Thursday, April 05, 2007
Here's the offending note, you should take the virtual tour to look at its back to see the error. (See the new twenty pound note therein. A bigger .pdf file is here.) Here's Mr. Smith himself. It's interesting that so far nobody has seemed to report this basic error, though the note has circulated for more than three weeks. The note was outsourced, and apparently the proofreaders didn't read their Smith.
The Bank of England also reproduces a stylized print of a pin factory and some workers and adds the comment: �The division of labour in pin manufacturing
(and the great increase in the quantity of work that results)�, which is a most
Mervyn King was a distinguished professor of economics, most of his fellow members of the Monetary Policy Committee are economists or finance specialists, who would have attended lectures on the division of labour � some might even have read Wealth of Nations.
Yet, I would not have thought the conclusion the Bank has printed under the pin factory that it resulted to a �great increase in the quantity of work� would have passed their scrutiny. If that was the result of the division of labour then any government could achieve such increases in the quantity of work by simply creating more regulations and teams of inspectors to enforce them. Governments are �make work� institutions; commercial economies seek to economise on labour, to create wealth, which is the �annual output of the necessaries, conveniences and amusements of life�, as Smith put it.
The division of labour increases the quantity of output per worker, not the quantity of labour per unit of output. In Smith�s example (Wealth of Nations, I.i: p 15) one worker takes a day to make one pin if he does all the work needed; with a division of labour, ten men can complete the 18-steps of pin manufacture �upwards of 48,000 pins a day�.
To reach the same output of 48,000 pins per day it would take 48,000 men to do it, which is beyond doubt a �great increase in the quantity of work�. It would take one man 131 years to achieve this total. But that was not what the division of labour was about and the economists on the Monetary Policy Committee of the Bank of England should have known this when they approved the proofs some months ago. If they didn�t know this I wonder what their qualifications were for selection for the Monetary Policy Committee?
Thanks to reader Tim Slade for the pointer.