If you are interested in following along here is the book I am using: The Wealth of Nations (Modern Library (Hardcover). And I wanted to put this together for readers as this series will get very long. So occasionally I will group three chapters together—depending on lengths—to help the reader ease through the reading. I will try to update links to the next three and so on.
Short Introduction
It is important to note that Smith was clearly a product of his time which, not to sound unbecoming, is merely a fact as he could not yet possibly perceive the massive changes society would witness at the turn of the 20th century which is a subject of its own. Clearly Smith was a marvelous thinker and had great insight. Nonetheless, we must seek a holistic understanding of events and provide insight where the author could not or would not provide observations important to modern propensities.
Chapter 1: Of the Division of Labour (pp. 3-13)
Smith begins his book with the following:
The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour (Smith, Wealth of Nations, p. 3).
Having read the entire chapter there is a clearer understanding of what Smith is saying in that first sentence and he is saying a whole lot in this one sentence. Essentially, as the argument goes, society is shifting from a specialized working class where only a few people could work a particular trade (hence apprenticeships, journeymen, etc) to a generalized trade of workers who, though they may have fewer skills, can perform a job collectively as well as the single specialized worker, accomplish more work in less time than that specialized worker, and produce more goods than the single specialized worker. This is all accomplished because the “Division of Labor” is breaking down workers into an ultra-specialized class, a new working class, where one person drills the hole, another fits in the screw, and then another drills the screw into the board, etc. The examples Smith provides are that of the pin maker (p.4) and the nail maker (p.8).
Smith goes on to argue that this form of division is best understood in what is commonly considered “trifling” (p.3) work rather than important work (p.4) and goes on a bit about small versus large manufactures but I am going to focus on the “trifling” comment. The truth is in the modern world most manufacturing jobs have been divided up into divisions and more post-industrial societies are replacing people with robotic machinery (they are even producing robotic burger arm flippers). It does not matter the size or location anymore. Moreover, as Smith slightly mentions on page five that, the divisions of labor are found in every art although he believes some forms of labor can neither be subdivided or reduced (p.5) which is true to some extent, but in the 21st century much has changed globally. Smith notes that the separation is most obvious in highly industrialized nations (p.5) which is true, but what occurs after that is a systematic breakdown where industries move to newer developing nations that have less laws that meddle in their business. Developing nations then become developed nations and move into a post-industrial stage which is occurring in the United States and elsewhere. Today, jobs are outsourced in multiple fields including professional fields (e.g. teaching) thanks greatly to the internet, trade, international agreements, and the like. The type of worker Smith describes in his examples (pin-maker; nail-maker) are unskilled workers who have little to no education and are left with little to nothing once they lose their job. Unfortunately, though the divisions of labor makes a good deal of economic sense there are other implications that must be addressed including the long-term socioeconomic implications. I will attempt to address those concerns throughout these notes.
On page six, the matter of agriculture begins to be addressed as Smith argues that the division typically found in manufacturing is not as prominent in agriculture (p.6). This relatively remains true today as technology has transformed the way food is gathered and processed more than most industries. Additionally, globalization and the shift of jobs has radically altered the way food is obtained. Developed nations produce less food than second and third world countries which rely more on agriculture and trade for revenue. This is all somewhat similar to what Smith addressed as well (Pp.6-7) but obviously it is more heightened today.
Smith then moves his argument to support the division of labor by listing three points that he says increase the quantity of work with the same number of people: Dexterity, Time Saved, and Technology (p.7).
First, smith writes concerning dexterity:
[T]he improvement of the dexterity of the workman necessarily increases the quantity of the work he can perform; and the division of labour, by reducing every man’s business to some one simple operation, and by making this operation the sole employment of his life, necessarily increases very much the dexterity of the workman (p.8).
