I want to use Adam Smith's famous paragraph about the pin factory as a springboard to discuss the ramifications of increased productivity. In this paragraph, from the first chapter of The Wealth of Nations, Smith explains how division of labor and specialization increase productivity. 

"To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations." 

What I want to do is to look at the (potential) ramifications of productivity increases. And to simplify the matter, I want to first use the imaginary example that in a pin factory with 100 workers, someone invents a machine that needs only one worker and that makes the same number of pins that all the workers together made. For additional purposes of simplification I want the machine to have been easy and so inexpensive to make that we will call its cost negligible. Alternatively the machine could cost something but that cost would be small or negligible compared to paying workers' salaries. For my purposes, the overall logic turns out to be the same as long as the cost of the machine is less than the cost of paying the workers it replaces, but we won't have to bother with keeping track of worker versus machine proportional costs in doing the math¹. For the same reason, we will also assume that the factory owner is who invented the machine (or owns the patent on any such invention by his workers), so he doesn't have to pay the inventor. What would the ramifications of this invention be? 

There are a number of possibilities: 

(1) The factory owner fires all but one worker whom he keeps to work the machine. If this were to happen, the factory's total pin output per day would be the same as it was, and society would not gain anything in terms of the number of pins available from that factory. The workers would lose their means of earning a living (except in a few circumstances below), and would have to seek other ways to do that. If they are able to find other work to supply society with additional products or services, society benefits from having those additional services and products. 

In terms of profiting financially from the machine in this scenario, there are a number of possibilities: 

If the factory owner keeps the price of the pins the same:
(A) He could keep all the new profits. 
(B) He could share some of the new profit with the sole worker remaining 
(C) He could pay each person he fires severance pay or even pay them their full salaries until they find other work, no matter how long that takes. (This would require either an exceptionally nice factory owner, or it would happen in the case of equally shared ownership of the operation by all the employees, except perhaps the person retained to work the machine.) 

If the factory owner reduces the unit price of pins, either a little or substantially (as long as it is not too close to the point where he makes no additional financial profit from the machine above what he made from the workers):
(D) He could make a price reduction that still allows more profit than he had made previously. He could still divide that profit among his remaining worker or among the fired workers, or keep it all for himself. If this option is chosen, society gains, not from having more pins, but from having to pay less for pins, so that they do not have to labor as much for the purchasing of pins or so they do not have to pay as much as what they produce toward pins. They could buy other things instead. 

(2) The factory owner keeps all, most, or some of the workers and increases total pin production by essentially 100 times per worker. Society would gain by having many more pins available than they did before, assuming, of course, that there is a need and afforded demand for the pins. If any workers are laid off, they could be treated the same as they were in A or C above. 

When methods of production increase the possible per worker supply of a good or service, whether by a new machine or by a new organization of labor, society as a whole gains by having more leisure available for some of its workers, by more of the good or service available, or by having more purchasing power to buy other things, assuming there are other things to buy. 

The individual original workers may gain more leisure without losing any income (not likely except perhaps temporarily in a severance pay case, or in the case of their ownership of the factory to begin with), may gain leisure at the expense of being able to earn a living, or may find new work. 

If they find new work, their income for that work, all other things being equal, will have to come from what customers (i.e., the rest of society) have available to pay for it. Again there are a number of possibilities: 

(I) The workers can only make the amount of income from their new trade that is the difference between what people paid for pins previously and what they will have to pay now for pins. In other words, the workers new wages will come from purchases made with the savings on pin costs because the new customers of the workers who have changed jobs will only be able to afford what they have left over from saving on pin costs. Insofar as the pin factory owner keeps as his own income what previously would have gone to workers, there is less income available for workers in their new jobs, unless 

(II) The new jobs the workers find offer a product or service that people are willing to pay more for than they paid for pins. Customers then will either cut back on pin purchases even if pins are cheaper than they were, or they will work harder to produce more which they will then trade for the new product or service, or they will dip into savings (i.e., stored goods or money). Or unless 

(III) Increased pin production from option (2) above allows more of other goods and service to be available than were previously possible with a more limited supply of pins (perhaps there can now be more tailors who make more clothes, or some such, or perhaps some whole new use is found for pins that will allow the production of something never previously available). This would allow increased trade in the society as a whole because there would be more goods to be traded, and perhaps more people trading them.  The money aspect of trade would have to somehow catch up to equate with that or reflect it.

