Member-only story
The LOL Nothing Matters Economy
Has the economy become untethered from reality?
One of the most famous parts of Adam Smith’s The Wealth of Nations is his description of a pin factory. The story is meant to show us the advantages of an efficient division of labor. Since each worker performs a simple, discrete task, they can produce thousands of pins per day rather than dozens.
The story is meant to show us how, in pursuit of maximum profit, the pin factory owner has devised a much more efficient and productive system. It’s the genius of the market at work.
Ever since Adam Smith, conventional wisdom has held that when we all rationally pursue our own self-interest, something magical happens. The collective wisdom of “the market” ensures progress. Prices adjust to reflect the true value of items; wages go up for valuable, in-demand professions. When the public demands something, the market races to fill that need. Over time, the cream rises to the crop. The market drives people and companies toward the most efficient and effective use of their time and money.
Whenever I’ve taught Adam Smith in my classes, I’ve used the pin factory example, but it’s always felt a little off to me. Why did Smith choose pins and not a more interesting, complex manufacturing process?
