The Ideological Fraud of Adam Smith, beginning with the pin factory.

I just posted the paper I will give tomorrow at the History of Economics meetings.  The Ideological Fraud of Adam Smith, beginning with the pin factory.  I hope you enjoy reading what a fraud he was.

http://michaelperelman.wordpress.com/2014/06/20/the-ideological-fraud-of-adam-smith-beginning-with-the-pin-factory-2/

Here is the start:

On March 28, 1763, while he was explaining to his Glasgow students the importance of the law and government:

    They maintain the rich in the possession of their wealth against the violence and rapacity of the poor, and by that means preserve that useful inequality in the fortunes of mankind which naturally and necessarily arises from the various degrees of capacity, industry, and diligence in the different individuals. [Smith 1762 1766, p. 338]

In order to justify this inequality, Smith told his students that “an ordinary day labourer … has more of the conveniences and luxuries than an Indian [presumably Native American] prince at the head of 1,000 naked savages” (Smith 1762 1766, p. 339). But then the next day, Smith suddenly shifted gears, almost seeming to side with the violent and rapacious poor:

    The labour and time of the poor is in civilized countries sacrificed to the maintaining of the rich in ease and luxury. The landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his exactions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full enjoyment of the fruits of his own labours; there are no landlords, no usurers, no tax gatherers …. [T]he poor labourer … has all the inconveniences of the soil and season to struggle with, is continually exposed to the inclemency of the weather and the most severe labour at the same time. Thus he who as it were supports the whole frame of society and furnishes the means of the convenience and ease of all the rest is himself possessed of a very small share and is buried in obscurity. He bears on his shoulders the whole of mankind, and unable to sustain the weight of it is thrust down into the lowest parts of the earth from whence he supports the rest. In what manner then shall we account for the great share he and the lowest persons have of the conveniences of life? [Smith 1762 1766, pp. 340 41]

Smith’s train of thought is confusing. First, the law is needed to constrain the fury of the poor; then the market provides for the poor very well; followed by the wretched state of the people who worked on the land the least fortunate of the workers. For his grand finale, after decrying the “small share” of the poor, Smith curiously veers off to ask what accounts for “the great share” that these same people have. His answer should come as no surprise to a modern reader of Adam Smith “The division of labour amongst different hands can alone account for this” (Smith 1762 1766, p. 341).

By March 30, Smith was confident enough about his success in finessing the challenge of class conflict that he became uncharacteristically unguarded in openly taking notice of the importance of workers’ knowledge:

    But if we go into the work house of any manufacturer in the new works at Sheffield, Manchester, or Birmingham, or even some towns in Scotland, and enquire concerning the machines, they will tell you that such or such an one was invented by some common workman. [Smith 1762 1766, p. 351]

Smith was too careful an ideologue to include such material in his published work without any hand wringing about inequities and the importance of workers’ knowledge. Instead, he introduced readers of The Wealth of Nations to his delightful picture of the division of labor in his simple pin factory:

    … a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty eight thousand pins in a day. Each person, therefore, making a tenth part of forty eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations. [Smith 1789, I.i.3, pp. 14 15]

Today, few people would recognize Smith’s pin making operation as a factory. It was simply a small workshop that would not have been much out of place in Smith’s imaginary village. Smith himself referred to the pin factory as a “frivolous example” and later as “a very trifling manufacture.” (Smith 1762 1766, vi.34, p. 343; Smith 1789, I.i.3, pp. 14 15).

But now, with the magic of the division of labor, Smith could portray society as a harmonious system of voluntary, commercial transactions. Because the economy could produce more, workers could consume more, and perhaps one day even have their own trifling enterprise.

The mere rearrangement of work created a great leap of productivity. Smith told his students that a worker might have been able to produce something between one and twenty pins per day, but with the division of labor, the output per capita soared to two thousand. By the time he published The Wealth of Nations, the number more than doubled to 4,800 pins (Peaucelle 2006, p. 494; Smith 1789, I.i.3, pp. 14 15).

Granted that the division of labor can improve productivity, how was such dramatic productivity possible? It wasn’t. An early draft of The Wealth of Nations explains the secret of this jump in productivity. There, Smith began his description of pin production with “if the same person was to dig the metal out of the mine, separate it from the ore, forge it, split it into small rods, then spin these rods into wire … ” (Smith 1759, p. 564). Aha! In his later estimates, the workers’ tasks began with wire already in their hands. No wonder they could produce so much more. Much of their work had already been completed before they began.

Even if the division of labor was responsible for a significant part of this increased productivity, further dramatic advances were unlikely to come from rearranging workers’ tasks. And other than his earlier statement that “The division of labour amongst different hands can alone account for this,” Smith never directly made the assertion that the division of labor alone was responsible for all technical progress. However, the absence of any other explanation (as well as his silence regarding modern technology) gives the impression he still held that belief.

The economic historian, John H. Clapham, once lamented, “It is a pity that Adam Smith did not go a few miles from Kirkcaldy to the Carron works, to see them turning and boring their cannonades, instead of to his silly pin factory which was only a factory in the old sense of the word” (Clapham 1913, p. 401).

Smith never took notice of the Carron Works in his great book, even though Kirkaldy was within easy walking distance from the great factory. True, he would have needed a short ferry ride to cross a river for his walk, but this factory was one of the most famous, and perhaps the largest, industrial plant in the world, remembered today mostly for its cannons that helped the British navy create and maintain a great empire. The Company maintained a major warehouse in Kirkcaldy proper to hold the iron rods and receive the nails in return from the busy local nail makers.

In 1772, a few years before The Wealth of Nations appeared, Smith’s close friend, the philosopher, David Hume, wrote to Smith, inquiring about how the precarious financial situation of the Carron works would affect his book:

    The Carron Company is reeling which is one of the greatest Calamities of the whole; as they gave Employment to near 10.000 People. Do these Events any wise affect your Theory? Or will it occasion the Revisal of any Chapters?” [Hume 1772]

However, the closest Smith came to mentioning the Carron works occurred in a brief reference to a recent increase in employment in Scotland, where Carron was one of the three towns mentioned (Smith 1789, I.viii, p. 94).

Smith’s contemporaries understood that the world was rapidly changing. Yet scholars who have studied Adam Smith have expressed puzzlement that the prophet of modern capitalism had so little to say about the technological developments taking hold around him. Early in the book, Smith did mention in passing “the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many” (Smith 1789, I.i.5, p. 17), but he avoided any further discussion of the modern industry that was emerging around him.

Smith was not unworldly at all. He was engaged in the construction of a sophisticated ideological structure. Nothing is more revealing about this project than his famous pin factory.