Question

What was the role of the division of labor and specialization in Smith’s The Wealth of Nations? What fear did Smith hold in regard to the division of labor? What role did the government have in correcting this and, more broadly speaking, in the rest of society?

Answer 1

Division of labor is one of the most important concepts in social science, not just for economics but for the study of societies in general. Many scholars, such as Ibn Kalduhn in the 14th century, or Emile Durkheim in the 20th, have considered the importance of division of labor for how societies function. But Adam Smith’s discussion in The Wealth of Nations united two key concepts: division of labor as a motor for generating prosperity, and market systems based on self-interest as a fuel for that motor.

The main focus of Adam Smith's The Wealth of Nations lies in the concept of economic growth. Growth, according to Smith, is rooted in the increasing division of labor. This idea relates primarily to the specialization of the labor force, essentially the breaking down of large jobs into many tiny components. Under this regime each worker becomes an expert in one isolated area of production, thus increasing his efficiency. The fact that laborers do not have to switch tasks during the day further saves time and money. Of course, this is exactly what allowed Victorian factories to grow throughout the nineteenth century. Assembly line technology made it necessary for a worker to focus his or her attention on one small part of the production process. Surprisingly, Smith recognized the potential problems of this development. He pointed out that forcing individuals to perform mundane and repetitious tasks would lead to an ignorant, dissatisfied work force. For this reason he advanced the revolutionary belief that governments had an obligation to provide education to workers. This sprung from the hope that education could combat the deleterious effects of factory life. Division of labor also implies assigning each worker to the job that suits him best. Productive labor, to Smith, fulfills two important requirements. First, it must "lead to the production of tangible objects." Second, labor must "create a surplus" which can be reinvested into production.

Another main concern for Smith involved tracing the roots of value. He identified two different kinds of value, "use value" and "exchange value." The concept of exchange value interested Smith considerably. The diamond-water paradox, in particular, proved puzzling to him: Why is it that diamonds, which have very little practical use, command a higher price than water which is indispensable to life? By discovering the true source of value Smith hoped to find a benchmark for measuring economic growth. Eventually Smith settled on labor as the source of value: The number of hours labor that a good can be exchanged for constitutes its inherent worth. (Note, this is not the same as saying that a good is worth the number of hours spent in its production.) The value of a good can also be referred to as the "natural price." The natural price need not function as the actual cost of a good in the marketplace. Competition, however, was expected to push the market price towards the natural price.