Dexterity is defined as “the ability to perform a difficult action quickly and skillfully with the hands, or the ability to think quickly and effectively” (Cambridge dictionary). Essentially, Smith uses the example of the nail-maker (p.8) to highlight the dexterity of a worker through the division of labor has increased exponentially as they are ultra-focused on a single process within the larger process of making a nail or whatever product involved which then increases their skill—since that is all they do—thus production is also increased. While his logic is sound to a degree, in that, the old adage of “practice makes perfect” does have truth to it, it too also has its limitations. This form of unskilled labor has long-term implications including social, political, and economic effects both seen and unseen. For starters, the mental health of workers have been shown to deteriorate overtime as they lack the motivation to self-improve because they lack the skills and support (moral and financial) by their company. Once they lose their job they often cannot easily find another and because they lack skills they must either seek unemployment or a very low paying unskilled job if possible. This creates political tension leaving moral, educational, and economical deficits to individuals and society. It is a constant trap that unless recognized and addressed will only increase in devastation. Thus it is important that companies train their employees to work in diverse situations and gain learning experiences through various roles. Also note the importance of not being solely work-focused but encourage recreation, training, health, etc.
Secondly, Smith writes that the time saved from not having to transition to one type of work to another (p.8) along with not having to leave one place of work for another (p.9) are all cost effective. While it is true that it takes the average individual a solid thirty minutes or more to truly focus and “flow” into their work; it is equally true that learning new trades or changing environments can benefit workers health and wellbeing which additionally increases production more than what Smith realized. The antiquated view of treating workers like dogs must be put down for good. A proper work balance is obviously in order.
Thirdly, Smith notes that the Divisions of Labor (DOL) helped inspire the changes in technology which then have increased production more as technology advances. There is no question that technology has changed the way in which humans work, produce, and live their daily lives. However, my only question is if DOL truly inspires these changes? Smith writes that men are more likely to discover newer things when they can singularly focus on one subject or object (p.9), but from my own studies I know that the best inventors have been those who are polymaths rather than the worker focusing on a single object (not that there is no value). That said, it is very likely that several inventions have been improved upon by such a worker. Nevertheless, the question of which impacted one another the most, technology or DOL, is in question. History I would argue favors technology rather than DOL. Just looking at Roman history would prove this point. Yet again, there may be historical traces of DOL even then which could help account to these changes. Truthfully it is not that important. It is simply a stimulating thought process for me.
On page eleven smith writes how every branch of employment is being divided into tasks and even going as far as saying that, “Each individual becomes more expert in his own peculiar branch, more work is done upon the whole, and the quantity science is considerably increased by it” (p.11). In my opinion, this is poor thinking. Practically the entire modern workforce does follow this poor thought process and it seeps to and from the education system that encourages “specialization” rather than rounded learning and experience. This is destructive to a free society and will produce poor results in the long-term as we are seeing now in American industry. Workers—blue collar or white collar—generally ought to be equipped with more than one specialized skill is what I am arguing.
Lastly, Smith postulates that “the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people”(p.13). I would not call cheap labor opulent but it does the job for someone. Yet technology today has begun to push people out of the picture as mechanical replaces flesh in the workforce. Massive global developments have transformed the way the world works from governments to businesses leaving millions stranded regardless of how high the capitalist wave. Conversely, times are far better in the overall improvements of society than in all of human history. At least that is what we see and feel, but there is a malaise that decays even now. Capitalism is the best tool for change, but always ripe for improvement. Divisions of labor, thought to create more work, has now become mechanized, decentralized, and globalized benefiting corporations (an unknown in the modern sense to Smith) more than it does the common worker. There is a need for a new paradigm shift within capitalism, but I would never argue for the replacement of capitalism. I am anti-socialism, marxism, communism, and corporatism.
End of Chapter 1.
Chapter 2: Of the Principle Which Gives Occasion to the Division of Labour
Smith begins the chapter with the argument that, “The division of labour arises from a propensity in human nature to exchanged” (p.14). Therefore, DOL is a natural evolution of man from their desire to trade, barter, and exchange goods and services according to Smith. By stepping back from the pages and remembering that DOL is the breakdown of a person’s labor into very specific, repetitive roles; it becomes readily apparent that there is a flaw in the “naturalness” of DOL let alone Capitalism as argued by dozens of thinkers, economist, and historians including Joyce Appleby (see: The Relentless Revolution). To perceive a resource as a “resource”, a service as a “service”, or a good as a “good” with modern implications and definitions applied, insinuates a higher expectation and role than originally given in the early twinklings of mankind. Even up to the point where a simple trade was made between two individuals or tribes represents a more complicated picture, but nowhere near the principle that goods and services ought to be divided up for more efficient and effective mass production of goods. Those are terms that neither Smith nor Marx can properly apply toward primitive societies as they did. Nonetheless, as the chapter continues Adam’s does provide marvelous insight about the vast differences between animals and human-beings.
