Michael Perelman: The Fraud of Adam Smith’s Pin Factory

Yves here. Michael Perelman sent me a long essay which serves as the basis for an upcoming talk on the actual state of “factories” in Adam Smith’s Scotland and how the charming tale of his pin factory fit into the manufacturing of his day. I’ve taken the liberty of editing it down somewhat. I trust you will still find it to be an informative read.

One of the themes of this revisiting of the early debates over industrialization is the broader impact of the division of labor. Some of Smith’s contemporaries focus on the potential for exploitation of laborers. Even more intriguing, others describe the weakening of social bonds. This is the reverse of the view of modernization found in Émile Durkheim’s The Elementary Forms of the Religious Life. In in, he described pre-modern society as “mechanical” in the sense that individuals were interchangeable parts. Most healthy men and women could step into the roles performed by their peers. By contrast, in “organic” society, many individuals adopted more specialized roles, and were enriched by that. Doctors and plumbers could each do what suited them best, and both benefitted from the existence of opera singers. But in fact, we’ve seen that specialization can lead just as easily to a new forms of tribalism. For instance, in Manhattan, high-level professionals, who are either in or provide support to financial services firms, tend to mix almost exclusively with people who have similar educations and career profiles. The biggest vehicle for individuals in that cohort to meet people of different backgrounds is mixing with other parents from their children’s schools (which at a minimum include some children on scholarship, as well as local business owners).

By Michael Perelman, a professor of economics at California State University, Chico

The first sign of Smith’s pin factory appeared in a course of lectures to his students in Glasgow in 1762 and 1763, more than a decade before the publication of his great book. The discussion of the pin factory began 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.

A Different Division of Labor

In 1767, about four years after Smith first introduced his students to the pin factory, his friend and colleague, Adam Ferguson published An Essay on the History of Civil Society (Ferguson 1793). Their mutual friend, Rev. Dr. Alexander Carlyle, reported on Smith’s displeasure with this publication, “Smith had been weak enough to accuse him of having borrowed some of his inventions without owning them. This Ferguson denied, but owned he derived many notions from a French author, and Smith had been there before” (Carlyle 1861, p. 231).

Ferguson’s reference to the French author is important. Several detailed descriptions of pin production had been published in France. Although Smith never mentioned them, he used identical numerical examples and phraseology. His reliance on different French sources could explain the different estimates of per capital pin production in his lectures and his book (Peaucelle 2006).

Before this incident, Ferguson had given Smith every encouragement, both in person and in print (Rae 1895, p. 264). Moreover, Ferguson did not describe any pin factory. Like Smith, Ferguson does credit the division of labor with permitting increased production:

By the separation of arts and professions, the sources of wealth are laid open; every species of material is wrought up to the greatest perfection, and every commodity is produced in the greatest abundance. [Ferguson 1793, p. 181]

Ferguson did not dwell on the technological potential of the division of labor. Instead, his book detailed the sociological implications, showing the negative consequences of the division of labor:

In every commercial state, notwithstanding any pretension to equal rights, the exaltation of a few must depress the many. In this arrangement, we think that the extreme meanness of some classes must arise chiefly from the defect of knowledge, and of liberal education; and we refer to such classes, as to an image of what our species must have been in its rude and uncultivated state. But we forget how many circumstances, especially in populous cities, tend to corrupt the lowest orders of men. Ignorance is the least of their failings. [Ferguson 1793, p. 186]

Besides creating class divisions, the division of labor undermines society:

The separation of professions, while it seems to promise improvement of skill, and is actually the cause why the productions of every art become more perfect as commerce advances; yet in its termination, and ultimate effects, serves, in some measure, to break the bands of society, to substitute form in place of ingenuity, and to withdraw individuals from the common scene of occupation, on which the sentiments of the heart, and the mind, are most happily employed. [Ferguson 1793, p. 218]

Finally, Ferguson, who had been the principle chaplain to the Black Watch brigade from 1746 to 1754, warned that the division of labor degrades the character of people who will be needed for the military (Ferguson 1793, p. 230).

