A NA�?VE ARGUMENT
xi. r. UEACH
Over the long history of the Compensation Controversy - the économie theory of the employment effects of mechanization - there has appeared repeatedly an interesting argument which has become accepted by common agreement as « naive ». We wish to examine the naivete of the argument.
Blaugl states it as «... the naive argument that ail technically dis-placed labor will necessarily be absorbed in the making of the machines themselves. > He notes that it is only a part of the question of the total re-absorption effects because there are additional aspects to be considered, such as the possible increased output of the final product. The argument is stated clearly by Ross 2 :
«As more intensive study is made of technology's impact, what has already been learned should not be forgotten. We hâve learned that almost every technological change is labor-saving in the sensé of reducing labor requirements per unit (including the labor required to make the equipment). If this were not true, the additional in-vestment would ordinarily not be economical...»
Neisser 3 labelled the argument as « naive > in 1942, and it may be found in the literature both before and since.4
THE LONG RUN
The argument implies a long run comparative statics kind of économie theory. A comparison is made between two économies, both in long run
* BEACH, E.F., Professor, Department of Economies, McGill University, Montréal.
1 M. Blaug Economie Theory in Retrospect Irwin, 1962, p. 172.
2 A.M. Ross, éd. Unemploment and the American Economy Wiley, 1964, p. 13.
3 H. Neisser, « Permanent Technological Unemployment », A.E.R., March, 1942, p. 58.
4 J.A. Hobson, The Evolution of Modem i^apitalism Allen & Unwin, lst eu. 1894, Chapter XII, Section I (P. 318 of the 1926 éd.) and B.S. Kierstead, The Theory of Economie Change (Macmillan, Toronto, 1948.
Industrial Relations Industrielles, vol. 29, no 2
stationary equilibrium, in one of which the machinery5 is installed and working, and in the other the machinery is non-existent. The rate of production of the output may be assumed to be the same in the two économies, or for this particular argument the rates can be différent, because we are concerned only with the unit cost of production of the product. In this context, it would indeed appear that the argument is naive.
Consider next a comparative dynamics context, in which both économies are growing at the same rate - as measured, say by the rate of growth of the total product of the economy. In this context there would be an accumulation of capital equipment, and the measure of final product should include the increase in such equipment. If the accumulation of capital is sufficiently rapid, say through the graduai mechanization of the whole industry, it is surely possible for ail of the displaced workers to be re-absorbed in the making of machinery for this industry. In that case, however, the reabsorption is in the growth aspect of the economy, and not strictly in the mechanization as such 6.
THE SHORT RUN
In the short run there is not time for the capital equipment to wear out, and hence a comparison of the per unit costs in the two cases of stationary equilibrium entails only the dépréciation allowance for the mechanized production. Thus the cost of the units produced in the first year or two cover no more than a fraction of the total cost of the machinery, and hence only a fraction of the labour cost entailed in the production of the machinery.
It is, of course, usual for ...