, other things being equal, involve a net diminution of employment. The fact that the new machinery is introduced is a proof that there is a net diminution of employment as regards a given output; for otherwise no economy would be effected.
What then is meant by the statement so generally made, that machinery gives more employment than it takes away—that its wider and ultimate effect is not to diminish the demand for labour?
The usual answer is that the economy effected by labour-saving machinery in the expenses of production will, through competition of producers, be reflected in a lower scale of prices, and this fall of prices will stimulate consumption. Thus, it is urged, the output must be greatly increased. When we add together the labour spent in producing the machinery to assist the enlarged production, the labour spent in maintaining and working the same, and the labour of conveying and distributing the enlarged production, it will be found that more labour is required under the new than under the old conditions of industry. So runs the familiar argument.
The whole argument in favour of the gain which machinery brings to the working classes hinges upon the contention that it increases rather than decreases the amount of employment. Now, though we shall find reason to believe that machinery has not caused any net diminution of employment, there is nothing to support the rough-and-ready rule by which the optimism of English economists argues the case in its application to a single trade.
The following is a fair example of the argument which has passed current, drawn from the pages of a competent economic writer:—
"The first introduction of machinery may indeed displace and diminish for a while the employment of labour, may perchance take labour out of the hands of persons otherwise not able to take another employment, and create the need of another class of labourers altogether; but if it has taken labour from ten persons, it has provided labour for a thousand. How does it work? A yard of calico made by hand costs two shillings, made by machinery it may cost fourpence. At two shillings a yard few buy it; at fourpence a yard, multitudes are glad to avail themselves of it. Cheapness promotes consumption; the article which hitherto was used by the higher classes only is now to be seen in the hand of the labouring classes as well. As the demand increases, so production increases, and to such an extent that, although the number of labourers now employed in the production of calico may be immensely less in proportion to a given quantity of calico, the total number required for the millions of yards now used greatly exceeds the number engaged when the whole work was performed without any aid of machinery."[175]
Now, turning from the consideration of the particular instance, which we shall find reason to believe is peculiarly unfortunate when we deal with the statistics of the cotton industry, it must be observed that economic theory makes dead against this à priori optimism. Ignoring, for the sake of convenience, the not improbable result that an economy of production may, at any rate for a time, swell profits instead of reducing prices, it will be evident that the whole value of the argument turns upon the effect of a fall of price in stimulating increased consumption. Now the problem, how far a given fall in price will force increased consumption, we have found in our discussion of monopoly prices to involve extremely intricate knowledge of the special circumstances of each case, and refined calculations of human motives. Everything depends upon "elasticity of demand," and we are certainly not justified in assuming that in a particular industry a given fall of prices due to machine-production will stimulate so large an increase of consumption that employment will be given to as many, or more persons than were formerly employed. On the contrary, if we apply a similarly graduated fall of prices to two different classes of goods, we shall observe a widely different effect in the stimulation of consumption. A reduction of fifty per cent. in the price of one class of manufactured goods may treble or quadruple the consumption, while the same reduction in another class may increase the consumption by only twenty per cent. In the former case it is probable that the ultimate effect of the machinery which has produced the fall in expenses of production and in prices will be a considerable increase in the aggregate demand for labour, while in the latter case there will be a net displacement. It is therefore impossible to argue à priori that the ultimate effect of a particular introduction of machinery must be an increased demand for labour, and that the labour displaced by the machinery will be directly or indirectly absorbed in forwarding the increased production caused by machinery. It is alleged that the use of steam-hammers has displaced nine of the ten men formerly required, that with modern machinery one man can make as many bottles as six men made formerly, that in the boot and shoe trade one man can do the work five used to do, that "in the manufacture of agricultural implements 600 men now do the work which fifteen or twenty years ago required 2145, thus displacing 1515," and so forth.[176] Now in some of these cases we shall find that the fall of prices following such displacements has led to so large an increase of demand that more persons are directly engaged in these industries than before; in other cases this is not the case.
The following quotation from a speech made at the Industrial Remuneration Conference in 1885 will present the most effective criticism upon Professor Leone Levi's position:—