Ferguson’s real sin might well have been to use the division of labor in a way that contradicted Adam Smith’s libertarian vision.

Tough as Nails

Smith eventually retired to his birthplace, Kirkcaldy, to work on The Wealth of Nations. Although he may have relied upon secondary sources for his knowledge of the pin factory, he must have had first hand knowledge of the production of Scottish nails. In the Wealth of Nations, only three paragraphs after describing the pin factory, Smith briefly turned to this industry.

The nail industry was concentrated in the neighborhood of Kirkaldy, where about 30 percent of the nation’s nail producers were located (Campbell 1961, p. 79). Smith took note of the remarkable physical dexterity of the boys whom he watched making the nails, but his main point was that the division of labor was not as refined as in the pin factory.

Smith never mentioned that the great manufacturer, the Carron Company, had offered a bounty of one guinea to reward nail makers for moving their production closer to Kirkaldy. The Company’s purpose was to have a ready market for its iron rods that would be shaped into nails.

In addition, Smith did not inform his readers that the Company entered into a bargain with the Edinburgh poorhouse to apprentice pauper boys to make nails from the age of twelve until they reached twenty one. Finally, although Smith may not have been aware of the problem, the manager of the poorhouse received a number of alarming reports of the poor treatment of these apprentices (Campbell 1961, pp. 80 81).

Similarly, Smith’s picture of the pin factory was incomplete. One of his two major French sources offered an unattractive picture of the seemingly idyllic job of the pin makers:

We also make several observations on the pin maker’s trade …. This trade is very dirty and unhealthy. The brass rust, a greeny grey colour, affects workers differently depending on their role in the factory. The point makers are not robust, and die young of pulmonary ailments. [Duhamel du Monceau 1761; cited and translated by Peaucelle 2006, p. 502]

In the end, Smith’s idealized workers were not just selling their time on the job, but their lives as well. Nonetheless, for Smith, these details about the nail workers were not worthy of mention. Instead, Smith spun a story about the justice and efficiency of the pin factory that still resonates strongly among market enthusiasts.

A Different Kind of Pin Factory

The first integrated pin factory was the Dockwra copper works, founded in 1692. It produced about 80 tons of copper per year, perhaps as much as half of the entire industry. The company had no less than twenty four benches for drawing wire (for making pins). From the start, Dockwra paid attention to the possibility of new methods (Hamilton 1967, p. 103).

Eventually, the Warmley works, founded near Bristol in 1746, surpassed Dockwra. The Warmley works came to popular attention in 1770, when Arthur Young published A Six Months Tour Through the Southern Counties of England and Wales. Young was a prolific observer of agriculture, as well as economic life in general. His books were widely translated in European languages. This particular book was already in its third edition by 1772. A careful study of authorities used in parliamentary debates found that MPs cited Young far more than Adam Smith (Willis 1979).

Young described the process of integrated pin production at Warmley, which he recommended as “very well worth seeing” (Young 1772, p. 170). His description began how the molten metal was:

poured into a flat mould of stone, to make it into thin plates, about 4 feet long and three broad. The plates are then cut into 17 strips and then again, by particular machines, into many more very thin ones, and drawn out to the length of 17 feet, which are again drawn into wire, and done up in bunches of 40 s value each; about 100 of which are made here every week, and each makes hundred thousand pins. The wires are cut into them, and completed here employing a great number of girls who with little machines, worked by their feet, point and head them with great expedition; and each will do a pound and a half in a day.

The heads are spun by women with a wheel, much like a common spinning wheel, and then separated from one another by a man, with another little machine like a pair of shears. They have several lapis calaminaris stones for preparing it to make the brass, of which they form a vast number of awkward looking pans and dishes for the Negroes, on the coast of Guinea. All the machines and wheels are set in motion by water, for racing, which there is a prodigious fire engine, which raises, as it is said 3000 hogsheads every minute. [Young 1772, pp. 170 74]

This system replaced the people who had turned wheels in the operation. The displaced workers represented one sixth of the labor force (Allen 2009, p. 147).

