Wednesday, 16 September 2015


I got the electronic version of Adam Smith's book Wealth of Nations a while back.  Like, I suspect, many people, I started but haven't finished it.   However P. J. O'Rourke has a nice modern summary, and I'm currently reading that.  It seems to cover the main points, and in a more readable, modern style.

One of Smith's basic points is that by division of labour, or if you like, specialisation, production can be increased, and if there is an adequate transport network to distribute the extra goods that result, this creates greater total wealth.

As an example he considers three manual workers, Tom Dick and Harry who make pins.  Each can make, say, 10 pins per day, drawing out the wire, cutting it to length, sharpening one end and fashioning a head on the other.  Each has his own wire-drawing machine, grindstone, and hammer for making the head.  Between them they make 30 pins per day.

Smith points out that if each specialises, Tom in drawing the wire and cutting it, Dick in sharpening one end, and Harry hammering out the head, they can typically make more pins between them than the sum of their individual efforts; say 50 or 100 pins per day, and they only need one set of tools instead of three.

It is mathematical and physical truth (I learned at uni) that fully optimised systems are less stable in response to external perturbations than less optimised systems.  High-performance cars are less reliable than family saloons, for example.  We can demonstrate this with our pin makers by considering what happens when Tom takes time off work for 'Flu.   In our first example, pin production goes from 30 per day to 20.  In the second it goes from 100 to zero, and, assuming that they are as specialised as the term implies, production stops until Tom gets back.   And if TDH inc are supplying pins on a just-in-time basis for some other customer, the shock propagates.

I can't help but notice how specialised and optimised our world is, and wondering what's going to trip it up.  Looks like it might be a financial thing, but you never know.  And secondly, I'm always a bit suspicious of people who demand the last bit of optimisation of any process.  It has a cost.

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