What a Shameful Error by the Bank of England on the new £20 note!

Last August, I was at the Kirkcaldy annual Adam Smith lecture when Mervyn King, Governor of the Bank of England, announced that Adam Smith was to appear on the £20 note, which it duly did last month.

Today I received one of the £20 notes as a present from my son in-law (what an ideal present several thousand of those would be!). However, I noted that the Bank had used the image of Adam Smith from the James Tassie medallion made in 1787 (a definitive image in my view) which is on display at the National Portrait Gallery in Edinburgh. I used a quality reproduction of this image on the cover of my ‘Adam Smith’s Lost Legacy’ (Palgrave Macmillan, UK edition – I understand the US edition uses an imaginary image of Smith of indescribably poor quality).

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 astonishing statement.

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?

Does Gordon Brown (who claims an affinity with Adam Smith having been born in the same village of Kirkcaldy) not know these elementary facts either? I am absolutely astounded that the Bank of England and the British Chancellor got this so wrong.