Anthony J. Pennings, PhD


Smith Effect III: Adam Smith, the Census Machine, and the Beginnings of IBM

Posted on | June 20, 2011 | No Comments

This is the third in a three part exploration of Adam Smith and how his ideas laid the foundation for information technology (IT). Here I specifically explore connections between his theories and the formation of IBM which last week celebrated its 100th birthday.

This post further develops the thesis that Adam Smith’s new conception of wealth set the foundation for modern information practices and calculating technologies. The premise of this section is that the new system of economic understanding engendered by Adam Smith, the Scottish philosopher and author of the Wealth of Nations (1776), laid an important intellectual foundation for modern information technologies.

Smith contended that the wealth of a nation lay not in the riches gathered by the monarch but rather in the enterprise and productivity of the population. This had the effect of helping to transform a system of calculation, “political arithmatik,” designed to tally the wealth of the sovereign, into statistics (“state-tistics”), a system of measuring a wide range of economic and social activities.

Smith is mainly known for his notion of the “invisible hand” – God’s infusion of the world with a regulatory system based on individual human desiring. However, his reconceptualization of governmental wealth reverberated through time to stimulate the development of information technologies.

This “Smith Effect” grew in importance, especially as modern computerized bureaucracies emerged and “electronic” monetary policy became heavily reliant on the surveying capacity of modern statistical techniques. Smith, while generally accredited with ideas used to argue for the limitation of the state, also set the foundations for modern bureaucratic states and extensive surveillance systems dependent on information technologies.

This new direction in governmental activities led to continual interest and innovations in mechanical calculations and statistical measurements.

Consequently, it can be argued that the Smith effect resulted in Herman Hollerith’s tabulating machines, created for the 1890 US Census. These technologies eventually became the foundational product that led to the formation of International Business Machines (IBM). The Constitutional Convention of 1787 mandated the counting of Americans every ten years.

Still, by the late 19th century the American population had increased to the point where calculations were nearly impossible to compute using non-mechanical means. Immigration surged after the Civil War, and the whole idea of census-taking nearly became obsolete because of the complexity of the task. By the time one census was finished, it was almost time to do the next one.

Hollerith’s machine became an immediate success and prospered mainly due to the process of “Morganization” occurring in major companies at the time. J.P. Morgan was consolidating several similar companies under names such as AT&T, General Electric, New York Central Railroad, and US Steel. These companies had significant data processing needs that required the telegraph for transmitting information from various locations to tabulating machines that would aggregate information for reports to upper management.

Failing in health, Hollerith sold his business to Charles Flint in 1911. Flint merged the enterprise with two other companies to form the Computing Tabulating Recording Corporation. IBM celebrated this merger as its centennial marker in 2011.

CTR changed its name to International Business Machines (IBM) in 1924 after it purchased German tabulating firm Deutsche Hollerith Maschinen Groupe (Dehomag). Under the leadership of former NCR and indicted supersalesmen, Thomas Watson, IBM expanded to other countries interested in tallying their own populations. In the 1920s and 1930s, IBM began to comb the world, selling its tabulating machines and personalized census services to countries like Russia and Nazi Germany. The punch-card tabulating systems were then generalized for a wide range of commercial and government purposes, including monitoring racial politics as well as parts management for the Luftewaffe, Germany’s air force.

In the US, IBM got the Social Security contract that supported them through the Great Depression. Former IBM salesman Ross Perot would follow that model by getting Medicare contracts to help build his company EDS. It was the son, Thomas Watson, Jr., who guided IBM into the electronic computer age during the Cold War.

Citation APA (7th Edition)

Pennings, A.J. (2011, June 20). Smith Effect III: Adam Smith, the Census Machine, and the Beginnings of IBM.


AnthonybwAnthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. From 2002-2012 was on the faculty of New York University where he taught comparative political economy, digital economics and traditional macroeconomics. He also taught in Digital Media MBA atSt. Edwards University in Austin, Texas, where he lives when not in the Republic of Korea.


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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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