Adam Smith's Pin Factory




Adam Smith’s Pin Factory

Adam Smith’s description of a Pin Factory is on the first page of The Wealth of Nations.  (Chapter 1 – “Of the Division of Labour”) Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including the packaging the pins. He mentions that pin factory workers were poorly paid, despite their high productivity. This contradicts the economic assumption that higher productivity (output per worker) leads to higher wages. 

Adam Smith goes on to say he visited a pin factory employing 10 men who produced 48,000 pins per day.  If ten workers did every step themselves, Smith says they could each produce 10 or 20 pins per day.  So the pin factory replaces up to 4,800 pin makers.  The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.  

The reduction in unit cost or average cost (AC) and the huge increase in quantity produced do not just replace older methods of organization and production.  They increase the potential “extent of the market.” (Chapter 3 – “That the Division of Labour is limited by the Extent of the Market”)  Existing users not only buy more pins at the lower price but also think up new ways to use cheaper pins.  The geographical limits of the pin market expand; contemporary and future reductions in transportation costs further expand domestic markets and increase exports.    

As Adam Smith says, there are limits to specialization and division of labor, and thus limits to reducing unit costs.  But the major source of these limits is not “the extent of the market.”  It is the limit of relying on the division of labor using pre-industrial production technology.  As a source of the continuous increase in the “wealth of nations,” Adam Smith’s pin factory was a dead end, a one time increase in productivity due to an organizational innovation. All of that was about to change.

Smith seems to ignore the active role that owners and mangers play in reorganizing production.


Adam Smith’s Pin Factory is his only clear example of how an economy can grow through innovation.  But what is missing is any discussion of the Industrial Revolution or power-driven machinery, which had begun during Adam Smith’s lifetime.  Adam Smith knew James Watt, a brilliant mechanic who greatly increased the efficiency of steam engines. Watt began patenting his improvements in 1769, seven years before the publishing of The Wealth of Nations.  A friend of Adam Smith invested in James Watt’s company to produce his new steam engines.  (The same friend, William Smart, was also Thomas Jefferson’s college tutor.) A capital goods sector would specialize in producing larger, faster, more efficient power-driven machinery. Production became capital intensive; companies became much larger, the new technology created economies of scale.  Economic theorists would continue to ignore the reality of the Industrial and Information Revolutions because the central dynamic – continuous innovation leading to new production technology, lower average cost, and new corporate structures – would destroy their key models of perfect competition and general equilibrium.   

Further History – America

The reduction of the average cost of pins, combined with the continuing decrease in the cost of long-distance sea transportation, led to exports.  Before the 1840s, almost all of the pins sold in America were imported from Great Britain.

The more open, democratic society of America contributed to American industry developing differently than in Great Britain.  Alexis de Tocqueville, in his visit to America in the 1830s, was struck by the American penchant to get ahead by “tinkering.”  He wrote, in Democracy in America, that Americans seek “every new method that leads to wealth by a shorter path, every machine that shortens work, every instrument that diminishes the cost of production.” (Alexis de Tocqueville, Democracy In America, 1835.  Translated and Edited by Harvey Mansfield and Delba Winthrop, 2000, p. 436.) Less constrained by class and facing higher labor costs, Americans tended to think in terms of power-driven mechanical production, not just specialization of labor with hand tools.  This is what happened in pin-making.

Some pins were made in America, most in prisons and almshouses.  At a New York almshouse, Dr. John Howe, the resident physician, observed pin making and began to invent a machine to mechanize the process.  He made his first machine in 1832.  In 1835, the Howe Manufacturing Company was established with capital from New York merchants.

One of Howe’s pin machines could produce about 24,000 pins in an eleven hour day.  But there was a problem.  English pins produced by English hand labor were cheaper.  Howe was able to get tariff protection while the company increased the productivity of its machines to reduce unit costs.

Some of the decrease in costs occurred in the packaging of the pins.  About half of the workforce packaged the pins.  At first, the pins were “put out” to nearby families.  Then the invention of a hand-powered packaging machine brought the operation into the factory.  In 1856, a machinist at Howe invented a powered pin-packing machine.  Before his invention, women were paid $1.25 a day to pack about 150 packages; with his invention, women could pack 200 packages a day and were paid only $.75 a day.  (The story of Howe Manufacturing is from Steven Lubar, Engines of Change:  An Exhibition on the American Industrial Revolution, 1986, p. 56.)

The later story of the continuous improvement in the quality and variety of pins, and the decrease in the average (unit) cost, was repeated for related products:

Nails – revolutionize the construction of buildings, especially residential. (Hand-made nails were expensive. In colonial America, families preparing to move would often burn down their houses to recover the nails and bring them to their new homes.)
Spikes – critical input in the building of railroads.
Rivets – made the mass production of airplanes possible.

By the late 1970s, two hundred years after The Wealth of Nations, manufacturing plants using computer-controlled automated machinery could produce 800,000 pins per worker per day. This is 160 times as many as the 5,000 pins per worker per day produced in Adam Smith's pin factory. Similarly, in cotton textile mills, a weaver using shuttle-less looms in the 1970s could produce 200 times as much cloth per hour as a hand-loom weaver in Adam Smith's day. Cotton cloth in pre-industrial England was a expensive as silk imported from China. Only the rich could afford it.

Conclusion

Implicit in The Wealth of Nations is a conflict between the Invisible Hand and the Pin Factory.  Competition among a sufficient number of small producers and many consumers, without technological progress, will lead to a “natural” (equilibrium) price and output.  Smith, Malthus and Ricardo believed that in the long run an economy would reach a maximum equilibrium and per capital income would stop growing.  Later, economists developed theory that this would occur if there were diminishing returns and subsequent rising marginal cost.  But the Pin Factory gives an early example of a mechanism that lead to increasing returns and diminishing average cost.  But there are limits.  Specialization with hand tools can go only so far.  But what if power-driven machines continued to become faster, more reliable, more accurate, and more specialized? New products could be produced. Waves of new production techniques and new products would follow one another.  Average unit cost would continue to decline.  There would be no equilibrium.  The Industrial Revolution would be “permanent revolution.”

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See related posts:

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution.

The Beginning of the Industrial Revolution in America.

How America Became Wealthy:   Introductory Remarks.

A Stylized Model of Innovation:  The Dynamics of Capitalism.

For the story of how England lost its economic leadership, see A Cautionary Tale:  England and the Industrial Revolution.


The economics tutorials in Pages present a complete course in economics, an alternative analysis to that found in standard textbooks. They emphasize the dynamics of an industrial/informational capitalist economy, the resulting industry and organizational structures, and the role that information plays in innovation and the functioning of markets.

For a list of pages (economics tutorials) and posts, see Guide to Pages and Posts.



Comments

  1. Another awesome article. Very detailed and informative. Thanks for sharing!
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  2. What are Adam Smith's views on technology?
    Productivity of Engineering activities and systems Industrial Engineering - Introduction

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    1. Adam Smith's main reason for writing The Wealth of Nations was to attack government control of and interference in the economy, which he believed was opposed to an "enlightened" view of society.

      Except for a brief mention of "fire-engines" (steam engines) in Chapter 1, he says virtually nothing about technology or the beginning of the Industrial Revolution. This is odd. He knew about James Watt and early industrialists. He lived long enough to include comments about the new steam-engine powered industrial machinery in the many editions released in his lifetime. But he didn't. So his economics, and the economic theory building on Smith's analysis, does not address the dynamics and structure of an industrializing economy.

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    2. For a case study on how the Industrial Revolution began, you might want to see my post on Josiah Wedgwood.

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