April 18, 2011

A Fundamental Flaw in Adam Smith's Conception of an Industrialized Capitalism

I wrote this as a school paper, but thought that the topic was relevant enough to post here.


There is a fundamental flaw behind Adam Smith's great, wealthy, stable capitalist economy. Perhaps Smith, who wrote during the innocent beginnings of the Industrial Revolution in Britain,1 could not foresee the consequences his theory would inevitably bring about, as industrialization progressed. Perhaps, as an academic, he simply could not sympathize with the plight of the worker. At any rate, the ungoverned capitalistic manufactories, which The Wealth of Nations describes, while enriching the whole nation, forces the individual worker into a position of dependence upon a large, impersonal corporation. Such a position is detrimental to the well being of the individual worker. This flaw, however, is not apparent. In this paper, I will attempt to demonstrate that this flaw is present in any capitalistic industrial economy.

Before showing the flaws inherent in the capitalist utopia which Adam Smith describes, it must first be examined. I will do this by looking to Smith's Wealth of Nations itself. Smith begins by pointing out that the wealth of a nation consists in its material goods and its monetary holdings.2 A country can increase its wealth substantially by means of the division of labor. As Smith states, “The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity and judgment with which it is anywhere directed or applied, seem to have been the effects of the division of labor.”3 The division of labor consists in breaking down the process of manufacturing some item into its component tasks, and then assigning each of these individual tasks to a single person. This allows a group of people together to make significantly more of the product than the same amount of people could individually. Smith demonstrates this with the example of the pin-making industry,
One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pin is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations which, in some manufactories, are all performed by distinct hands...[they] could therefore make among them upwards of forty-eight thousand pins in a day.4

Because the wealthiest nation is the one which has the most money and goods, and the division of labor thus produces the most goods for the least amount of money, the country which has most subjected its industry to the division of labor and industrialization is the richest. The factory, then, where workers perform one out of the multitude of tasks required to make a pin, is the centerpiece and cornerstone of Adam Smith's capitalist economy. This glorious factory will make the whole nation rich.

This economic theory which Smith proposes seems to make sense. The whole nation is enriched by factories. However, Smith does not take the individual's well being into account when he discusses the wealth of the whole nation. In fact, his factories are detrimental to the well being of the individual worker. To attempt to prove this, I will first point out that not every citizen of a rich nation is himself wealthy. Second I will show the worker is entirely dependent upon the large company who owns the factory for his livelihood. And third, I will show that the same company does not need to support the worker.

First, whether every citizen of a wealthy nation is wealthy. After all, if the whole nation becomes wealthier because of factories and the division of labor, and if the nation is made up of individuals, then the individuals should be made wealthy by industrialization. However, that hypothetical syllogism does not completely take into account how the wealth of a nation functions. Even if the total wealth of a nation is great, the wealth of individual people is not necessarily so. If the average national wealth is ten thousand dollars, then both individual A and B might have ten thousand dollars. However, it could also be the case that individual A has twenty thousand dollars, while individual B has none whatsoever. In that second case, the national average remains the same as the first, but individual B is living in poverty. Thus, I cannot conclude from the premise “the nation is wealthy” that “the individual citizens are wealthy.”

Second, the hired factory laborer is under the unfortunate circumstance of being unable to provide for himself without wages from the factory. The workman is unable to produce food except through wages in the living conditions demanded by factories. Because the factory needs quite a few workmen, the owners of the business construct large housing developments near the factories so that their workers can live close by. Dramatic numbers of people moved into these factory slums during the industrial revolution. In 1801, the population in British cities comprised twenty percent of the total population of Great Britain. This increased to forty percent by 1851, and to 75% by 1901.5 I have seen such slums myself in Middletown, Ohio. Near the old factories are rows and rows of small, identical houses on quarter-acre lots. Any laborer living in such housing developments cannot grow his own food on such small property or under such conditions. Hunting or raising livestock is completely out of the question, since there simply is not enough room, and wild animals are scared away by so many people. As a result, the only option a laborer has to acquire food is buying it. Since all of the money which he has comes from the factory wages, he is completely dependent upon those wages for his food.