Yet what we are talking about here is simply greater productivity, which ought to be a boon to civilization, since greater productivity always lets there be either an increase in goods and services available or an increase in leisure (which is essentially a decrease in required labor). The challenge is to find a reasonable and fair way under the circumstances to deal economically with increases in labor productivity (and perhaps concomitantly in those situations where labor decreases in productivity through reductions in available resources or skilled labor, etc.). The mechanism needs to be fair simply because morality prima facie requires fairness where possible. And the mechanism needs to be reasonable, as does any economic mechanism, in at least the sense that it does not cause any unnecessary loss of incentive to achieve and thus cause an overall decrease in productivity. 

I include the phrase "under the circumstances" because what is fair in one set of circumstances is not necessarily fair in another. For example, if you have just a little to distribute among a lot of people, it is not unfair to give all of it to one deserving person; but if you have much to distribute among a relatively small group of deserving people, it is fair to distribute it either equally or in some proportion of merit. Or, as I have said throughout this book, what is fair to do with increased productivity in a society of relative mutual independence from each other, may be quite different from what is fair in a society where there is much mutual interaction and dependence. If no one else helps you have the lifestyle that lets you invent something of great value, you do not have the same kind of obligation to share the profits from that invention which you have to share them in a society where other people's work has given you the opportunity to be creative, or a society where what you do with your earnings affects other people's lives and opportunities. 

But what is necessary, I contend, is not just to find a monetary or financial way to deal reasonably and fairly under the circumstances with productivity changes, but to find reasonable and fair ways to deal with them in terms of the actual human costs and benefits that money ought to represent, but which it often masks, just as elaborately complex pyramid schemes often for a while mask their actual limitations. 

And though I have used the pin factory and mechanical invention as the introduction to this issue, the same problem arises (with multiplied complexity) when the increase in productivity or at least of profit, comes not from invention, but from the transfer of work, not to machines, but to people who will do it for far less money, such as workers in developing nations. The human costs and benefits of that action needs to be able to be seen clearly in ways that are only partially represented in terms of unemployment of the old economy and new standards of living in the developing countries. And financial explanations make that explanation even less clear because "cost of living" differences come into play that are difficult to take into account in human terms of what benefits and burdens people actually have in relationship to the amount of money they earn. 

There seems to be little problem of fairness in adding some labor to a paradise "economy", but there is a great problem of fairness in distribution of labor in going from a complex trade economy toward a paradise economy.  Diminishing leisure and adding work to an economy seems to be easier and less problematic from a fairness perspective than does diminishing work and adding leisure.  Yet the various points along the way going in either direction might be the same.  It is just generally socially easier to distribute work acceptably than to distribute leisure acceptably.

And one of the places where this is most apparently problematic now is in the kinds of cases above where machines and other mass production techniques can add leisure by doing work for people and where an increased supply of labor (such as in developing countries) holds the potential for allowing everyone to do less work overall and thus have more leisure.  But we don't have a good automatic economic or social mechanism in place for adding workers in order to increase leisure for all, instead of having the new workers simply replace the previous workers, thus forcing more "leisure" on them than they can afford to have.

In a paradise economy where work crops up, it would be unreasonable for one group to say they will do all the work, but they will also then keep all the benefits of it.  It would be more reasonable for everyone to figure out a way to share the work and the benefits.  But that is not what tends to happen in coming from the other direction toward a state of more potential leisure for everyone if it could only be distributed fairly.

Churchill is reported to have once said "The inherent vice of capitalism is the unequal sharing of blessings.  The inherent virtue of socialism is the equal sharing of miseries." But I suspect that dichotomy arises in that way primarily when economic advances are going in the direction of more potential leisure for everyone rather than more potential work for everyone.  It is, for example, easier in some way to assemble people to begin a new company than to cut back on the number of people the company needs.  If five people out of ten who are not working begin a new company that produces a new product or service, there is no apparent problem moral issue with that, but if a company of ten people needs only five people to do the work, a moral problem seems to arise. We are able to distribute new work more fairly than we are able to distribute newfound potential leisure.

