The Childish Babbling of a Say Revisited
Over at radicalnotes.com, Dipankar Basu writes:
http://radicalnotes.com/content/view/31/30/: I started looking for the passage in the book where Foley asserts that "technological unemployment is the rule"; I am still searching. Probably DeLong would be so kind as to point to this passage that Foley seems to have forgotten to insert in his book...
The passage I read as (F2) starts on page 10, where Foley has an argument that Say's Law is false, that productivity growth creates technological unemployment, and thus that Adam Smith is wrong to praise the long-run effects of the extended division of labor as unambiguously good:
P. 10 ff: The increasing division of labor with its consequent rise in labor productivity has at least one immediate negative effect: a reduction in the demand for labor in industries undergoing rapid rises in productivity. The reason for this is that the increases in the productivity of labor may run ahead of the widening of the market. Even though more units of the product are being produced and sold, if labor productivity is rising ever faster, fewer workers will be required to produce the output, and unemployment can result.
Smith acknowledges this effect... but argues, on the basis of reasoning that later came to be known as "Say's Law," that in the aggregate there cannot be a chronic excess supply of labor.... The reasoning... is... that the source of demand for commodities... is just the willingness of workers and the owners... to make their resources available for production. In real life, this potential demand can become effective only if money is available to finance the start-up of production.... Smith and his successors who reason on the basis of Say's Law are assuming that the financial system... is flexible enough... belie[ving] in the efficiency of the financial institutions of a capitalist economy.
This is Adam [Smith's] Fallacy in action. The immediate effect of increases in labor productivity is to impose costs (unemployment) on a group (workers) who are in a weak position to protect themselves from these costs..."
What I call (F5) is the game of intellectual three-card-monte that Foley plays in reversing his field: having criticized Adam Smith for assuming that Say's Law operates in the long run, Foley backflips and says that something like Say's Law does operate in the long run: "Over long periods of time... something like Say's Law does operate... there is no long-term drift towards constantly increasing unemployment as a result of technological change..."
