Smith’s example was not
unique, nor was he the first to identify pin making. He asserts at the start of the paragraph “from a very trifling manufacture; but one in which the division of labour has been very often
taken notice of, the trade of the pin-maker”.
The
paragraph in Wealth Of Nations also follows part of what is written in his
manuscript known as the “Early Draft”, which is among some of Smith’s
manuscripts that were written 12 years before WN (1776) and is cited in his
“Lectures On Jurisprudence” (1762-3) 1983, Oxford University Press. The
manuscripts were found in Glasgow University archives by W. R. Scott, author of
Adam Smith as Student and Professor, Glasgow. Peaucelle shows that the manuscript details the ‘eighteen
operations’ are in identical arithmetic to the productivity improvements that
are found in the multi-volume, Encylopedie, Paris (1755) by Diderot and
D’Alembert’s, and similarly in Chambers Cyclopedia (4th edition,
1741). What Smith reported
arithmetically relies on these 18th-century sources.
Smith’s
Early Draft is interesting because it shows the arithmetic of a similar example and clarifies the divisions of the work among the operators:
“The division of labour, by which each
individual confines himself to a particular branch of business, can alone
account for that superior opulence which takes place in civilized societies,
and which, notwithstanding the inequality of property, extends itself to the
lowest member of the community. Let us consider the effects of this division of
labour as it takes place in some particular manufactures, and we shall from
thence more easily be enabled to explain in what manner it operates in the
general business of society. Thus, to give a very frivolous instance, if all
the parts of a pin were to be made by one man, if the same person was to dig
the mettal out of the mine, seperate it from the ore, forge it, split it into
small rods, then spin these rods into wire, and last of all make that wire into
pins, a man perhaps could with his utmost industry scarce make a pin in a year.
The price of a pin, therefore, must in this case at least have been equal to
the maintenance of a man for a year. Let this be supposed equal to six pounds
sterling, a miserable allowance for a person of so much ingenuity, the price of
a single pin must have been six pounds sterling. Supposing that the wire was
furnished to him ready made, as at present, even in this case, I imagine, one
man could with his utmost dilligence scarce make twenty pins in a day, which,
allowing three hundred working days in the year, will amount to six thousand
pins in the year; an immense increase! His maintainance for a day therefore must be charged
upon those twenty pins. Let us suppose this maintainance equal to ten pence, a
most liberal allowance compared with the foregoing, there must be a half penny
of this charged upon each pin over and above the price of the wire and the
profite of the merchant, which would make the price of a pin about a penny: a
price which appears as nothing compared with the foregoing, but which is still
extravagant compared with that which actually takes place. For the pin–maker,
in preparing this small superfluity, very properly takes care to divide the
labour among a great number of persons. One man straightens the wire, another
cuts it, a third points it, a fourth grinds it at the top for receiving the
head, three or four people are employed about making the head, to put it on is
the business of a particular person, to guild the pins is the occupation of
another, it is even a trade by itself to put them in the paper. When this small
operation is in this manner divided among about eighteen persons, these
eighteen will perhaps among them make upwards of thirty six thousand pins in a
day. Each person, therefore, making an eighteenth part of thirty six thousand
pins, may be considered as making two thousand pins a day, and supposing three
hundred working days in the year, each person may be considered as making six
hundred thousand pins in the year, that is, each person produces six hundred
thousand times the quantity of work which he was capable of producing when he
had the whole machinery and materials to provide for himself, as upon the first
supposition; and one hundred times the quantity of work which he was capable of
producing when the wire was afforded him ready made, as upon the second. The
yearly maintainance, therefore, of each person is to be charged not upon one
pin as by the first supposition, nor upon six thousand as by the second, but
upon six hundred thousand pins. The master of the work, therefore, can both
afford to increase the wages of the labourer, and yet sell the commodity at a
vastly lower rate than before: and pins instead of being sold at six pounds a
piece as upon the first supposition, or at twelve pence a dozen as upon the
second, are commonly sold at several dozens for a half penny.”
