The thing about increased production that the other blacksmith was talking about was of course in reality simply economics of scale.
As elucidated by Marvin himself,
"Roland said it right! It's because previously we used to all work in small shops individually. But here, by working so closely together with each other in this huge workshop, we can just concentrate on just one thing. No need to constantly change our tools or move about. That really saves time."
The man did not know it yet but Marvin had just described specialization- i.e.- the process of concentrating only on one particular skill and becoming an expert in it.
And that was indeed happening here.
The consolidation and centralization of so many things so close to each other enabled each worker to focus on what he was best at and thus produce prodigious volumes of product.
So much so that Marvin would not have even believed it was possible if he had not seen for himself.