Adam Smith in the Wealth of Nations starts the book with
defining and promulgating the importance of the division of labor. I would maintain it is more than that; it is a sine qua non of any economic system. If there is no division of labor then
everyone is wholly self-sufficient and therefore there is no meaningful
exchange of goods or services and no economy exist.
He gives the following example of how in a primitive society
the division of labor might arise.
“In a tribe of hunters or
shepherds a particular person makes bows and arrows, for example, with more
readiness and dexterity than any other. He frequently exchanges them for cattle
or for venison with his companions; and he finds at last that he can in this
manner get more cattle and venison, than if he himself went to the field to
catch them. From a regard to his own interest, therefore, the making of bows
and arrows grows to be
his chief business, and he
becomes a sort of armourer. Another excels in making the
frames and covers of their little huts or moveable houses. He is accustomed to
be of use in this way to his neighbours, who reward him in the same manner with
cattle and with venison, till at last he finds it his interest to dedicate
himself entirely to this employment, and to become a sort of house-carpenter.
In the same manner a third becomes a smith or a brazier; a fourth a tanner or
dresser of hides or skins, the principal part of the clothing of savages. And
thus the certainty of being able to exchange all that surplus part of the
produce of his own labour, which is over and above his own consumption, for
such parts of the produce of other men's labour as he may have occasion for,
encourages every man to apply himself to a particular occupation, and to
cultivate and bring to perfection whatever talent or genius he may possess for
that particular species of business.”[1]
The result of this division of labor is that everyone becomes a producer/consumer and as
a result is left with a make/buy choice. In the primitive society, do I
make my arrows, build my hut, tan my hides or do I trade my cattle, venison,
corn for someone else’s skill set? In modern society do I grow my food, build
my house, repair my car or do I contract with the grocer, builder, or mechanic
to do those things for me?
Make/buy then is a continuum
around which we all make choices and to some degree speaks to a core belief we have about ourselves. The more
independent among us is inclined to have a garden, fix the faucet or check
under the hood before calling the mechanic. Others from a lack of talent (me)
or inclination can’t wait to hand the problem off to someone more capable than us.
I have a great deal of respect and even envy for those who “look under the
hood” before they pick up the phone. Being a core belief it shades the way we
look at not just the specific problem but the world as well.
However, no matter how independent we think we are,
certainly everyone who is reading this earns the vast majority of their capital
pursuing a singular task (doctoring, lawyering, architecting etc.) and trading
that capital for virtually everything we need to survive. And that capital we buy is the work of tens
if not hundreds of thousands of people. In the opening chapter of The Wealth of
Nations Smith uses the example of pin makers, and notes that ten can
collectively make 48,000 pins in a day compared to the not more than 20 one
untrained person might make. However,
that is still ten people who just make the pin. (And it doesn’t include the
people who make the wire from which the pin is made.) If ten people make a pin,
how many make a rug, or a book, or a chair, or a computer?
Thus, as with dogma where we believes a million things on the faith of other people, we buy most
everything produced by a million other people, because it materially “allows (us) to make a good use of freedom.”
Thus from the dawn of economic history, as with dogma, we willingly submit ourselves to a “salutary servitude” because we buy the goods and services of
others way more than we produce for ourselves.
The fact that almost all of our choices are buy in the
make/buy paradigm perhaps has implications for our happiness but it also has
implications for how we view how we govern ourselves.
As a final aside Smith says the division arises out of man’s
propensity to barter and trade. This may
be a part of it and the “modern shop till you drop” mentality is a testament to
this idea. However, at the inception as he describes it I think it is a quest
for efficiency. (My perspective of efficiency as a paramount core belief, of
course, shades this opinion.) The arrow maker feels he can get more out of his
time from doing something he is good at. This is what motivates him, not the
“art of the deal”.
In summary, the division of labor gives rise to economic
activity. The division of labor gives
rise to the make/buy continuum. Where we see ourselves on this continuum is a
reflection of certain core beliefs we have. The fact that overwhelmingly we buy
rather than make is another form of salutary servitude that we accept to
operate in the world. How we perceive
these choices has implications for how we make decisions about how we govern
ourselves and perhaps implications for our happiness.
[1]
Adam Smith The Wealth of Nations Book I chapter 2 Of the Principle which gives
Occasion to the Division of Labour
What Smith observed and wrote about seems so obvious to us it's hard to imagine what a leap it represented at the time.
ReplyDeleteI think you're right, Geoff: he was remarkably sensitive to a kind of balance between the individual who was motivated to enter the market economy by selling their labor and the system as a whole. Both individuals and their societies are rewarded by a higher standard of living.
But free market "fundamentalists" and economic nationalists these days really need to re-read Smith. He clearly described how the state was necessary, not only to protect private property, but also to regulate markets. He realized that, without a religious or moral code and cultural norms, the system he was describing would not work. Without constraints there is nothing preventing economic activities that enrich some and damage others, in some cases even producing a net negative outcome.
I'm not sure about this but I think that the MOST RADICAL finding in his work was really in the domain of international commerce. It was conventional wisdom at the time that international markets and countries were different: mercantilist policies protected domestic production, stimulated colonialization and limited the development of global markets. But he discovered that countries could also become richer by allowing specialization to occur -- the division of labor -- between nation-states. Consistent with his work in describing capitalism at the level of the nation-state and the family, he understood how sovereign states might create the conditions for a GLOBAL economic system that might benefit everyone.