Question

(History of Economic Thought) Question.

Why is division of labor so important for Adam Smith? Make sure that you also observe the connections Smith made between the ‘division of labor’ and the ‘market size’ on one hand, and the effects of this division on the ‘health of the worker’ on the other.

Answer 1

Adam Smith is regarded as the Father of economics and he was of the view that free flow of goods and services in a country and among different countries was the only way in which development would be possible.

If we view modern economics today, the same strategy is being followed across the globe and is resulting in increased flow of money and modernization across all countries which have used this as a tool of growth.

He said that division of labour was critical to ensure the success of any country which wanted to explore industrialization. He stated in his theory that through the proper use of division of labour, the total output and overall productivity can be increased in any economic setup.

Further, he said that division of labour is limited by the size of the market, in an economy that does not engage in exchange, the need for goods and services does not arise and therefore division of labour is not required. He was an advocate of foreign trade and said that without active exchange of goods and services in the economy, the true potential capacity of any country cannot be realized.

Also, since industries during that time were particularly hazardous, he said that division of labour would bring significant changes and the health of workers would improve substantially as they would have higher experience in getting the same work done.

Please feel free to ask your doubts in the comments section if any.