Paraphrasing his next part of the argument, Adam’s points out that only humans have the propensity to truly exchange; animals lack the nature of such an agreement/contract (p.14). “When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain favour of those whose services it requires” (p.15). Following from this line of thought, man can also gain favors, but such an action is not favorable at all times because he both lacks the time and is in need of cooperation and assistance of “great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons” (p.15). To simplify, while an animal may live in packs and has some need of assistance from its own kind, it does not need it to the level of a human-being, but more importantly it is incapable of making vast alliances due to its nature. People, however, are capable of making vast alliances and are greatly in need of more stable cooperation amongst other peoples if they want to survive or, at least, live a longer life. In this same manner, Adam’s argues, “it is in vain for him to expect it from their benevolence only” (p.15). Man is capable of using another ability besides gaining favor or using force to get what they need or want.
Man is more likely to prevail by gaining another’s self-interest or “if he can interest their self-love in his favour” (p.15). This is where the principle of bargaining comes into play as it represents this principles of giving someone something in return for something else. This course of action fulfills a mutual self-interest for both parties. Animals are incapable of truly bargaining their way through a matter. To note, there is modern research to suggest that Chimpanzees bargain food for sex, grooming, and the like but it is limited and lacks any notion of real trade that takes place amongst humans (Georgia State University. "Researchers Shed Light On Trading Behavior In Animals -- And Humans." ScienceDaily. 22 June 2009). I add that to remind the reader of two distinct points: 1) Beware of the desire to humanize animals to an unbelievable extent for a researchers own self-interests and 2) Economics is hardly detached from the natural or social sciences (e.g. phycology, philosophy, biology, theology, sociology). Universities modern approach of breaking down the liberal arts into categories and splitting the natural and the social from another can be rather shameful toward the realities of society. I am not advocating that the natural sciences of man justifies their actions (e.g. murder) or anything insane, but we cannot afford to not study the whole picture. All of the sciences are connected and interdependent. Interconnection ranges from the attempts to connect evolution with economics to a much larger debate of creation vs evolution. Moving on, animals must either gain another animals favor (e.g. submission or simulate a form of “bargaining”) or use force. Then comes one of many famous lines from the Wealth of Nations:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely (p.15).
Charity is the hope for the beggar as it can sustain him or her, but “it neither does nor can provide him with them as he has occasion for them” (p.15). Altogether beside the beggar’s reliance on the goodness of man’s heart to provide, man uses a means by which fulfills his self-interests while also fulfilling another’s self-interests for their own and the cycle continues. These cycles are fulfilled through treaties, bartering, or purchase (p.15).
By purchase Smith means money. Although he does not address it directly at this point, it cannot go without saying that money is the best form of exchange as it can “purchase” goods and services in a peaceful manner that provides a fair exchange for most people. It is the origins of money in Chapter IV (four) that becomes a staple topic for Smith and, I might add, for most economic historians. A must read is Neil Fergusons’, The Ascent of Money. Equally important, it cannot go without saying that money itself is an unnatural event to some extent that takes place in humanity. Granted, man is greedy and seeing resources that are deemed “better” would naturally lead to competition over that resource, however, monetizing an economic system remains an abnormal reaction that is worth studying further. As one professor of mine put it, “the monetary system is rather barbaric if you truly think about it” and I have given it plenty of thought. Indeed, on the surface it does turn strange when we base goods and services off of a fabricated of a physical resource or good, but then again it has also created a stabilizing force as well. It leaves much to be researched.
