Chapter thirty-one

from Peter Radford

There’s a story about Richard Feynman who is reputed to have said that anyone who claims to understand quantum physics almost certainly does not.  This coming from someone who almost certainly did.  I have much the same reaction to anyone who claims to have understood Ricardo on their first read through his work.  Then again, perhaps it’s just my own struggle: every time I grapple with Ricardo it takes me a while to understand where he’s going.  It’s a case of knowing the plot, but failing to follow the details.

In any case, here we are towards the end of the pandemic-induced economic downturn and minds are turning back to the many longer term issues we were all discussing before the shutdown curtailed conversation and re-focused our minds on shorter term issues.  The march of technology and inequality have always loomed large in my mind so it to those that I am now returning.

One conundrum that interests me is that we are constantly being told to regret the loss of “good paying” factory jobs and their replacement by lesser paying service sector jobs.  Looking back to the beginnings of industrialization those same factory jobs were hardly welcomed.  The threat to traditional ways of life, however much a struggle that life might have been, loomed large in contemporary discussions about the march of technology, the arrival of machinery, and the shift from domestic to factory production.

There are echoes of that early controversy in our current efforts to come to terms with the arrival of things like artificial intelligence and other digital technologies that appear, at least anecdotally, to be altering not just the workplace but deeper aspects of society such as the balance of power between the key factions in the economy.

Technological unemployment is back on the agenda.

Which is why Ricardo is worth recalling.  That enigmatic chapter thirty-one, tucked away as it was at the end of the third edition of his “Principles” seems to betray his entire prior thought process.  He, in this chapter, opened the door to the possibility of technological unemployment, which came as a huge shock to his supporters and critics alike.  It isn’t worth getting into the details of Ricardo’s argument other than to reinforce the point that it appears to contradict his more conventional positions on political economy.  Such was the impact of the shift he made that a veritable industry emerged around the effort to understand why he changed his mind, what the importance of the change of mind was, or, indeed, whether he had changed his mind at all.

The fact remains that chapter thirty-one lays out how, in Ricardo’s mind, the steady rise in the use of machinery and the necessary investment of resources to create that machinery, can affect employment.  His conclusion that, at least in the short run, the uptake of technology can create unemployment shocked his contemporaries most of whom were strenuously engaged in the defense of the use of more and more machinery.

It is the very nature of the argument that intrigues me most: the discipline of political economy was developed in that early era of industrialization precisely to explain the changes going on in the economy and consequently in society at large.  The charged resistance to machinery amongst some elements of the workforce, which rose to various levels of violence at times, was seen as a threat to political stability.  Understanding and explaining the shifting economy was seen as a vital part of establishing the necessary authority to enforce laws protecting the rise of industry from its opponents.  The new economy and the political environment were inextricably linked.  Ricardo was often the go-to intellectual key witness in political discussions, debates, and controversies. He appeared to be a reliable supporter of free trade and all other forms of modernization.

And yet here he was arguing that machinery might not, after all, be such a good thing.  Or, more precisely, he argued that opposition by workers to the uptake of machinery by industry was not a blind or poorly conceived reaction.  It was, according to chapter thirty-one, a highly sensible and reasonable one.

Despite all the theorizing in the interim, economists even today slide too easily into the glib defense of automation by assuring that the implied rise in productivity will, inevitably, provide greater prosperity for all.  Maybe it does.  But is the distribution of that prosperity also, inevitably, to the benefit of the people who, per Ricardo’s chapter thirty-one, might suffer in the short term?  Economists tend to overlook the power struggle that it took to ensure industrialization was a broad based success.  That power struggle was not a short term one.  It lasted a century or more.  Certainly rising productivity added enormously to wealth.  To get that wealth shared more equably was not a shoe-in, and those who suffered in the early years never saw their reward.  Only later generations did.

Are we in a similar position today?  Will the rise of digital technologies render the same thorough-going re-organization of society?  And will the benefits accrue across all society or only to a few — the owners of the digital “machines”?

Paul Krugman, in a column in today’s New York Times, argues that job-loss to automation is not obvious in current data.  He uses the typical equipment of an economist to back up his argument: were labor being displaced by technology we should see a shift in the pace of productivity growth.  We see no such shift.  Therefore upset over the loss of jobs to robots etc is simply anecdotal and not supported empirically.

Is Krugman looking in the right place?

One of the first major effects of the original wave of machinery back in early industrialization was not so much to cause unemployment, although that happened, but to change the nature of employment.  It was as much a social impact as its as an economic impact.  And it rippled out from there to become a political problem.  Simply looking at productivity statistics does not capture such a “first wave” impact.  A gig economy worker is still employed.  But their experience of employment is radically different from that of someone still employed in a more traditional format.

And it is this experience of change that matters because it influences people’s reactions, attitudes, and behaviors.  Major technological shifts manifest themselves as equally significant social shifts.  Experiences and attitudes change.  Only after those social and cultural effects are fully absorbed can we start to understand the longer term economic impact.  We can, for instance, come to regret losing the very factory jobs that our ancestors resisted being created in the first place.

Then, of course there’s that chapter thirty-one.  And Ricardo who said this:

“That the opinion entertained by the laboring class, that the employment machinery is frequently detrimental to their interests, is not founded on prejudice and error, but is conformable to the correct principles of political economy.”

So there can be technological unemployment.  Under-employment too.  It’s that short term versus long term thing again.  And we all know about the long term.

What to do?