Smith’s Understanding of Modern Technology

In contrast to the importance given to the division of labor, Smith showed no appreciation of growing importance of fossil fuels in increasing productivity. The Warmley works was still largely dependent on water power, but coal was used to lift water when the natural flow was insufficient. Despite the beginnings of the Industrial Revolution that centered in Scotland, Smith offered only a few scattered references to coal in his published work. These observations mostly concern either coal as a household fuel or the process of mining, without bothering to link coal to industrial production.

In one instances, Smith discussed the government’s policy of restricting exports of coal. The purpose of such legislation was to protect Britain’s emerging industrial leadership, but Smith never made that connection, except to say: “Coals may be considered both as a material of manufacture and as an instrument of trade (Smith 1789, IV.viii.42, p. 658).

Possibly the closest he came to acknowledging the productive potential of modern technology was a fanciful account of a boy who invented the steam engine “to save his own labour” (Smith 1789, I.i.9, pp. 20 21). Even though James Watt was an instrument maker in his school, Edwin Cannan, a scholarly editor of the Wealth of Nations, reported that Smith based his account on a misreading of a three decades old book (Smith 1937, n. p. 10).

Something else seems to be at work here. In his unpublished works, Smith clearly connected economic progress with the development of modern technology. In the school year of 1762-63, while lecturing to his students, he began a long discussion about the pin factory that culminated in the heightened productivity of the steam engine ((Smith 1762 1766, vi.32 43, pp. 343 47). He used the same sequence, moving from the pin factory to the steam engine, in an early draft of The Wealth of Nations (Smith 1759, pp. 567 9). Smith repeated almost all of the ideas in these two early discussions in The Wealth of Nations, except for the final transition to modern technology.

Then, in a remarkable letter to Lord Carlisle, just three years after The Wealth of Nations appeared, while explaining why the Irish could not pose much of a threat to British industry, Smith explicitly prioritized social control ahead of the emerging Industrial Revolution:

I cannot believe that the interest of Britain would be hurt by it [free trade]. On the contrary, the Competition of Irish goods in the British market might contribute to break down in Part that monopoly which we have most absurdly granted to the greater part of our own workmen against our selves. It would, however, be a long time, before this competition could be very considerable. In the present state of Ireland, centuries must pass away before the greater part of its manufactures could vie with those of England. Ireland has little Coal; the Coallieries about Lough Neagh being of little consequence to the greater part of the Country. It is ill provided with Wood; two articles essentially necessary to the progress of Great Manufactures. It wants order, police, and a regular administration of justice both to protect and to restrain the inferior ranks of people, articles more essential to the progress of Industry than both coal and wood put together. [Smith 1779, pp. 242 43]

Seven days earlier, he had presented similar thought in a letter to Henry Dundas [Smith 1779, pp. 240 42], suggesting the importance of wood and coal for modern technology. If this subject was important enough to repeat in letters to influential people, why did it not appear in the book he just published?

Smith’s reference to “the monopoly which we have most absurdly granted to the greater part of our own workmen against our selves” is also interesting. His observation anticipates the modern move toward outsourcing. But why would someone who advocated the promotion of the interests of industrious workers want to see them undercut by foreign competition?

The Primacy of Exchange

Smith’s relatively primitive description of the economy is useful in suggesting that the defining characteristic of an economy is the act of exchange rather than production. This approach allows Smith to depict a world where “social distance” rather than authority was the norm (see Viner 1927, p. 80). Smith offered a glimpse of this world, observing, “Society may subsist among different men as among different merchants, from a sense of its utility, without any mutual love or affection” (Smith 1790, ii, II, 3, 2, p. 86; see also Smith 1762 1766, p. 539). Joan Robinson suggested that Smith had a rather constricted vision of this exchange process, suggesting: “I think that when Adam Smith was telling the story of getting his dinner from the butcher, the brewer, and the baker he was really thinking of a gentleman who has money to spend. He was not thinking of the struggles of those tradesmen to make a living.”

Production still existed, but exchange was central not just because “the division of labour … must always be limited by the extent of the market” (Smith 1789, I.iii.1, p. 31).

