INTERESTING FACT ABOUT THE REAL SIGNIFICANCE OF THE DIVISION OF LABOUR

Morgan Kelly and Cormac O Grada post in the September 2016 issue of the Quarterly Journal of Economics HERE

“Adam Smith, Watch Prices, and the Industrial Revolution”  

Abstract

“Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from criminal trials in the Old Bailey in London from 1685 to 1810. Before allowing for quality improvements, we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, showing that sustained innovation in the production of a highly complex artefact had already appeared in one important sector of the British economy by the early eighteenth century.”

COMMENT

(From WN: I.xi.o, p.260):

Effects of the Progress of Improvement upon the real Price of Manufactures

It is the natural effect of improvement, however, to diminish gradually the real price of almost all manufactures. That of the manufacturing workmanship diminishes, perhaps, in all of them without exception. In consequence of better machinery, of greater dexterity, and of a more proper division and distribution of work, all of which are the natural effects ofimprovement, a much smaller quantity of labour becomes requisite for executing any particular piece of work; and though, in consequence of the flourishing circumstances of the society, the real price of labour should rise very considerably, yet the great diminution of the quantity will generally much more than compensate the greatest rise which can happen in the price.

There are, indeed, a few manufactures, in which the necessary rise in the real price of the rude materials will more than compensate all the advantages which improvement can introduce into the execution of the work. In carpenters and joiners work, and in the coarser sort of cabinet work, the necessary rise in the real price of barren timber, in consequenceof the improvement of land, will more than compensate all the advantages which can be derived from the best machinery, the greatest dexterity, and
the most proper division and distribution of work.] But in all cases in which the real price of the rude materials either does not rise at all, or does not rise very much, that of the manufactured commodity sinks very considerably.
This diminution of price has, in the course of the present and preceding century, been most remarkable in those manufactures of which the materials are the coarser metals. A better movement of a watch, than about the middle of the last century could have been bought for twenty pounds, may now perhaps be had for twenty shillings. In the work of cutlers and locksmiths, in all the toys which are made of the coarser metals, and in all those goods which are commonly known by the name of Birmingham and Sheffield ware, there has been, during the same period, a very great reduction of price, though not altogether so great as in watch-work. It has, however, been sufficient to astonish the workmen of every other part of Europe, who in many cases acknowledge that they can produce no work of equal goodness for double, or even for triple the price” (WN: I.xi.o, p.260)

This consequence of the increasing output from the division of labour in manufacturing and the constant fall in price per unit of output is by far the most significant aspect of the growth of the commercial organisation of the division of labour. 

It is by far the more important aspect, missed by David Warsh in his counterposing the “pin factory” example, as quoted by Adam Smith word for word from the French Encycopedia in the first book of the Wealth of Nations, with what Warsh describes as the “Invisible Hand” phenomenon in Warsh, D. 2006. Knowledge and the Wealth of Nations: a story of economic discoverey. Norton.

Congratulations to Morgan Kelly and Cormac O Grada for pointing this interesting fact out.