Adam Smith's Pin Factory

ADAM SMITH VISITS A 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 packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity. 

 

Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day.  If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day.  So the pin factory replaces 2,400 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.  

 

This 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.” 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 solely 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 change. All of that was about to change.

 

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. Both worked at the University of Glasgow at the same time. Smith was instrumental in hiring Watt. Watt patented his steam engine just as Smith began writing 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.) Adam Smith knew Mathew Boulton, the industrialist who convinced Watt to set up a company and factory to produce his steam engine. 

 

Smith mentions “fire-engines” (steam engines) once in the entire book, on page 1, but only to illustrate how workers might improve the working of machines. His example is now considered a myth. He makes a vague statement about “proper machinery,” followed by the sentence, “It is unnecessary to give any examples.”

 

It is hard to believe that someone could survive producing 10 pins a day. Someone this isolated and inefficient is a straw man. In reality, almost all economic activity requires specialization, division of labor, and coordination. But this is not economics. At the heart of economics is the concept of price. No unit price of production or market price are given.

 

A capital goods sector would specialize in producing larger, faster, more efficient power-driven machinery with metal parts. Production became capital intensive; companies became much larger to realize economies of scale.  Economic theorists would continue to ignore the reality of the Industrial and Information Revolutions because the central dynamic – continuous, disruptive innovation leading to new production technology, lower average cost, and new corporate structures – would destroy their key models of perfect competition and general equilibrium. 

 

PIN-MAKING GETS MECHANIZED IN AMERICA

 

Pin production met the Industrial Revolution in the 1830s.

 

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.

 

Much 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.)

 

By the late 1970s, two hundred years after The Wealth of Nations, manufacturing plants using computer-driven automated machinery could produce 800,000 pins per worker per day. This is 160 times as many as in Adam Smith’s pin factory.

 

EXTENSIONS

 

In the United States, before the early 1800s when nails were mass-produced by machines, they were very expensive. If a family built a house using nails and decided to move west, they would often burn down the house and recover the nails for the next house. It is one reason there are so few "vernacular" houses in existence in America before the early 1800s.

 

Mechanizing nail production had an even greater effect than mechanizing pin production. Cheaper nails revolutionized construction. They made possible the balloon-frame method of home building, where pieces of lumber were nailed together to make the house’s frame. In the long-run, the result was the American suburb.

 

The 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. Besides nails:

 

Spikes – critical input in the building of railroads.

Rivets – made the mass production of airplanes possible.

 

CONCLUSION

 

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?  Average unit cost would continue to decline.  There would be no equilibrium. The Industrial Revolution would be “permanent revolution.” 

 

Specialization and division of labor does not lead to the Industrial Revolution. Production needs power-driven machinery and continuous improvement in machine tools, machinery, and organization. Machine tools make metal machine parts. New and more powerful sources of energy and heat are created. All of this, and more, has to be organize in new organization forms like factories, new types of management, and new types of internal controls.

For an excellent example of an entrepreneur at the beginning of the Industrial Revolution in England, see

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

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See related posts:

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.

For a list of pages and posts, see Guide to Pages and Posts.