The Luddite fallacy is an economic idea which has been around at least since the late 1700s. The belief is that mechanization displaces labor and causes unemployment, and the conclusion is that we shouldn’t mechanize labor. Those who fear technological developments are often called “Luddites,” named for a young man, Ned Ludd, who supposedly broke some stocking frames in 1779.
Economists such as Frédéric Bastiat and Henry Hazlitt have done well to refute this fallacy, and thanks to their efforts, it is no longer a popular view. That is, it isn’t popular in its anti-machinery form — some people continue to believe that machines cause unemployment, but other constructs of the fallacy are much more popular today.
These are, of course, the economic objections to trade and immigration. The anti-trade fallacy is actually older than the Luddite fallacy, and the anti-immigration fallacy is (as far as I can tell) much newer. Also, the anti-trade and immigration fallacies seem to be more popular on the political right, while the anti-machine fallacy historically has appeared more popular on the left. Despite these differences, they are really all the same fallacy.
Before Adam Smith wrote The Wealth of Nations in 1776, mercantilism, the idea that the economic wealth of a nation depended upon positive net exports and the accumulation of gold, was popular among the world’s leaders. Smith, and later, Bastiat and David Ricardo developed theories in support of free trade, but many people continue to promote this fallacy. Offshoring production is often referred to as “shipping our jobs overseas,” and buying a Japanese car brings forth accusations of “sending American money to Japan.” As I have often found, Bastiat’s explanations (especially when restated by the English-speaking Hazlitt) are simple and effectively drive home the point.
In a market of free exchange, resources, including labor, tend to be employed where they can be most productive. If a domestic industry is protected, it will become more profitable and, therefore, employ more workers and other resources. Without protectionism, some of these laborers and resources would be employed in other industries. Protectionist policies, then, hurt the other industries that would have employed these workers and resources.
Additionally, since the policy transfers labor and resources from industries where they are most productive to industries where they are less productive, overall productivity is reduced. This causes consumer prices to rise, which means that consumers can consume less than they otherwise would — a loss of real wealth. The effects of protection, then, are that one industry is protected while others are forced to cut back and consumers become less wealthy.
The belief that immigrants steal jobs is also a construct of this fallacy. Let me state here that there are, I believe, legitimate rights-based objections to open immigration, and that my purpose here is only to address the economic fallacies, not to advocate for open immigration. Considering that the idea that immigrants reduce the employability of those of us who already live here is very similar to the idea that offshoring and free trade cause domestic unemployment, I don’t have a whole lot to say. A flood of immigrants is, economically, no different than a flood of other resources, such as iron. It increases productivity, which makes society wealthier. Prices fall, allowing consumers to afford more.
I know I’m beating a dead horse here, but it’s a horse that has been beaten flat into the ground countless times, only to be revived again each time, occasionally in different forms. As long as people continue to ignore what is not seen, we will need to be there to point it out. I will leave you with this paragraph from the first chapter of Hazlitt’s Economics in One Lesson:
In this lies the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.
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