I’ll start with a quote from the Study Guide to Chapter 7:
…in our world labor is the scarcest of inputs.
As Mises puts it on Page 136 [172 in the pdf]:
Labor is more scarce than material factors of production…
there are material factors of produc-
tion which remain unused because the labor required is needed for
the satisfaction of more urgent needs. In our world there is no abun-
dance, but a shortage of manpower, and there are unused material
factors of production, i.e., land, mineral deposits, and even plants and
equipment.
… it cannot be changed by any improvement in techno-
logical methods of production. The substitution of more efficient
methods of production for less efficient ones does not render labor
abundant, provided there are still material factors available whose util-
ization can increase human well-being. On the contrary, it increases
output and thereby the quantity of consumers’ goods. “Labor-saving”
devices reduce want. They do not bring about "technological unem-
ployment."
Summing up, he seems to be saying that if some labor saving device gets you fired, the answer is “Go get another job. There is always something to do, some resource on our vast planet that has not been utilized to the full.”
A few thoughts:
1, First of all, this whole chapter shows quite clearly that the action axiom is not enough to deduce all of economics. The earlier observation, that people think of leisure as a good thing, is an empirical observation. As is this whole section, that has two empirical observations. First that labor is the most scarce factor of production, and second [which on second thought seems equivalent to the first], that there is always more work to do.
So that Rothbard is correct in saying that the action axiom has to be supplemented by a few more axioms in order for praxeology to really get going.
Now of course this can be gotten around formally by making these assumptions part of a premise. Meaning if you want to deduce something or other, you need not say “Labor is scarce, which is an axiom. Therefor bla bla, by the rules of logic.” You can instead say “IF labor is scarce, then bla bla follows.” [And IF it’s not then some other bla bla follows] But of course the fruitful line to pursue, according to Mises, is precisely the one that assumes labor is scarce, because that’s how it is in the real world.
- So let’s get to the meat of things. To quote Murphy in the study guide,
In a market economy with flexible wage rates, all willing laborers are
channeled to those ends deemed most urgent;
From which I deduce that when someone is working in a factory for say $10 an hour, and he gets the boot because of some labor saving device, sure he will find another job, say ditch digging. But that job will pay less, because in the original scheme of things [before the labor saving device was invented] nobody was doing the ditch digging because it was not as profitable as working in the factory. Not for the worker, and not for an entrepeneur looking for somewhere ot invest. Otherwise that job of ditch digging would have been filled long ago.
Now one may argue that the economy as a whole benefits by the increased production, bringing prices down. And so the ditch digger will get more bang for his buck, despite his lower wage. But who is to guarentee that this increased purchasing power will be so high as to compensate for his lower salary?
Bottom line, labor saving devices may “reduce want”, and do not bring about technological unemployment, but they may very well reduce the living standard [forever] of the guys losing their jobs.
Comments?