Further, Adam Smith himself admits that the factory worker does not become a skilled worker,6 thus preventing him from using his “trade,” if it can be called that, independent of the factory. If the process of making a pin is split up into eighteen different parts, each individual worker only knows one of these. The worker, if fired, cannot go elsewhere, relying on his pin-making to support him. He only knows how to “draw out the wire,” “cut it,” or “grind it at the top to receive the head.”7 He could not make a single pin on his own, as Smith admits.8 Even another pin-making factory, if there is one, might have different machinery, which the laborer would have to learn to operate from scratch. The workman who depends upon his wage for food, then, is not a skilled workers, with a definite trade by which to make a living. He therefore depends entirely upon the factory for any money they might receive, and thus for his very livelihood.

Third, then, consider the factory. The factory would seem to depend upon its workers. After all, the factory's source of income is selling the goods which it produces. The workers are necessary to make those goods, and they also serve as possible consumers for those goods. However, the above argument, again, considers the workers as a group, and not individually. When examining the effect on the single workmen out of the many, the facts do not apply in the same way. The companies have great power over the individual. G. K. Chesterton, a political theorist who offers an opinion from the end of the Industrial Revolution, states that the big companies have “...the money, the machinery, the rather mechanical majority...”9 In the game of life and death between the individual worker and the factory, the factory holds all the cards.

Although the factory may depend on the workers as a group, it does not depend upon the individual worker. If one worker quits, is fired, falls sick, or requests better wages, there are plenty of other potential workers to replace him. The factory owner knows that there are plenty of people who are willing to work for whatever wage, under whatever conditions, if one man is unable or is not willing.

Further, the factory does not depend on any individual worker to consume the goods it produces. Again, there are plenty of other people who will purchase the goods to support the company, and perhaps even to make the company owner fairly wealthy. The individual worker's participation in the capitalist, manufactory system does not determine its success. There are enough members of the working class that one individual worker does not matter to the factory.

If the factory does not need any individual worker, then what guarantees his safety and well being? The factory wage he receives could easily be given to someone else. And yet the workman has dire need of that wage – without it he cannot feed himself. What assurance can the laborer have of receiving this money? Only the agreement he makes with the factory owner. This is no great comfort. If the only thing between the workman and starvation is his employment, and the factory has no real obligation to employ him, then the industrial manufactory system is certainly not sufficient to provide for the well being of its laborer. The factory owners may call the farmers and country folk to the factory slums with the lure of a wage, but the big businesses cannot support each and every man who answers the call. The factory system envisioned by Adam Smith, while it might enrich the nation, does not adequately protect the well being of the individual worker.

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Blogger Rhea Stone said...

You make a great point about the first generation of the industrialized ex farmer population. But you have neglected to mention that the shifting population was once dependent on landlords to even have farms in most of Europe, and in North America the farmers were dependent on other businessmen to provide the daily tools they could not produce themselves as they were busy farming.

Your point about the urbanization of the labor class leaves out that the massing of labor lead to several key features of modern life, such as expanded franchise for all males, then females, and then non majority cultures, such as Jews in Europe and African Americans in the United States. The mass production, while driving down wages initially also drove down daily cost of living. In the United States between the 1870s and 1900 real median income increased between 30% to 50% depending on the source (this in a time of incredible cheap labor immigration). Wages went up as demand for labor increased, and this was mirrored by dramatic declines in cost of living.

The population suffered for the first generation of industrialization with poor living conditions and a reduction of income, but in following generations, economic and political growth lead to the correction of many of these issues and created such abundance of wealth that the state was able to subsidize poverty across the western world.

March 13, 2013 10:37 AM  

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