But Smith observed that when a group of pin makers got together and divided their labor, they could greatly increase their output. Instead of one worker performing all the tasks -- drawing out the wire, cutting it, shaping it, sharpening it, etc. -- each worker concentrated on just a single task. Smith found that by specializing, a group of 10 pin makers were able to produce 48,000 pins per day, whereas they could produce just 10 the old way.
In the first instance, these 10 workers could probably satisfy all of England's pin needs by themselves, thus putting all the rest of the country's pin makers out of work. But with a 4,800-fold increase in productivity, the cost of pins fell dramatically. Instead of being available only to the wealthy, they became something everyone could use. This led to new uses for pins and an increase in demand for them. The second order effect, therefore, was to raise employment in pin manufacturing.
Over the years, many economists have looked at the impact of machinery and productivity on employment. Some, like David Ricardo and Karl Marx, were very pessimistic about the long-term effects. Others, like Nobel Prize winners John Hicks and Herbert Simon, are much more optimistic. Most economists probably believe that even if there is a long-term trend toward reducing employment due to automation, it can be offset by an expansionary fiscal policy.
In any case, there has never been any evidence in the data or historical experience to indicate that high productivity depresses job growth. In fact, job growth is strongly correlated with productivity growth. That is, increased productivity leads to higher production and increased employment opportunities, rather than the reverse.
The reason is that output-increasing innovations always lead to new possibilities. As historian Daniel Boorstin once put it, "People said the telephone would replace the mails, the radio would replace the telegraph, the TV would replace the radio. But what new technology does is discover unexpected roles for the old."
In the years since Boorstin made that comment, we have seen the rise of the Internet. Now, although I receive 100 or more emails per day, there has been no reduction in the amount of ordinary mail I get. I just get one on top of the other. In practice, the Internet has created far more jobs than it displaced. That same is true for other productivity-enhancing innovations, as well.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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