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