The Economy Isn’t Demand-Driven and Automation is Nothing to Fear

[Originally published in the Front Range Voluntaryist, article by Noah Leed]

"If (un)employment were the key
driving force of economic growth
then it would have made a lot of
sense to eradicate unemployment as
soon as possible by generating all
sorts of employment."

~ Frank Shostak

What we see is that economic growth itself helps in generating all sorts of unemployment, and then reemployment. There is no doubt that technological advances (tractors, for example) helped put people out of work, by allowing for the use of only a single man-hour of labor where it formerly took ten or perhaps a hundred man-hours to achieve the same output.

But technological advances also require the production of more and better capital goods, which obviously creates new jobs—better jobs. Why better? Because the productivity gains of increased output with fewer man-hours means more wealth creation per job in these new jobs.

Cutting the amount of labor required means the ability to generate far more output at the same cost. That allows a producer to lower prices, which in turn enables more consumers to purchase that output and have more money left for other purchases, raising their living standards (a fact sometimes referred to as "good deflation").

Greater real wealth creation allows for rising real wages, which allows for more demand and consumption, which allows for more wealth creation and more job creation. The increase in demand is a by-product of the increased productive output, not the other way around.

Can one really keep lowering his prices, keep increasing output, keep hiring more workers, and also give them raises even as he lowers his prices (and gets rich doing it)?

Ask Henry Ford.