By page sixteen, Smith continues to make the mistake of associating primitive societies (any society up to the seventh century for that matter would be farfetched) with modern socioeconomic capitalistic tendencies by using the principles of treaties, bartering, and purchases throughout history as a derived principle of the Divisions of Labour (DOL) (p.16). Without considering the particulars of his flawed argument further, it is worth recognizing that Smith makes a great observation of how one person’s toils encourages another to labor so that they too can benefit through trade, status, and other advantages that profits work over idleness as it “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” (p.16).
On the top of page seventeen, Smith understood that it was not nature that made man most dissimilar, but their “habit, custom, and education” (p.17). He ties this is in as being the positive effects of DOL rather than the cause for DOL (p.16-17). It is important to split this argument into two parts by first addressing the issue of nurture versus nature.
Without a doubt, how one is nurtured—the cultivation and fostering of boys and girls, men and women—is vitally important in the betterment of an individual. People are not born unequal in the sense that one person is “naturally” superior over another in every respect. That is to say there is no natural hierarchy which makes one a king and another a slave. These devices are formulated through mankind and encouraged through the nurturing process. However, it would be ignorant to ignore the natural differences, beyond men and women, people may be born with and have genetically (something Smith could never have known without modern science). Some people are born with disabilities while others are simply born with good genetics such as being a faster runner, swimmer, etc. Regardless though of natural disabilities or abilities, these differences do not justify a belief in the natural superiority of one human over another. Equality must take precedent. That is the moral purpose of equality. One could even argue that the belief in such a natural superiority is the antithesis of a free market ideology. Divisions of Labor (DOL) do not care if you are born of kings and queens as long as you have the resources—physical, mental, or financial—to endure. Dealing with humanity though leaves open the reality that people formulate divisions. The question must then be if such divisions are based off of the attitudes of “natural superiority” such as the atrocities against African-Americans or the Jews in Nazi Germany to give extreme examples or if these are divisions created by circumstances and cultivations. Not everyone can be rich nor will everyone be poor. These divisions are sometimes unfortunately linked to a racist past that has since passed but still living with the consequences. One must acknowledged this reality, but there are indeed no easy answers. Ultimately the habits, customs, and education of individuals will benefit more overtime unless such an individual is burdened by some disability. But the question then remains, are these desires to nurture due to the effect of DOL?
At the end of the first paragraph going from pages sixteen to seventeen are the following:
But without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of life which he wanted. All must have had the same duties to perform, and the same work to do, and there could have been no such differences of employment as could alone give occasion to any great difference of talents (p.17)
Smith is consistent in his argument that the Divisions of Labor (DOL) are of natural consequence and of the natural evolution of man and man’s progress. Unequivocally, Smith was wrong on this point. The historical context of human progress and development is far more complicated and interconnected than a mere DOL. Does the principle of DOL as argued by Adam’s impact a society's psychology? Yes, Capitalism redefines culture as does Marxism and every other ‘ISM.
End of Chapter 2.
CH 4: Of the Origin and Use of Money
I skipped Chapter 3 because it is a very small chapter and I have nothing important to add or takeaway from it.
For this chapter I would suggest reading Niall Ferguson, Ascent of Money, if you want a more deeply historical grasp of money from its origins to use. Or you can read for free, The Ancient Economy by M.I. Finley. Chapter four though provides us invaluable concepts along with a keen grasp of human nature—a consistency throughout all of Smith’s writings not just Wealth of Nations.
Perhaps blinded by his own conception of the Division of Labour (DOL), Smith formulates a picture of a society that has developed the raw sources of DOL into a more finely tuned, commercialized society where, “Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society” (p. 24).
Even the notion of a “commercial society” is newer than I think Smith realizes. It indicates a theoretical placement of economic and social mechanism of a laissez faire society rather than the ancient roots of economic necessity. Although Smith is understandably correct that exchange was and remains the centerpiece of a societal practice. People are a species of exchange; we give and take, provide and ask, make and destroy—there is no way to being fully human without the spectrum of exchanges required for us to live. My complaint rests on the value Smith give DOL. Instead I would point to the Rule of Necessity and Requirement. A person needs X and requires Y. Overtime one person or a cabal acquires enough of X and possibly even Q & R to give them leverage i.e. power and authority. However they acquired it whether by force or peace, they now have enough of it to gain a place of higher status—Kings, Rulers, Aristocratic families—the makers of the Mill, own the Mill and the river and the surrounding area so to speak. None of this come easily which Smith acknowledges, “Many different commodities, it is probable, were successively both thought of and employed for this purpose. In the rude ages of society, cattle are said to have been the common instrument of commerce… salt…dried cod…nails instead of money to the baker’s shop or the ale-house” (p.25). Exchanges turn beyond just an item for an item or a conquering of resources, but certain resources take hold as being “valuable” gold, silver, and rubies, “In all countries, however, men seem at last to have been determined by irresistible reasons to give the preference, for this employment, to metals above every other commodity” (ibid).
