Thursday, July 31, 2014

SCIOD 3: Chariots of the Luddites

Edmund Cartwright was checkmated in his endeavor to turn a commercial profit from his mechanical loom. In 1790, Cartwright licensed Robert Grimshaw of Manchester, a manufacturer of cotton check cloth, to install 500 of his power looms in a large weaving factory at Knott Mills. The proposed factory was to be on a larger scale than any mill in existence at that time. Only twenty-four of the looms were in operation by February of 1792 when the Grimshaws received an anonymous threatening letter, presumably from hand-loom weavers (or competitors?) who were alarmed by the scale of the undertaking and its potential impact on the market:
Sirs—We have sworn together to destroy your factory, if we die for it, and to have your life for ruining our trade; and if you go on, you know the certainty, which comes unknown to my companions.
About a month later, the mill was burnt to the ground. The fast combustion of the building indicated arson. Although the factory had been well insured, Grimshaw declined to rebuild and forfeited his license from Cartwright, perhaps because he took seriously the threat of further violence.

The destruction of the factory at Knott Mills foreshadowed the Luddite uprising that was to come two decades later and also followed in a tradition that had led to several incidents at cotton spinning factories in Lancashire a decade earlier, just five years before Cartwright had his auspicious conversation about spinning, weaving and chess-playing automatons:
A mob rose and scoured the country for many miles round Blackburn, destroying all the jennies, carding engines, and every machine driven by water or horses…. Even the upper and middle classes in those days entertained a great dread of machinery, and they connived at, and even actually joined in, the opposition of the working classes to its extension.
In response to those outbursts, Dorning Rasbotham, a magistrate near Bolton, wrote a pamphlet, "Thoughts on the Use of Machines in the Cotton Manufacture," that was to make an enduring impression on political economists. Although there has been some question raised regarding Rasbotham's authorship of the pamphlet, a memorial plaque in the church where his remains were buried described him as having "the characters of the poor man's friend." The pamphlet was signed "a Friend to the Poor." Squire Rasbotham strove to leave no doubt about where his sympathies laid:
I am, from the bottom of my heart, a Friend to the Poor. I wish to plead their cause, and to speak in their favour. I feel tenderly for the poor man and his family. And, if my heart does not deceive me, I would do, I would suffer any thing for their welfare. Led by no other principle, but regard to the Poor, I now wish to enter into free and friendly conversation with you, my poor but esteemed friends, on the subject of our machines.
Rasbotham's repertoire consisted of a series of assertions, several of which express notions that are repeated perennially as commonplaces in economic thought:

  1. The interests of the poor should have the highest priority (after all, what would become of the rich if there were no poor people to till their grounds, and pay their rent?);
  2. There is not so great a difference between the real interests of the rich and of the poor;
  3. Trade is a large and difficult subject that requires deep thought, long study, extensive reading and large experience to form a true judgment;
  4. Machines distinguish men in society from men in a savage state. There are many examples showing how machines invariably benefit people;
  5. All improvements at first produce some difficulty but many receive the benefit while only a few suffer (probably not much and hopefully not for too long), Those who are inconvenienced should be grateful for the opportunity to make a sacrifice for their fellow man;
  6. Trade will find its own level. Those thrown out of their old employments will find or learn new ones. Those who get a disproportionate gain will soon find many rivals and lose their temporary advantage;
  7. There is a disposition among people to be unduly alarmed by new discoveries;
  8. Even if machines are evils they are necessary evils. We might as well make the best of them;
  9. This would be a prosperous time for the poor, if only they would show some initiative and weren't so inclined to carry their money to the alehouse;
  10. Anyone who disagrees with the above truths is an irreligious, conscienceless scoundrel and nincompoop; and, last but not least,
  11. The belief that "there is only a certain quantity of labour to be performed" is a false principle.
John Ramsey McCulloch, one of the more prominent political economists of the second-rank in the early 19th century was effusive in his praise for the sensibility and soundness of Mr. Rasbotham's opinion, emphasizing the observation that "There is, in fact, no idea so groundless and absurd, as that which supposes that an increased facility of production can under any circumstances be injurious to the labourers." Rasbotham's final point merits quotation in full if only because future economists echoed it incessantly for two centuries hence, presumably without the faintest clue as to its origin:
There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them. But if now machines perform a larger share than before, suppose one fourth part, so many hands as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers. [emphasis in original]
Banal as Mr. Rasbotham's paragraph may seem, it anticipates by around 20 years a principle expressed by Jean-Baptiste Say that eventually would come to be baptized "Say's Law" and preside over centuries of dogmatism, controversy and confusion. Here is how Joseph Schumpeter described in 1954 the variegated reception of Say's Law down through the years:
He hardly understood his discovery himself and not only expressed it faultily but also misused it for the things that really mattered to him. …Ricardo understood it because it tallied with considerations that had occurred to him in his analysis of international trade, but he also put it to illegitimate use. Most people misunderstood it, some of them liking, others disliking what it was they made of it. And a discussion that reflects little credit on all parties concerned dragged on to this day when people, armed with superior technique still keep chewing the same old cud, each of them opposing his own misunderstanding of the 'law' to the misunderstanding of the other fellow, all of them contributing to make a bogey of it. (624-5).
A half century later, Robert Clower subtitled his article on Say and his law, "the story of a mare's nest." So just what does this so-called law say? In the 1821 English edition, C. R. Prinsep renders the following translation of the key paragraph:
It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products.
"The creation of one product… opens a vent for other products." Although not identical, this version is reminiscent of Rasbotham's "By bringing our goods cheaper and better to market, we open new markets." Book I, Chapter VII of J. B. Say's Treatise on Political Economy, "Of the Labour of Mankind, of Nature, and of Machinery Respectively," reiterates many of the same points that Rasbotham made, down to using the same examples to illustrate the arguments. I don't know if Say read Rasbotham's pamphlet but it was well known, Edward Baines and John Ramsey McCulloch praised it highly, and Say attended school in England in the mid-1780s.

Although criticized by defenders of the sanctity of Say's Law, Keynes's version, "demand creates its own supply," captures the essence of the argument, albeit ambiguously and incompletely. There may well be, though, as Poe's Dupin remarked, "such a thing as being too profound." From the start, Say's Law incorporated a vast amount of ambiguity and evasion. Clower suggested it could have been better labeled Say's Platitude. Keynes's reductive summary of the claim legitimately represented the reductivism that prevailed in typical textbook dogma. Keynes didn't exactly capture all the nuance of Say's Law. Neither did the textbooks that revered it. Nor did Say.

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