Monday, April 05, 2010

Mungowitz Gets Adam Smith Pin Factory Wrong!

Fred Stahl writes:

Dr. Munger,

I enjoy your podcasts with Russ Roberts. You two always sound like you are having more fun than you deserve. ( MM NOTE: Russ is certainly having more fun than HE deserves!)

Yesterday I was searching for the hunters and sandwich shop story—you know, the one showing how economies of scale make specialization more efficient even if everybody is equally skilled. I was a student in Dr. Roberts’ microeconomics class last semester when he presented the story, attributing it to Buchanan. I found a transcript of you and Roberts talking about it in an April 2007 podcast. I also came across your 2007 article on division of labor in the Library of Economics and Liberty: FEATURED ARTICLE | APRIL 2, 2007
I'll Stick With These:
Some Sharp Observations on the Division of Labor

On reading the article, I saw that it might leave misconceptions about Adam Smith’s analysis of the pin factory. Here is the relevant part: And this is the period where Smith formed his impression: he saw pins being made by 3-6 men, in a small shop, each of whom performed several tasks at different points in the production process. Smith's widely quoted conclusion, which was actually just a quick estimate, was that there 18 different steps in the pin-making process.

The best research I have seen says that Smith never actually visited the pin factory he wrote about. Consequently, he would not have been able to make a estimate of the number of operations, quick or otherwise. Smith used data on a French pin factory published decades earlier. As Rothbard tells it, Smith accused his friend Adam Ferguson of plagiarizing his bit about the pin factory. Ferguson fired back that they both got the story from a French source.[1] The facts fit Ferguson’s charge. The French factories had 18 fabrication operations, as Smith mentions, whereas an English factory typically had 25. Edwin Cannan attributes the source of Smith’s production information to an article on pins that appeared in a mid-17th century French encyclopedia, thirty years before Smith wrote Wealth.[2]

One other small point, Wealth has 10 workers in the pin factory. By the way, apparently few if any economic historians know that in his 1832 On the Economy of Machinery and Manufactures, Charles Babbage re-analyzed Smith’s pin factory. In contrast to Smith’s arm waving, Babbage used detailed cost and time data and concluded that Smith missed an important source of productivity. Smith wrote about division of labor by task. Babbage pointed out that the manager who divides labor by skill can hire cheap children and women for the unskilled work and expensive men for the bundles of skilled tasks. The productivity gain is a factor of 3 to 4, as measured in cost per pin.[3]

Rothbard comments about Smith:
Much of his analysis was wrong, and many of the facts he did include in the Wealth of Nations were obsolete and gathered from books 30 years old

[1] Rothbard, Murray. An Austrian Perspective on the History of Economic Thought, Vol. I and II, Edward Elgar Pub. 1995. Chapter 16. Excerpt available from Mises Institute, March 31, 2010 from under title “The Adam Smith Myth.”
[2] Edwin Cannan edited the 1976 edition of The Wealth of Nations published by The University of Chicago Press. The attribution appears in Footnote 4 on page 8 as Vol. 5 of Encyclopédie.
[3] Babbage, Charles. 1835. On the Economy of Machinery and Manufactures. 4th ed. London: Charles Knight. Reprint: New York: Augustus M. Kelly, 1963. Babbage presents his detailed cost and time study data along with his analysis of the pin factory in Chapter 19.

Very interesting, Fred, and thanks! I haven't seen footnotes in an email in a while; many people have gone in the direction of the thing called "links." Still, I'm sure you are right, and that I am wrong about the story. Lots of good info there, Fred!

I'd be interested to know what ASLL thinks of my errors. Sufficiently corrected now?


Anonymous said...

Gavin Kennedy has already said that Rothbard was wrong. David Friedman has also pointed out problems in Rothbard's writings on Smith. Former Mises-institute associated scholar Gene Callahan claims Rothbard misrepresented a number of other philosophers, but I'm less familiar with that.

TGGP said...

Gavin Kennedy's blog doesn't have a search bar, so here are google's results. He has a good number of posts on the subject and it would be negligent to link to just one. David Friedman's post is here. Gene Callahan complains here.

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