Discussing Economics through the Wealth of Nations

Great Debates
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We’ll be discussing and debating ideas from the Wealth of Nations by Adam Smith. Whoo!

Sort of an experimental idea for a thread. It’s too big a topic to take on in one OP, so I hope for it to be more of a continuing discussion, as some GD threads are. We’ll see how it works.

This is inspired by the relatively recent thread on the Labor Theory of Value. As I said there, “[A]nyone who settles exclusively with Das Kapital without also engaging with Smith is doing themselves a major disservice”. So… yeah. Why not do that?

Unfortunately, his 18th century prose style is not to everyone’s taste. But that’s what the thread is for. People can engage the ideas here if they can’t engage with the original, or even if they have no interest in picking up the original. The ideas are the thing.

Background for the Importance of the Book

An Inquiry into the Nature and Causes of the Wealth of Nations is still one of the finest books on economics ever written.

That is extremely weird. Bizarre. It shouldn’t make sense given what we’ve learned in the subsequent 240 years and the relative competition that the book should’ve had. But still, I think it’s true. What happened after its publication is that the early successors to Adam Smith ceded (most of the) ground which he had dominated. They (mostly) didn’t bother to compete on the same level, in the same way, because that would have been pointless. Anyone interested in the topic would have already read it. It didn’t need a competitor, but rather some clean up around the edges.

But about a hundred years after the book, something changed: the marginal revolution in economics. The details aren’t important right now, but Walras and the others created a new approach to market issues, and the legacy of the change was that economics in general became more mathematical and less talky-talky. Adam Smith is engaged in a grand discussion of history, culture, politics, and economics. But economics after the revolution became more formal and math-based, and so necessarily less historically focused. Mastering the technical formalism became the new goal, and that left much less time available for digressions into the medieval class conflict between the feudal aristocrats and the burghers living in the cities – the kinds of topics that captured the attention of both Adam Smith and of course later Marx.

A modern textbook is still talky-talky in a way, in that it is filled with long wordy descriptions of economics. But these long descriptions still sit firmly in the new technical tradition. The words are not being spent so much on history or society or politics, but predominantly on an attempt to describe equations, either explicitly or implicitly.

The equations themselves, while obviously very useful in the right contexts, are NOT an attempt to describe market interactions exactly as they work in reality. The equations are an attempt to create an abstraction of market interactions where cause and effect are more easily seen and understood. They mostly do a great job of this. Mostly.

The price of the abstraction is taking a firm step away from an examination of real market interactions. We draw supply and demand on the blackboard. The curves represent equations. The equations cross at a single point, for which we can solve graphically (“The lines cross here!”) or algebraically. But the equations only “exist” in formalized contexts. A pure supply curve, for instance, is not actually supposed to apply to the vast majority of markets in which we interact every day. Technically speaking, it pops out of pure competition where all firms are so small they have to accept the market price, and that’s an indisputable minority of real-world markets. Supply curves? For the most part, they don’t really “exist” if we want to apply the formalism formally.

Most of the time, we draw the two curves on the board anyway. Eh. It’s useful.

The shift to that formalism in modern economics leaves much less time for the historical digressions, the philosophical musings, the earnest conversation with other thinkers of the day into how the world actually works. The Wealth of Nations has all this nice juicy stuff.

It’s fucking great.

Surprisingly little in the book is original to it (and not everything attributed to the book by later critics is accurate) but the work represents the best and most complete attempt by a classical economist of creating a comprehensive system to describe the workings of a market economy. And what’s astonishing is that despite the occasional error, and even despite lacking a fully modern theory of value, a great deal of economics to this day can be seen as an elaboration on Adam Smith, as an abstract generalization of the system that he originally put together, rather than a complete overturning of that system. A goodly chunk of what you should get in a decent intro class, you also get from Smith, but with the Wealth of Nations you get it with a thousand times more deliberation, compassion, historical context, and wry observation than you should reasonably expect from the average textbook or teacher.

So yeah. Still one of the best.

And thankfully, the book lacks the self-righteous moralizing and analytical superficiality that characterizes so much of popular economics discussion today. That does not mean he is uncritical of the self-interested monopolizing of certain classes of people.

But such criticism is moderated by an appreciation that people act according to the incentives that they’re given. Chunks of the book are broadsides against the rapacious East India Company’s murderous treatment of the Bengal natives. (The great early economists were all strongly against the horrors of colonialism even as their writings were sometimes later perverted to support it).

