That would be a maximally economically efficient approach to producing knit clothes - but hand knit clothing still does have a significant market. This year I sought out a cobbler to get a new pair of shoes because my feet are a bit weird and the machine templates for what a foot should look like doesn't produce something I can comfortably wear. If you personally derive value from putting in the manual labor to produce "artisanal" goods in most fields you can find a market willing to pay the premium for your labor. This market is much smaller than the machine-driven equivalent so it can't support nearly the same quantity of producers as the market supported before automation came along but it is a niche you can operate within.

I don't disagree with your main thesis that an automated knitting machine can out produce hand-knit goods but I do think you're under appreciating that there still is a market for the non-automated goods. Even if they can't compete for the majority of the market markets are weird and non-uniform so those skills do still feed into a market.

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