Saturday, March 15, 2014

What Adam Smith said about the division of labor

If your parents have ever divided household chores among you and your siblings, then you know what the division of labor is. So-and-so mops the floor, so-and-so does the vacuuming, and so-and-so cleans the toilets. (Lucky for them, huh?) The labor gets divided among multiple people, with each person getting a certain kind of task.

The concept is not a new one, and labor has been divided among several people for centuries. But it was not until comparatively recently that its advantages were systematically explained. Adam Smith explained it well more than 200 years ago, and his words about its importance still have relevance today. There are advantages to dividing the labor, and these advantages have great importance for society. So with that in mind, I will now turn to what he said about this concept.

Adam Smith

Adam Smith explained this concept by talking about his visits to a pin factory. He called this a "trifling manufacture," but I think it is an important one, as it shows how a division of labor increases productivity. I turn to quoting his words now:

"The greatest improvements 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. The effects of the division of labour, in the general business of society, will be more easily understood, by considering in what manner it operates in some particular manufactures."

A couple of paragraphs later, he begins describing this example:

"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 a pin-maker: a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades.

Pin-makers, 1760

"One man draws out the wire; another straights it; a third cuts it; a fourth points it; a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business; to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind, where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those 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. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth, part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations."

Adam Smith

Smith then draws the critical conclusion from all this:

"In every other art and manufacture, the effects of the division of labour are similar to what they are in this very trifling one, though, in many of them, the labour can neither be so much subdivided, nor reduced to so great a simplicity of operation. The division of labour, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers of labour." (Source: The Wealth of Nations, Book I, Chapter I)

So what enables this division of labor? At its most basic level, what enables this to happen is larger groups of people to divide the tasks among. In the pin factory, people working as a team accomplish more than they could do individually; and in society at large, groups bound together as a society accomplish more than they could do in smaller numbers. You can create whole industries among the population, with some people specializing in farming (providing food), others specializing in construction (providing shelter and housing), and others specializing in fulfilling various kinds of other needs that people have. The specialization caused by this large-scale division of labor likewise causes greater productivity in the tasks concerned.

Slavery in Virginia tobacco plantation, 1670

This is recognized by people in economies ranging from the capitalist to the communist. A command economy divides the labor by force, leaving people no choice about what part of the labor to perform. In the slave plantations of the Old South, masters would make some slaves work in the fields, others in the house, and some in various other places. The costs of this loss of freedom are not exclusively moral - there are also practical drawbacks. If a slave knows he won't get rewarded for being unusually productive, he won't work very efficiently unless the overseer is nearby. He will do only the minimum needed to satisfy his master. That minimum may require unusually long workdays, allowing him no free time to improve his health or contentment. But it is in his interest to hide the true extent of his capabilities, so that he will not have to work as hard. He'll work slower than he knows he can, because going faster brings no additional rewards. Thus, less gets produced, and the economy is generally less efficient. In the words of the University of Houston's website, "Although slavery was highly profitable, it had a negative impact on the southern economy" (see citation).

Long line for cooking oil - Bucharest, Romania 1986 (then controlled by Soviet Union)

Communist systems fare little better than the old slave plantations. They, too, do not reward people for unusually high productivity; only using force to ensure quotas are met. A command economy's assaults on freedom bring practical costs as well as moral ones, so the division of labor is not as efficient. Small wonder, then, that the Soviet Union was a poor economy with low standards of living. Free markets, by contrast, enable a highly efficient division of labor, because they allow people to self-select their occupations, balancing work enjoyment and work compensation as they see fit, and choosing work they are good at, much better than any government bureaucracy could do. They are rewarded for meeting the needs of others, and others are rewarded for meeting their needs. Thus, more people's needs get met than in the inefficient mire of communism.

After all is said and done, Adam Smith was a great believer in free markets. While he didn't criticize communism specifically (it didn't exist yet), his opposition to big government makes clear that communism is in opposition to his beliefs. He made basically the same point as I do about the inefficiency of slavery, and his support for freedoms (economic and otherwise) is well-known to this day.

Why Adam Smith is still relevant today

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