All Commentary
Sunday, March 1, 1964

Hail to Automation

Society is often viewed as some­ thing so complex that it needs an equally complex organization to run it. Consequently, there is a tendency to justify acts of organizations or groups that cannot be morally justified for individuals.

This is like devising special rules of mathematics to be used only when large numbers are involved, or supposing that water in a small cup would be different from the water in Lake Erie.

The natural Laws of God pertaining to man in society are not temporarily arrested simply be­ cause more people, greater sums, or longer distances are involved. Yet every day we observe supposedly intelligent men succumbing to the fallacy of complexity.

Recently, I participated in a panel to seek solutions to the problems arising from automation. One panelist, a professional labor union leader, went into great detail describing proposed labor legislation and contract objectives that he believed would result in more jobs to offset those allegedly eliminated by automatic production equipment.

He proposed a 30-hour week, an annual 13-week vacation, and a one-year-in-seven “sabbatical” – all, of course, at the original pay received for a full year of 40-hour weeks. The reasoning went like this: If each employee works few­er hours out of the total hours required to operate a factory, then more people must be hired – there­fore, more persons will have jobs than before. As the labor official spoke, a picture came to mind of a man I had known in my youth. Old Jim lived in a small house on a large lot one block from our abbreviated down­ town section. There in the summertime grew all kinds of vegetables – rows of tall corn and tomato vines shored up by poles – with scarcely a spring or summer day that did not find Jim busily at work in his huge garden. He lived alone, and I never ceased to won­ der, as a boy, how he could possibly eat all his garden yielded. Later, I found that Old Jim canned his vegetables and thus supplied his own food for the entire year. The little money he needed probably came from occasional odd jobs. His house was neat and in good repair. His entertainment seemed to come from children, like me, whose endless questions never failed to amuse him.

Now it came to me why the labor panelist had brought to mind Old Jim, of whom I had so often asked in my youth, “You always work so hard; why don't you take a vacation ?”

His reply never changed, “Can't afford to.”

“Why not?” I would press.

“Because I like to eat when the snow flies,” he would chuckle. It made sense, for one could plainly see that nearly all of his possessions came directly from his own work. If Jim did not make it or grow it, chances are he did not have it.

As the labor official spoke of an annual 13-week vacation, I could hear my boyhood self asking, “Why not take a 13-week vacation, Jim?” Jim most surely would have replied, “Thirteen weeks vacation would starve me to death, boy!”

Perhaps not starvation, but obviously if a person were to cut three months of production effort out of a year, his material level of living would be drastically reduced. Is organized labor suggesting that its members have their real income cut back by one­ fourth ? No, they intend that each employee shall receive his entire year's pay – four-fourths – even though he produces only three­ fourths ; and the gullible stand ready to believe the impossible if someone promises it to them.

The complexity introduced by dollar bills causes the labor official to say, in effect, that a vacationing employee can have his cake and eat it, too. No one can perform such hocus-pocus any more than Old Jim could have had food in the wintertime from vegetables neither planted nor canned had he taken a three-month summer vacation.

Can Get Only What Is Produced

If there were no government interference in agriculture to cloud one's common sense, it would be clear that the purchasing power of a farmer is the corn, wheat, and other produce he raises. If he wants more purchasing power, he increases his output through more effort and bigger investment. A farmer who produces 4,000 bushels of corn has more purchasing power than his neighbor who has produced 3,000 bushels. The same principle applies with respect to tires, roller bearings, ceramic tile, shoes, and so on. For example, let us suppose a factory employing 120 production workers makes 12,000 color TV sets a year. The sets are sold to distributors for $150 each. Here is a breakdown of the company operations:




Each S et

$  50.00

12,000 SetH


Materials, etc.



Fixed Costs









*12%, before taxes, as return on $750,000 investment.

The minimum sales price to cover all costs and the investors' 6 per cent (after taxes) is $150.00. The firm could not charge less and pay its obligations. Competitors' prices probably keep the company from charging more.

Just as the farmer's purchasing power can be measured by the bushels of grain he grows, so can these productive workers measure their purchasing power by the TV sets they produce, that is, to the extent that their efforts contribute to the total market value of each set. In the above example, the labor is one-third of such value, $50 of the total $150 sales price. Since 12,000 sets were produced by 120 production workers, the average is 100 sets each. One­ third of 100 sets equals 331/3 sets, the average purchasing power of each production employee. It can also be stated in dollars by multiplying 331.1 sets by the sales price, $150.