Through the use of raw materials a system of worth, beyond just the essentialness, developed. No longer are we just needing eighteen cows and five bushels of wheat and twelve gallons of milk to provide for my family or the community sustenance. Yes, that remains a central concern, but a value system is developing to bring about consistency in the exchange of goods and services. Smith makes a logical case for currency as a stable and measurable value system of trade versus that of the sheep or cattle or salt. We can begin to lay the foundations of currency exchanges through raw goods that then turn to precious metals and finally a currency system of coinage that formulates through a means of law and order for markets both ancient and modern alike. Brilliant when you consider that you cannot cut a cow into two and always expect it to be worth five tons of wheat. However, an exchange of precious metals and later currency based in or on those precious metals at least stabilized the process of exchange of that cow. Granted, what was .10 cents ten years ago may now be worth .60 cents today, but translating that into me needing fifty half cows ten years ago versus needing a hundred half cows today is not likely, at least, in consistency of the value of exchange. Consistency is key here. Good laws require consistency. Norms need consistency. Tradition envelopes the way people interact. Economic practices are as much sociological tradition as they are a theories of economics.
From pp. 26-28 Smith has a great little dialogue concerning rude bars—precious metals considered of “value”; a proto-currency—“the use of metals in this rude state was attended with two very considerable inconveniences; first with the trouble of weighing; and, secondly, what that of assaying them” (p. 27). I am not going to provide a historical account here due to time constraints but I was wondering when did the principle of weighing such a resource become an account for its worth? And how was its purity determined? I love investigating this because it is telling about humanity; about what we see as valuable and important.
As Smith imagines, rude bars eventually turn to coinage for a variety of reasons that range from preventing counterfeits to concerns of regulating purity. A public stamp was designed thus the origins of a coinage system, according to Smith, was born—a “public offices called mints” (ibid). From stamping official worth eventually developed a need to offer precision, weight was not enough, therefore coining took root according to Smith.
On pages 29 and 30 there is the issue of coin weight which differs from kingdom and nation alike. I simply put in my own notes the history of coinage is a reminder that like, modern times, the worth of gold or silver was never consist or stable enough to remain as the sole proprietors of determining value. Weight alone changes with age as coins contain less and less silver or gold; but also they simply lose their weight overtime as they slowly decay.
Finally the chapter ends (pages 31-32) with these rules of exchange or the nature of exchange with either money or trade of goods for goods. Smith breakdown the meaning of the word value into two different meanings, “sometimes expresses the utility of some particular object” and “sometimes the power of purchasing other goods which the possession of that object conveys” (p. 31). One type of value is the “value in use” versus the “value in exchange” (ibid). To explain this principle Smith uses the example of Water versus Diamonds explaining that the greatest value in use of water has little or no value in exchange versus Diamonds which have greater value in exchange, but little to none in use. The scale is determined by scarcity, water has immense usefulness, but “it will purchase scarce any thing; scarce any thing can be had in exchange for it” (pp. 31-32). A diamond, however, can be exchanged for a great many things, yet has little value in actual use.
My only thoughts are how, at present, water and diamonds are much more valuable in exchange and in use than in the 1700s. Their industrial usage, use for public and private services, goods, etc. Today in 2020, Water is not just scarce but its value is enormous. Technology and the desires of the market at large have transformed the way we see things like water. Bottled water companies alone make droves of cash. Smith’s value of use and exchange though reasonably applies to plenty of other goods. This is an invaluable tool of reasoning through markets even post-free markets because all goods requires a value of use and exchange
End of Chapter 4.