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Technology and Unemployment: We Have Been Here Before 37 However, in 1817 the publication of a booklet by John Barton put an end to the indifference of polit- ical economists to the consequences of mechani- sation on employment and wages and started a debate that would continue throughout the centu- ry. 6 Barton questioned the belief of political econo- mists in Adam Smith’s virtuous connection between the nation’s wealth, the generous compensation provided by work and demographic growth: “a given increase of wealth does not always create an equal demand for labour” and therefore higher wages. For Barton, the cause was simple: “the manufacturer and the farmer … sometimes invest their [capital] accumulations in the construction of machinery, or in permanent improvements to the soil, calculated to give an equal produce with a smaller number of hands; at other times to hire additional workmen for the purpose of bringing to market a larger produce.” 7 The level of wages, or, rather, the ratio of wage costs to the value of produc- tion would determine the proportion of investment allocated to machinery in total investment. Following this booklet, John McCulloch – a Scottish political economist with a close affiliation to David Ricardo – published an article in 1820 in which he wrote in defence of Barton’s ideas that “the fixed capital invested in a machine, must always displace a considerably greater quantity of circulating capital – for otherwise there could be no motive to its erec- tion; and hence its first effect is to sink, rather than increase, the rate of wages”. 8 6 Barton, John (1817) “Observations on the Circumstances Which Influence the Conditions of the Labouring Classes of Society”, London: John and Arthur Arch. John Barton (1755–1789) was a political economist with philanthropic leanings. He founded Birkbeck College, called London Mechanics’ Institution, whose original purpose was to educate the working class. 7 Ibid. , p. 17. 8 Quoted in Sraffa, Piero (2004), “Introduction”, Piero Sraffa (Ed.), “The Works and Correspondence of David Ricardo”, Vol I, Indianapolis: Liberty Fund, p. lviii. 9 Ibid. , p. lviii. 10 McCulloch, John (1821), “The Opinions of Messrs Say, Sismondi, and Malthus, on the Effects of Machinery and Accumulation, Stated and Examined”, Edinburgh Review , March 182, p. 115. After the publication of this article, Ricardo wrote a letter to McCulloch disagreeing with his conclusion – “the employment of machinery … never diminishes the demand for labour – it is never a cause of a fall in the price of labour, but the effect of its rise” – leading to the controversy we describe below. 9 The compensation theory In 1821, following Ricardo’s criticism, McCull- och revised his opinion, expounding what would become known as the “compensation theory”: “… no improvement of machinery can possibly dimin- ish the demand for labour, or reduce the rate of wages. The introduction of machinery into one employ- ment, necessarily occasions an equal or greater demand for the disengaged labourers in some other employment .” 10 Notwithstanding Ricardo’s later change of heart and Marx’s criticism, the com- pensation theory became the predominant opin- ion of 19th-century political economists, as well as 20th-century neoclassical economists, and even today remains the “default” view of most econo- mists. Classical economists who defended the idea of compensation and their neoclassical heirs did not, and do not, deny that mechanisation – whether at the scale of individual businesses, sectors or the economy as a whole – can lead to the destruction of jobs. However, they believe that these effects are only short term. To a greater or less degree of sophis- tication, they argue that other effects exist which off- … the compensation theory became the predominant opinion of 19th-century political economists, as well as 20th-century neoclassical economists, and even today remains the “default” view of most economists.