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A conversation with Andrew Wagner, production and manufacturing engineer, now in aerospace, but with experience also in the auto industry.

We trace how transaction costs shape production, from Adam Smith’s pin factory to Toyota’s SMED, and why empowering workers and redesigning tools can raise quality while cutting cost. An aerospace manufacturing engineer joins us to unpack Little’s Law, line reconfiguration, and the culture that makes flexibility real.

• division of labor limited by the extent of the market
• sub shop and Chipotle as live line-balancing examples
• Smith’s three productivity drivers applied to modern factories
• Little’s Law guiding WIP, stations, and throughput
• costly line changes and capacity planning in auto plants
• meta-tools, CNC, and multi-operation automation
• stamping dies, SMED, and Toyota’s flexibility edge
• just-in-time, early error detection, and quality economics
• U.S. responses: robotics, platforms, and Deming at Ford
• NUMMI proof: same workforce, new system, better output
• CAD parametrics, modular design, and clay by robot
• structure by design: darts, curves, and manufacturability
• specialization, ergonomics, turnover, and the $5 day
• worker empowerment as applied Hayekian local knowledge
• letter on bureaucracy, spending, and the social order book pick

Some links:

• Workload modeling and "Little's Law"
• Little on Little's Law
• "Just In Time" inventory and manufacturing
• Edwards Deming's "14 Principles for Management"

Book o'da'Month: Jacques Rueff, THE SOCIAL ORDER

You can follow Mike Munger on Twitter at @mungowitz

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This episode explores Book 2 of Adam Smith's Wealth of Nations, focusing on his revolutionary concept of the "division of stock" and how capital accumulation drives economic growth.

• Smith distinguishes between fixed capital (machines, buildings, land improvements) and circulating capital (money, goods in transit)
• Money is described as "the great wheel of circulation" – necessary but not productive in itself
• Banking allows society to economize on expensive metallic currency by substituting paper money
• Smith's concept of productive versus unproductive labor helps explain which activities increase national wealth
• The acquisition of skills represents "human capital" – a concept Smith pioneered centuries before Gary Becker
• Interest on loans is justified as compensation for the productive use of capital, though Smith supports moderate usury laws
• Smith identifies four employments of capital: agriculture (most beneficial), manufacturing, wholesale trade, and retail
• Smith criticizes mercantilism for privileging foreign trade over domestic production
• Division of stock and modern financial markets solve the "time travel problem" by allowing entrepreneurs to access capital without primitive accumulation

You can follow Mike Munger on Twitter at @mungowitz

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Book Two of Adam Smith's "The Wealth of Nations" provides the conceptual foundation for understanding how commercial society sustains growth through capital accumulation and the employment of stock. Smith challenges common misconceptions about wealth creation and offers profound insights on the role of capital in economic development.

• Capital is not capitalism – Smith wrote before "capitalism" was invented, using the term "stock" to describe accumulated resources
• Division of stock works alongside division of labor – capital must be accumulated before it can be employed productively
• Justice (protection of person, property, and promise) is prerequisite for investment – without security, people hide rather than invest their stock
• Fixed capital (tools, buildings, skills) versus circulating capital (money, wages, materials) form different branches of stock
• Money serves as "the great wheel of circulation" – facilitating exchange but not itself productive
• Banking allows society to operate with less precious metal – freeing resources for productive investment
• Productive labor creates vendible commodities while unproductive labor (government, services) perishes in performance
• Parsimony (saving) drives growth while prodigality reduces funds available for productive employment
• Interest is legitimate compensation for foregone use of capital – similar to rent on land
• Agriculture, manufacturing, wholesale trade, and retail are the four main employments of capital
• Modern financial markets solve Marx's "primitive accumulation" problem – entrepreneurs can sell shares of future profits

Let me know your thoughts on these ideas from Adam Smith in the comments below.

You can follow Mike Munger on Twitter at @mungowitz