The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers (22 page)

Smith grew up in Kirkcaldy, with a population of only about 1,500, which came much closer to such an imaginary village economy than anything seen today.
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By the time Smith was writing, the town was part of the epicenter of the Industrial Revolution, with one of the largest industrial operations in the world.

The Carron Company

Smith retired to work on
The Wealth of Nations
at Kirkcaldy, which sat in the heart of the Industrial Revolution. According to T. S. Ashton, in his influential book
The Industrial Revolution
:

In the iron industry the coke-fed blast furnaces had been growing steadily in size and number, and new areas of enterprise had been opened up. Stimulated by the demand for munitions, many new works, including those of John Wilkinson at Broseley and of John Roebuck at Carron, were set up during the war of 1756–63. In its magnitude and the variety of its products [which included the famous cannonades] the Carron Ironworks was a portent of a new type of undertaking; and the lighting of its first furnace, on Boxing Day [December 26], 1760, may serve to mark the beginning of the industrial revolution in Scotland.
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Ashton’s reference to the “industrial revolution in Scotland” does not limit the power of his claim, because the Industrial Revolution actually began in Scotland. Besides, Smith’s own universities were at the center of this new age. Following Ashton again:

It was not from Oxford or Cambridge, where the torch [of the Industrial Revolution] burnt dim, but from Glasgow and Edinburgh, that the impulse to scientific inquiry and its practical application came.
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Smith had close personal relationships with people at the forefront of the Industrial Revolution. James Watt, who was developing the modern steam engine, was a friend and colleague of Smith. Although Smith had left the university by the time of Watt’s commercial success, one might have thought he would have followed his friend’s career.

An “intimate” friend of Smith’s, John Roebuck, was a doctor who, along with his two brothers, was among the seven founders of the Carron Ironworks.
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Roebuck sent Smith a letter in 1775, which suggests the warmth of their personal relationship.
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Roebuck is doubly relevant because of his relationship with James Watt:

Watt [came] to believe that his engine held great promise and could be developed into a full-sized engine with outstanding economy. Black lent money to Watt so he could carry on experimenting and, what proved to be more important still, introduced him to John Roebuck of Birmingham. Roebuck had established the Carron Iron Foundry in Scotland in 1759 and leased the coalfields at Borrowstones from the Duke of Hamilton. These mines were continually flooded and more powerful and economical pumping engines are needed urgently. In 1768, Roebuck agreed to take over Watt’s debts and to bear the cost of a patent in return for a two-thirds share in it.
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Smith never took notice of the Carron foundry in his great book, even though Kirkaldy was within easy walking distance (plus a short ferry ride to cross a river). 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 Carron 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?
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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.
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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.”
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Smith’s contemporaries understood that the world was rapidly changing. In a conversation lamenting the end of public executions in 1783, before Smith had published the third of the five editions of his book, Samuel Johnson, an acquaintance of Smith’s, remarked, “The age is running mad after innovation; and all the business of the world is to be done in a new way.”
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Benjamin Franklin and some friends engaged in a ten-day-long excursion of industrial tourism. An account left by his grand-nephew describes their admiration of the marvels of modern technology at work in the various factories and mines.
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Smith, however, seemed unaffected by the fascination with such innovations.

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,” but he avoided any further discussion of the modern industry that was emerging around him.
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The usually perceptive Robert Coats, as well as E.R.A. Seligman, excused Smith’s lack of material on the specifics on modern production processes by labeling Smith as an “economist … of the domestic period.”
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We would get no further by attributing his omissions and oversights to a lack of foresight, as Koebner once argued.
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Charles Kindleberger’s attempt to explain this defect of
The Wealth of Nations
by writing off the author as an “unworldly” professor is equally unsatisfactory.
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Smith was not unworldly at all. He was engaged in the construction of a sophisticated ideological structure. And nothing is more revealing about this project than his famous pin factory.

Another Look at Smith’s Famous Pin Factory

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.
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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.”
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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?
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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.”
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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.
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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.
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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.”
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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.
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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….”
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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.