ADAM SMITH: Wealth of Nations (The Division of Labor)

Adam Smith’s great work on the economic theory of capitalism starts out with the declaration of a basic principle: THE greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour. This theoretical principle is easier to understand if we use a real-life example. Smith says To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker. A workman not educated to this business…could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. That’s not very many. But it sounds believable. How long would it take me or you to make just one pin from scratch? Smith goes on to point out that in the way in which this business is now carried on…we can be much more efficient. How? We break each task down into easy components. In making pins, for example, One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head and so forth. Let’s say we have ten people doing nothing all day but working to make pins. Each worker has a specific role to play in producing each pin. Smith claims ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. Ten people working alone would produce maybe 10-200 pins in a day. Ten people working together can produce over 48,000. This is an incredible increase in productivity; Smith claims the vast power of capitalism makes us wealthy on a grand scale. He calls it The Wealth of Nations.

There’s no doubt that specialization of work leads to an increase in material goods. By planning out work and assigning different people to different tasks we can make more of anything. It doesn’t matter if it’s shoes or tires or pins. If we can make more of anything then we can have more of everything. That’s because human beings buy, sell and trade all over the world. If we have too many shoes we can trade them for chairs. If we have too many tires we can trade them for silverware. If we have too many pins we can trade them for coffee mugs. The wealth of nations can thus be translated into everyday terms: if we have too many shoes and tires and pins we can sell them to buy chairs and silverware and coffee mugs. That will make breakfast a more pleasant experience. It’s more civilized to sip coffee from a mug while sitting in a chair than it is to sit on a tire and pick up a doughnut by poking a pin in it.

But there’s a tradeoff. Who wants to sit around making pins all day long? In fact, you won’t even be making a whole pin. What you’ll be doing is drawing out wire; or straightening out bent pieces of wire; or cutting wire, etc. All day long. If someone asks what you do for a living you can say, I straighten out bent pieces of wire all day. Of course, not everyone will be making pins. In a capitalist system excess profits can be saved and invested in new ventures. As society becomes wealthier it also becomes more sophisticated. There will eventually be room not only for pin makers, but also for shopkeepers and merchant ships and bartenders; next we’ll need teachers, artists, and writers. The increase in wealth will also lead to an increase in leisure time for most people, so the leisure industries will also flourish. Travel will become possible for more people. Even ordinary workers will be able to afford a small vacation home or time-share. Life will be good; unless the pin making factory closes. Then what will you do? You don’t know how to hunt or scavenge in the woods or grow your own food. The only thing you know how to do well is straighten bent pieces of wire. Now what? Maybe you can sell coffee mugs instead.