Modelling the Pin Factory – Understanding The Division of Labour Using A Stock-Flow Model – Part 1
Last week an unexpected visit to an exercise book factory in Kampala led me to see in a shot that It was possible to use a systems dynamics model to help understand the most famous business process model in all of economics – that of Adam Smith’s Pin Factory. I’m building the model in Stella (which im most familiar) and also struggling to mimic it in Minsky (which im not). The real aim here is to explore to what extent interactive models can be used as a teaching tool of the most basic building blocks of political economy, which might convince SFC blogging skeptics who dont trust anything until it is published in a DGSE/rational expectations believer refereed journal- which as one commentator has suggested is like getting an article critical of eugenics published in a 1930 Eugenics journal – and where are they now? A future model for example will examine joint production/fixed capital in a SFC model.
The factory was a hive of activity, in a space no larger than a 7/11 several dozen people were working. The process was highly labour intensive and involved a massive division of labour into over 10 steps to make an exercise book. There was only one piece of powered equipment operated by one man, a printer for covers and to line paper, but apart from that the only other capital equipment (all human powered) was brushes for glue, and cutters to size paper. Most of the other steps in the operation involved no or almost no capital what so ever. The firm manufactured its paper off site so it was a perfect model of vertical integration, taking each of the steps necessary to transform a raw primary material, wood, through to final consumer product.
Adam Smith used the Pin Factory illustration to demonstrate his central economic theory, and claimed innovation, that the main cause of growth was the division of labour, and that it was the division of labour itself that spurred capital and process innovation. Others, notably John Rae (the Scottish Canadian economist not the similarly named biographer of Smith) claimed that Smith had got the causation the wrong way round, that it was invention that spurred growth and that invention caused the division of labour.
The ability to create a model offers the intriguing possibility to test (to some extent) who was right. In fact the term ‘division of labour’ covers several different process innovations each with different effects – so perhaps bother were?
This series will be divided into a number of parts with references:
In the next part ill look at the origins of the Pin Factory model and the idea of the Division of Labour in Physiocratic thought. Why the Pin Factory was chosen over other (seemingly more obvious) factory models for the C18, such as a textiles factory, and what Adam Smith’s particular innovation was in studying the division of labour.
In the third part ill explore the attempts other early political economists made to fill in the missing links in Smith’s concept, because rather frustratingly Smith did not really explain why the division of labour led to efficiency savings. In particular we will explore the relationship between the Division of Labour and capital advanced, which the Says (father and son) laid stress on.
In the fourth part we will explore Rae’s alternative view.
In the fifth part we will look at the concept of the ‘production function’ – and the problems of defining a production function involving multiple process steps some of which are labour only. Von Thünen- the inventor of the production function – created the solution, which he had etched on his grave.
There may be several other parts – as the model is open ended and can easily be extended, but this is enough for an initial plan. I hope to find time to explore Smith’s much neglected macro insight, that the extent of the division of labour was limited by the size of the market, as well as Ricardos intriguing suggestion that the division of labour may boost growth in monetary terms but values remain the same.
Most of economics treats the production process - such as in a factory – as a black box. You have a matrix of inputs, and a matrix of outputs, and what happens in between must be. But what happens in between takes time, and requires modelling of state and delay, requiring an SD approach. Very few in an economic context have explored inside that black box and its connection to the division of labour; but honorable mentions must go to Babbage, Böhm von Bawerk and Goldratt. We will explore their contributions throughout where appropriate.
The series will start properly tomorrow if all goes to plan.
Posted on January 16, 2013, in urban planning. Bookmark the permalink. 8 Comments.
Sounds like a potentially enlightening experiment. (It was actually what C. H. Douglas did almost 100 years ago.) Don’t forget to factor in the ever present commercially ENFORCED REALITY of the inherent scarcity of incomes in comparison to prices required by cost accounting’s rules. (profits of course are not wages, and only momentarily “solve” things for businesses while the ongoing effects are born by actual people)That factor and that fact always seems to get missed by economists (except by C. H. Douglas), and will make the REAL price inflationary nature of the system for BOTH individuals AND businesses apparent. Economics is complicated and has numerous possible problems and causes of problems, but money is basically accountancy and an unrecognized or acknowledged flaw there, because it is a part of the very “woof and warp” of the system itself, is by definition a ROOT cause and will destabilize the economy and rob individuals of purchasing power.
Oh, and making a sweatshop, low tech example your model may lack a certain symmetry with present reality, but if you’re real conscientious about modeling the cost accounting effects as per above….the same century old conclusions ought to still be there.
Boy, if you have never worked in production you should have tried to get them to let you work in production! For empiricism, experience, and all that. You might have made more friends. Then you could have gone home try to teach your self bookmaking (binding) and built your own book doing all the steps with a clock. Of, course if you made 10-100 books you would naturally do the steps in batches.
You could still find a production environment to work a day in; if your country hasn’t totally sent all production off shore, while placating every one with economic theories on how it would be fine for every one effected.
You might want to look over the fence too. There is a field called industrial engineering, IE. Maybe you should talk with an industrial engineer over beer. And because they are engineers they would have systems analysis using ODE systems of equations that your software will compute for you. You won’t have to reinvent any thing and might pick some thing up. These are not economists they are pragmatic and evaluate what has been put into practice. If you like Keen you will might like industrial engineering books. Also, most engineers have to read a book on engineering economics which includes basic IE subjects.
You might do the analysis on the book factory. You could talk with them and they might be able to pick out things to make your analysis more realistic.
Sounds cool.
I’ll tell you some reasons for devision of labor.
Simplicity is much more efficient. Key.
Of course it is said the lower skill requirement, shorter learning curve for line folks. What this actually means is the the worker is actually an expert at the part that they do!
Improves quality and repeatable results.
It makes material flow and logistics easier. It makes the work environment more simple and less cluttered. You might have noticed at each place people were working they had all the tools they needed but no others.
Do you have pictures to put up? If it’s a client would that be alright with them?
Some pictures coming up in the next installment
Great!
I bet that the beginning of this division of labor is much older than Smith. India was had many of the most wonderful manufactured items way back in history. Division of labor certainly would be done in textiles from the beginning.
The abbreviation above, ODE, stands for ordinary differential equations. They are usually learned after two or three courses in calculus. Usually the learning order is calculus with derivative, integral calculus, vector or multi-variable calculus, and then ordinary differential equations.
If you look at Steve Keen’s systems of equations you will see many of them are differential equations. In other words they have derivative terms like dF(t)/dt in them. Your system analysis software converts the diagrams to equations and calculates solutions to those equations. Then the results are graphed.