I have long argued that Smith’s ‘pin factory’ example in
chapter 1 of Wealth Of Nations, which while interesting, is by no means the
last word on the importance of the division of labour to commercial societies. I suggest that the implications of Smith’s
further example, a few pages on, of the production of the common labourer’s
woolen coat is extremely, if not more, important for our understanding of how
market societies raise productivity, improve existing products, creates new
products (Schumpeter’s ‘perennial gale of creative destruction’), and lower
unit prices and raise real wages, which in turn improve living standards. We know this happened in Europe and
North America, and is happening now in China, India, and Brazil.
Smith shows in his woolen coat example, the long supply
chains of productive labourers involved in producing such a simple basic
product. I recommend that you read
it, not just as an illustration of the national and international division of
labour, but also the inter-sectoral division of labour (to use a modern
designation) across all the sub-operations in the products produced elsewhere
by distant, unconnected masters and operators, who probably do not know of
those who might eventually use what they produce to produce other products,
beyond the knowledge of earlier and later inter-mediate links in long production
chains.
In my “Adam Smith: a moral philosopher and his
political economy”, 2010, 2nd edition, Palgrave Macmillan, ‘Great
Thinkers in Economics’ series, I present Table, 6.1, ‘Manufacture of a Common
Labourer’s Coat’ page 58, which shows 17 direct trades who manufacture the
coats, 4 indirect trades in the carrier business, 5 trades supplying tools, 19
indirect trades supplying the skills used in manufacturing related to the coat
output, also mentioned by Smith in his woolen coat example. I also recommend consulting
A. Young’s 1928 paper published in The Economic Journal, where he brings
Smith’s example up-to-date and shows its implications of increasing, not decreasing, returns that dominated marginal analysis in the 19th and
20th centuries, and is still taught in Economics 101 today.
Smith’s example of a simple, basic product represents
the remarkable division of labour needed to produce a simple coat in the 18th century, the implications of which are not drawn out in the ‘pins’ example, but
which is about as far as most students, and their tutors, go through Wealth Of
Nations on this critically important subject.
Brad Delong, however, as I regularly mention, gives to
his students details of the income gap of Yanomamo, stone-age, hunter-gatherers
along the Orinoco River in South America compared with modern New Yorkers along
the Hudson River. That gap
was $90 for the Yanomamo to $36,000 for the New Yorkers. The difference in product availability
(using notional Stock Keeping Units), the gap is highlighted by several hundred
products for the Yanomamo, compared to ‘tens of billions’ for New Yorkers. This significant difference indicates
that while the Yanomamo hunter-gatherer economy provides what is available
solely from within the tribal territory, the New York tribe depends on the availability
of billions of products in long, complex, and inter-dependent product and
service chains, where participants do not know nor need to know those involved
more than a link or two along the supply chains.
Understanding how product and service chains function,
both autonomously and under state regulations, is a focus of modern political
economy, for which Smith’s insights are of lasting value.
One insight is that separate productivity and product
changes all along the linked, but disparate, supply chains alters costs and
product availabilities for all those businesses involved, who know, and do not
need to know, the input and output businesses only a few links away, and this
is accomplished without any overall supervisory management control. This is the real power of markets in
raising living standards for millions of consumers.
The difference between Adam Smith and Karl Marx boils
down to fact that Smith understood the power of freer markets to manage the
apparent anarchy of complex, linked supply chains better than any known
alternatives of the Sovereign and his ministers (or today, Commissars and
bureaucrats) making billions of decisions a day (clearly beyond them), while
Marx believed that state officials could manage complex, linked supply chains
better than freer markets. The
Soviet experiment showed they couldn’t.
Hence, Smith’s philosophy can be summed for a modern
complex economy as “markets wherever possible, state intervention where
necessary”.