Notice that the division of labor occurs prior to the process of production. Once the division of labor is in place one has no need to consider production. At this point, every person – workers and capitalists alike – becomes a merchant, equally selling wares on a free and open market. In Smith’s words: “Every man … lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society” (Smith 1789, I.iv.1, p. 37).

In this world, Smith’s idealized merchant workers prosper merely by demonstrating middle class virtues, such as punctuality and trustworthy behavior. These merchants will compete with each other, but they must do so by following the rules at the same time as they demonstrate respect for one another.

Class antagonism, exploitation, and domination have no place in this imaginary world of exchange that Smith created. Workers’ existed as exchangers rather than as proletarians. Smith’s merchant workers all belong to the same community as their employers. A parallel imaginary progressive life cycle of labor allows a large portion of the working class to become employers themselves in the not too distant future.

Smith was not alone in presenting such an idealized version of social mobility. As one historical study of British culture during Smith’s day found:

Another way eighteenth century culture tried to instill an inner work compulsion in the poor was to promise success for industry and dire punishment for idleness. Of course, success above a mere survival level was rarely available to members of the laboring classes, since they were seldom paid enough to allow them to rise in the world. [Jordon 2003, p. 55]

Smith’s perspective of worker merchants becomes more credible in a world of simpler, craft like technologies, such as the pin factory, with only a handful of workers. In the large scale production systems that were beginning to emerge, the kind of upward mobility that Smith imagined would be impossible. Just as today, a worker consigned to menial labor in a large enterprise, such as a modern equivalent of Carron works, among thousands of other workers, cannot expect to have a chance to become a CEO.

Smith had good reason to avoid calling attention to the growing scale of modern industry. To have done otherwise would have highlighted the diminished prospects for ordinary workers, represented by the ever widening gulf between the station in life of a John Roebuck and the masses of humble workers who did routine work in his great factory.

In conclusion, writing at a time when economists still routinely acknowledged the importance of labor in the production process, Smith gave exchange a more important role in the economy to obscure questions of class. Workers became exchangers, no different from their employers. In this respect, the absence of the Carron Works in Smith’s writings was a clever rhetorical tactic. Although Smith did not go as far as modern economics in excluding work, workers, and working conditions, his recasting of workers as merchants was an important first step in the direction of modern economics.

Individualism

Smith’s reluctance to discuss the Carron Works makes sense in terms of his enthusiasm for individualism. Early economic systems, such as slavery or feudalism, looked at the great mass of the population as a class, while consigning the majority to function as unthinking work animals. Smith’s lumping people together with working animals was a residual of this earlier tradition. Not surprisingly, the people society regarded as animals displayed few outward signs of ambitions or aspirations, at least the sort of ambitions or aspirations that would meet with the approval of Adam Smith. The system was certain to dash any hopes of conventional success for the vast majority.

At the same time, Smith welcomed a sign of a different trend emerging. Alongside dangerous mobs of poor people in urban centers, the growing individualism of small merchants and some artisans encouraged Smith. This part of society provided the positive example that was central to Smith’s vision of the future. From this perspective, Smith’s individualism represented at least the possibility of people breaking out of the confining class structure of traditional society. In place of a world divided along lines of class, everybody would understand their identity as individuals making commercial transactions. In this classless world, all people would have a chance to improve their lot.

Proponents of laissez faire treated the abstract possibility of social mobility became a likely reward for anyone who was willing to work hard. The mere thought of this possibility had such a liberating effect, so much so that the Spanish disciples of Smith’s contemporary, Jeremy Bentham, defined themselves as “liberals” – a new word that has been subsequently redefined several times.

Smith was enthusiastic about the energy of this new individualism. Later commentators associated this energy with the burst of economic activity, commonly described as the Industrial Revolution, but, as mentioned earlier, the Industrial Revolution is absent in Smith’s writings. By now, the reason for this absence is obvious. Although Smith’s liberalism seemed liberating, from a different perspective, it must have been disempowering to people who were toiling in the Carron Works. Presenting such people as isolated individuals would have accurately conveyed their powerlessness.