Next, let's try the 13-week vacation idea on our theoretical manufacturer. If one-fourth of the workers are to be on vacation at all times, the company must hire 40 additional people, making 160 production workers, each working nine months a year rather than twelve. If each performs at the same rate of productivity as be­ fore, the total number of TV sets produced will be the same – 12,000 – since only 120 workers will be producing at any one time during the year. Those on vacation do not produce any sets. The company has only 12,000 TV sets to sell, the same as before. Presumably, the selling price is as high as the company can ask. Possessing no magic wand that will cause the consumer to pay a higher price and having no increased number of sets to sell, the company cannot pay more total dollars for labor than it d id before, namely, $600,000. This time, however, the $600,000 is divided among 160 employees rather than 120. The average income earned annually is now only $3,750, down from $5,000. Instead of the previous 100 sets produced per worker, 12,000 sets di­ vided by 160 employees equals 75 sets a year-down 25 per cent because each worker now vacations 25 per cent of the year. Since he receives one-third the total value of the sets he produces, he now receives the equivalent of 25 sets instead of 331/3.

But, no, says my fellow panelist, the $5,000 dollars previously paid for twelve months work now must be paid for nine months work!

Cannot Get More

There are only two ways to accomplish this feat, either by inflation (government fiat), or by raising the selling price. The first is a deceptive method so that while the worker, in fact, will be paid $5,000 as before, the dollars will have shrunk in value. His purchasing power remains the equivalent of only 25 sets, still down from 33% sets. It matters not whether his annual wage is 50,000 or 500,000 paper dollars. It matters only what the dollars will be able to buy in the market place – and they simply cannot command more than the value of the 25 TV sets he has made.

As previously discussed , it is futile to try to raise the selling price, unless quality is improved or new features added. To attempt such noncompetitive action would probably lead to disaster for the company and an end to the jobs it has provided.

Answer – Produce More

The solution to the “problem of automation” is to understand and support the goal of better tools for mankind. We should embrace, adopt, welcome, hail -automation! Work with it, not against it.

Easy enough to say, some may think, but the person displaced by automation seldom sees it that. way while he sits on the sideline jobless or makes the necessary adjustment and preparation for a new job.

The painful necessity to change jobs may draw sympathy from friends and acquaintances, but it is hardly sufficient reason to abandon the economic “system” that yields so plentifully to so many. Every day finds some persons un­ willingly relinquishing their economic position to the newcomer or the upstart. The down town storekeeper sees his suburban competitor pass him by. The top­ranking movie heart-throb of a decade ago loses his popularity with the you nger female fans. The hula-hoop manufacturers rise rap­idly to the top and just as rapidly skid to oblivion. Less publicized are thousands who attempt un­successfully to launch new businesses. Are all of these any less deserving than the wage or salary earner hurt when the changing character of the market place also touches him?

Lack of understanding breeds suspicion and distorted vision. It is important to understand how automation has been applied in the past and how it will apply in the future if unimpeded by artificial restraints. Let us revise our earlier example accordingly.

How Automation Raises Product Availability

The owners are convinced that they should invest an additional $250,000 to improve mechanization. This will enable the 120 production workers to produce 18,000 sets a year, an increase of 50 per cent over the 12,000 sets made with the older equipment. Following is a revised breakdown of the same company's operation with better equipment (automation ) and the same n umber of employees:

*12%, before taxes, on original $750,000, plus $250,000 new investment for automation.

Note that in this illistration that 18,000 sets (instead of 12,000) have been produced with the same total labor costs and fixed costs, the same cost of materials per set, and the same 12 per cent earnings before taxes on capital invested ; which means that the minimum sales price needed to cover all ob­ ligations is now $121.67 a set in­ stead of $150.00. The company thus is much better able to compete than before.

Though the savings were all passed on to the consumer for pur­ poses of this illustration, it is more likely that some would go to the production worker, some to the office employee, some to the salesman, and so forth. Note, too, that while fixed overhead costs remain the same in total, the fixed cost per set drops from $32.50 to $21.67, a significant gain as the next example will further illustrate. So, through automation, each production worker is able to turn out 150 sets, instead of 100, in contrast to the “big-vacation, create-nothing” scheme of the labor panelist.

Fear – Same Output with Fewer Workers

The bogeyman feared by my fellow panelist is that of a plant automated to produce only 12,000 sets as before, but with fewer workers. Let us apply this idea to the first example, assuming that additional investment would be available under these circumstances. Following is a revised breakdown using only 80 production workers to produce 12,000 sets on equipment that can pro­ duce 50 per cent more than the old equipment:

*12%, before taxes, on original $750,000, pl us $250,000 new investment for auto­mation.

Although each production work­ er in this illustration produces 150 sets (12,000 sets + 80 employees) , note that no savings occur in the fixed overhead, and the minimum sales price to cover all obligations is more than $14.00 higher than that shown on Schedule B.

