Explain how a factory owner would view capitalism

Economic theorizing

utilizes, on the one hand, mathematical techniques and, on the other, thought

experiments, parables, or stories. Progress may stagnate for various reasons.

Sometimes we are held back for lack of the technique needed to turn our stories

into the raw material for effective scientific work. At other times, we are

short of good stories to inject meaning into (and perhaps even to draw a moral

from) our models. One can strive for intellectual coherence in economics either

by attempting to fit all aspects of the subject into one overarching

mathematical structure or by trying to weave its best stories into one grand

epic.

This paper attempts to revive an old

parable, Adam Smith’s theory of manufacturing production, which has been

shunted aside and neglected because it has not fitted into the formal structure

of either neoclassical or neo-Ricardian theory. The paper attempts to persuade

not by formal demonstrations (at this stage) but by suggesting that the parable

can illuminate many and diverse problems and thus become the red thread in a

theoretical tapestry of almost epic proportions.

The subject may be approached from either

a theoretical or a historical angle. Regarding the theoretical starting-point,

it is possible to be brief since the familiar litany of complaints about the

neoclassical constant-returns production function hardly bears repeating. The

one point about it that is germane here is that it does not describe production

as a process, i.e., as an ordered sequence of operations. It is more like a

recipe for bouillabaisse where all the ingredients are dumped in a pot, (K, L),

heated up, f(·), and the output, X, is ready. This abstraction

from the sequencing of tasks, it will be suggested, is largely responsible for

the well-known fact that neoclassical production theory gives us no [204] clue

to how production is actually organized. Specifically, it does not help us

explain (1) why, since the industrial revolution, manufacturing is normally

conducted in factories with a sizeable workforce concentrated to one workplace,

or (2) why factories relatively seldom house more than one firm, or (3) why

manufacturing firms are “capitalistic” in the sense that capital

hires labor rather than vice versa.

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