The pin factory represents how the division of labor drives productivity growth. This means that, when people divide themselves into specialized jobs, they can produce more economic value (rude produce, goods, and services) with the same amount of resources. Indeed, as people specialize, they get better at their work—or even learn to automate it—and production becomes more efficient. This is arguably the central idea in Smith’s theory of political economy, because it explains how societies develop different economic structures and why those with the most complex economies tend to be the wealthiest.
Smith begins The Wealth of Nations with this idea, which he illustrates with the example of a pin factory. A single person working all day probably couldn’t produce a single metal pin, he explains, but just 10 people in a badly-run factory can make tens of thousands of pins per day. They achieve these exponential productivity gains by splitting the manufacturing process into several smaller steps, such that each worker specializes in one or a few of them. This is possible even without specialized machinery—and, of course, much more so with it. Indeed, Smith emphasized that manufacturing benefits most from the division of labor. This principle drove the Industrial Revolution, which was just starting when Smith published this book, and whose full effects he would not live to see.
The Pin Factory Quotes in The Wealth of Nations
To take an example, therefore, from a very trifling manufacture, but one in which the division of labour has been very often taken notice of, the trade of a pin-maker: 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. [...] The important business of making a pin is, in this manner, divided into about eighteen distinct operations.
Every fixed capital is both originally derived from, and requires to be continually supported by, a circulating capital. All useful machines and instruments of trade are originally derived from a circulating capital, which furnishes the materials of which they are made, and the maintenance of the workmen who make them. They require, too, a capital of the same kind to keep them in constant repair.
No fixed capital can yield any revenue but by means of a circulating capital. The most useful machines and instruments of trade will produce nothing, without the circulating capital, which affords the materials they are employed upon, and the maintenance of the workmen who employ them. Land, however improved, will yield no revenue without a circulating capital, which maintains the labourers who cultivate and collect its produce.