Reality – Produce More With Same People

Major gains can come only through increased total production, not through constant output with fewer employed personnel. If the last two examples had reflected the operating decisions of two different companies competing against each other, it can readily be seen that the first company (Schedule B) is in a much more favorable competitive position than the second company (Schedule C). Company B has room to undersell Company C by 10 percent and still cover its obligations. Demands by labor and price com­petition can be met more easily by B than by C. Indeed, it is in this manner that all levels of material living have risen through­ out industrial history. Successful firms have utilized better tools and equipment – that is, automation Sales $135.83 $1,630,000 – to bring more and better goods to market at lower prices. Companies failing to follow this route usually fall by the wayside.

Fear – Overproduction

Here we encounter another automated bogeyman. Says my fellow panelist, warehouses soon will be so full from overproduction that all wheels will stop. Nonsense! It is nonsense, that is, unless nor­ mal economic exchange is stopped by a synthetic rigor mortis of artificial restraint applied by government directly or by other organizations operating under special privileges.

Reality – Few Are Without Additional Desires

I've never known a person whose wants in clothes were satisfied, particularly the “she's.” Nor do persons seem to reach a saturation point for cars, books, high-fidelity records and players, swimming pools, boats, camera equipment, or electronic organs. No college has sufficient facilities, no library enough books, no hospital without need for additional beds and technical instruments. It can be fun but frustrating to make one's own list of desirables that are currently beyond the reach of the old checkbook. These de­sirables can be attained only through greater production. The fear of general “overproduction” through automation is out of or­der in a free market economy. An occasional manufacturer may misjudge the demands of the people, producing a product no one wants at the price being asked. This, of course, is his error alone and his responsibility.

Automation Is Key to Better Material Living

Automated production methods give increased supplies so that more goods may be utilized by more people. At the same time, automation allows costs (and selling prices) to drop, helping to augment sales and thus building dreams into realities for more and more people every day.

Compare the inexpensive pock­ et-size radio of today with its higher-priced and poorer-quality counterpart of 35 years ago. Or, consider the change in the price and quality of television sets from 1948 to 1964. The telephone service is a good illustration of an intensely auto­ mated industry. Compare these statistics from annual reports of the Ohio Bell Telephone Company:

The number of employees dou­bled from 1940 to 1960 but they were able to service more than three times the number of telephones and handle more than four times the number of long-distance calls. The long-distance day-station-rate has declined, even when today's rates are stated in inflated dollars. In 1920, this rate was $14.10 to call from Canton, Ohio to San Francisco, California. In 1940, it was only $3.75. In 1960, the rate dropped to $2.10. Furthermore, the area of “free” calling (formerly long-distance calls) has expanded tremendously. Automation has been the means of reducing telephone rates for both local and long-distance calls while improving the quality of service and connecting more users than ever before. This telephone company example is not an isolated case, but is typical of the wide­ spread accomplishment of automation.

Better manufacturing methods, improved parts, and more efficient distribution bring increasing varieties of commodities within the purchasing power of all consumers. Automation and its fruits are thus shared unless blocked by ill-ad­vised labor contract restrictions or legislative prohibitions and penalties.

Machines and men together produce these fruits. The closer man works with tools the better his prospects for economic well-being. It is that simple. The transition from a 12-hour day to 10 and 8 and perhaps eventually to 6 should be the result of the voluntary choice of each person. Historically, such reduction in hours is closely tied to the availability and use of better tools and equipment. Primitive man, lacking tools, had to labor all of the daytime hours and much of the night just to scratch out a bare minim um existence. A six-hour day certainly would have brought starvation to him and his family. With more and better tools, human operators can afford to work fewer hours. A person tends to work with diligence to provide to the best of his ability what he considers a proper and balanced living. If he can achieve these desires i n less time – through skills, and especially through better tools – he may no longer want to work the same number of hours as before, preferring additional leisure to enjoy more satisfying mixtures of physical, mental, cultural, and spiritual objectives.

To best achieve his evolutionary destiny, his Higher Consciousness, man must have the time and energy to reflect upon the spiritual and the philosophical. But such progress will not be forced through legislation. Man grows in spirit and in truth only according to his own determination.

Less effort expended yields fewer fruits, no matter what the starting point used for comparison. An early American colonist would have reduced his purchasing power had he stopped working a quarter of his time. The same was true of Old Jim. And the same holds for a present-day employee no matter how highly auto­ mated his job may be. The introduction of an electronic assembling machine in a factory, or of fertilizer in Jim's tomato patch, merely allows mankind to move toward better days. Condemning and interfering with such burden­ saving devices is scarcely what one should expect from the creature God has endowed with the twin potentials of intelligence and moral judgment. 

  • John C. Sparks, who died on March 27, 2005, served on the board of trustees of the Foundation for Economic Education for many years. In the mid-1980s, following his retirement from business, Mr. Sparks served a term as FEE’s president.