The Theory of the Automatic Reabsorption of Technologically Displaced Labor

Abstract

The theory of the automatic reabsorption of displaced labor asserts that inventions are not a cause of unemployment. Any workers rendered unemployed by the introduction of a machine are reabsorbed automatically into new positions through the operation of various compensating mechanisms. There is a considerable literature on this subject.' Say's Law is the basis of the theory of automatic reabsorption of displaced workers. The dislocations caused to employment by technical changes are no more than a temporary development tending to be corrected automatically. A machine when introduced on the one hand sets up forces leading to the displacement of labor but, on the other hand, it sets up forces at the same time working for their reemployment. A machine will decrease the price of a particular good; if demand for this good is elastic, its consumption will increase. If the demand for the particular good is inelastic, consumers will spend less on this good and they will increase their demand for other goods. If prices do not decline, then profits will increase. This will lead to increased investment and consumption by the employers. Via these three effects, the total amount of employment is maintained. The Law of Markets is an automatic one, no permanent displacement of labor can possibly emerge from the introduction of a machine. The general elements in the theory of classical equilibrium are well known; the price mechanism is an automatic self-equilibrator controlling the system; the concept of an automatic equilibrium-any force disturbing equilibrium will automatically set into motion other forces tending to restore it; the Law of Markets; the premise of full employment; the principle of substitution to get the best combination of factors; the rate of interest and the rate of wages as automatic regulators. A technical change causes an initial displacement of labor, but it also sets in motion forces which tend to restore full employment through an increase of production and investment. The only problem of technical change is a temporary one of adjustment. It can also be formulated in Boehm-Bawerk's terms. Technical improvements mean a lengthening of the period of production. They are introduced when the rate of interest is low and it is profitable to have more roundaboutness. There is no net displacement of labor. Labor is shifted from the lower to the higher stages of production. A technical improvement involves an increased demand for investment funds. This causes the rate of interest to rise, which decreases the demand for, and increases the supply of, capital. Thus there is an automatic check on technical progress beyond the facilities afforded by capital accumulation.