But the other aspect of the economy where this problem is most serious is in the explosion of "information technology" which is essentially the increasing distribution at ever decreasing costs of digitized or otherwise electronically reproducable data -- whether for information or for entertainment. With the advent first of analogue transmission and recording capability, but even moreso with the advent of digital transmission and the virtually perfect recording capability of what is transmitted, the unit cost of reproducing and distributing digitized material becomes extremely small -- approaching a state of economic paradise of access once the material has been digitized and the networks are in place for distributing any and all digital information.  Yet, since this now raises the spectre of radically decreasing the amount of work necessary to distribute information and entertainment to people, it raises the issue of fairness of distribution of the increased leisure which digitalization affords society.  And while Sony and ASCAP reached one solution to the problem, we have yet to be able to generalize it or invent a procedure to generate similar such solutions as the needs (which ought really to be considered opportunities) arise.

Apart from some clearly unfair ways of assigning new, increased labor (as in drafting only economically disadvantaged people, "blue-collar" workers, or people not in college, in times of war to do the labor of fighting), as we increase the amount of work that needs to be done, we seem to have less social economic difficulty than when we decrease it.  That is because we have few mechanisms (such as reduction of hours in the standard work week, decreasing the age of retirement, or increasing paid vacation time) for distributing newfound substantial (potential) amounts of leisure in ways that are and that seem both fair and not damaging to the work ethic.  As technology and globalization brings the potential and the promise of more abundance, more leisure, and less potential need for work for everyone, it is increasingly important to bring into the economy mechanisms which will distribute that abundance and leisure fairly, productively, and reasonably.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

I am presuming also that it takes fewer people and hours of labor to make the machines than the number of total workers (and their hours) that the machines replace, and not just that the workers who make the machines are paid less in wages than the workers the machines replace -- the idea's being that the machine replaces workers for an overall savings of labor, not that it simply tranfers the collective wages of the pin makers in a reduced amount to workers who make the machines.  If it only did the latter, it would only be an increase in productivity for the pin factory, at the expense of the machine makers, not an increase in productivity for the overall economic system. (Return to text.) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

For my purposes here, I wish to include as leisure, not only play and idleness, but that "work" which the person doing it counts as enjoyment or as a leisure activity (no matter how much effort it might take), rather than as what he (reluctantly or not) needs to do in order to earn a living or achieve some extrinsic end.  So if someone enjoys discovering things, her own self-initiated "research" would not be something she considers work.  If someone enjoys teaching or coaching it would not be work in the sense I intend here.  Of course, in ordinary language we can talk about some leisurely activities (such as practicing at golf or tennis) as being hard work, but that is not the sense I am using it.  Hence, in an island paradise some people might be doing what looks like hard work or labor, but since they are doing it for enjoyment, it is a leisure activity for them, not "work" in the sense intended here.  That same activity, for someone else who does not enjoy it and/or who is forced by circumstances to do it, might be very hard work indeed.  I make this distinction because I do not mean to imply (and would vigorously deny) that in paradise no one would do much of anything -- that everyone would be slothful and lazy.  I suspect some people would do quite a lot, but they would not consider it to be work.

I realize I am making something of a loose distinction here because someone might find some aspects of golf not enjoyable as other aspects, and he might consider those to be work.  Or someone might have to work hard to teach a student a difficult concept, and the teaching may not be as as intrinsically pleasant as the perhaps extrinsic reward of seeing the student eventually use the concept in a worthwhile or enjoyable way. It is difficult in some cases to distinguish what is an intrinsic reward from an extrinsic one.  For example, if one does not like running, but likes the way running makes him feel near and after the end of a long run, is the reward of running intrinsic or extrinsic?  I don't know, but for the point I am trying to make here, it does not matter to have that precise a distinction. (Return to text.)