But even in his strongest condemnation, the criticism is moderated by an appreciation of the circumstances. Adam Smith was not one to fall for the Fundamental Attribution Error.

It’s the last sentence that cuts.

In short, what we see from Adam Smith is an appreciation for human nature, for how people tend to behave in the circumstances they often find themselves in. It is an appreciation for how people actually are in that particular context, rather than any idealized version. Terry Pratchett actually has one of my favorite short quotes on this:

And not for an economist either.

This split between taking people as they are, rather than planning to re-engineer them into what we’d like them to be, I think represents one of the core differences between Adam Smith and someone like Karl Marx.

What else do we get from the book?

What are the other advantages from going old rather than exploring the new?

The first and most important thing we gain is a window into discussions about problems that still face us today. Even economics has a few timeless truths, and many of those truths are embedded in the Wealth of Nations.

We also get a deeper appreciation for the difficulty of these problems. Not just the difficulty of dealing with them as a society, but the plain old difficulty in understanding the underlying nature of the problem in the first place. There was not a single physicist in the 18th century who would be more qualified than a physicist today. But Adam Smith? He was a better economist than I am now. He was a better economist than any economist I personally know. That is a surprising, humbling, and even embarrassing realization. Obviously we know more now than he did then. I’m a better monetary economist than he was. But I simply don’t have the same general intellectual temperament of calm deliberation that allows an application of our extra centuries of knowledge into careful conclusions that put together all the puzzle pieces into a complete picture that doesn’t leave anything important out. If you sent me back to Smith’s time, I could write an economics tome that would stand for all the ages. It would be revolutionary in every way, and my name would go down in history.

And even with twenty years of work, I still doubt it would be even half as good as what Adam Smith accomplished. It’s just damn embarrassing to realize that.

Adam Smith dealt with many of the same problems we clearly recognize today, but in a smaller context, in a slower moving way. There were fewer industries, and those industries could be more closely scrutinized under a watchful eye. That is to say that it was easier to see the whole picture at once at the very beginning of the Industrial Revolution. The picture wasn’t as big, and it wasn’t (yet) shifting so quickly under direct observation. When we look at these old debates and problems in their more manageable historical scale, it’s easier to get into our heads the underlying principles of how the puzzle pieces fit together to form a picture. And once we have those underlying principles, we can generalize from them and hope to gain some measure of insight into issues today.

There is yet another advantage of going old instead of new. By looking at how our predecessors struggled with the same sorts of problems that we struggle with, we can gain a surprising new perspective even on ideas that we previously thought we fully understood. My recent re-reading of the book cast some light onto modern economic models that I would never have considered otherwise. It’s helpful to compare how Adam Smith would approach a problem, to the way I’ve been trained to approach the same sort of problem. Looking at the historical development of ideas over time can give us an entirely fresh perspective on what we might have thought was old boring stuff.

So let’s do it.

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The plan right now is to go through economic ideas in the same general order that they’re presented in the book. For those who are particularly interested, it should be possible to get a copy online and “read along”. So to speak. Just reading here is also, of course, completely fine.

Introduction to the Actual Book

Labor is a fund.

We might think of a fund as a certain sum of money that we use to buy what we need. But as a society, collectively, it’s not the allocation of money that’s used to produce what we want, but the allocation of genuine resources. If all of the genuine resources on earth – all of our land, and tools, and buildings, and water pipes, and industrial equipment, and crops, and seed stock – were converted into pieces of green paper, or shiny metal coins, we would not be rich. We’d all starve to death in two weeks if we didn’t die of terminal dehydration first. (Personally, I’d file my teeth down into points and resort to cannibalism. I bet I could last at least three weeks that way.)

Labor is a fund, a supply of an available resource. When we try to acquire the things we want and need, we pay the price of this acquisition partly out of our fund of labor. We sweat and toil to produce things. We can produce the things we want and need by making them directly, inside our own country, or we can work to produce goods domestically and then ship those goods to other countries in order to exchange them for foreign goods that we’d prefer to have instead.

Economics is the story of stuff.

If the amount of stuff we produce is large relative to the number of people, we’re better off. In modern terms, we try to measure this sort of thing with GDP. Measuring the amount of stuff we produce per person would be per capita GDP. We should also be interested in other stats, such as median GDP: the amount of stuff produced by the middle person, or equivalently, the income received by the person standing in the middle, if we lined up everyone in the country by the amount of money they made.

**What determines the amount of stuff per person? **

There are two very obvious determinants of the amount of stuff we have per person.

First is the relative efficiency of our labor in producing items. If the average worker can produce a lot, there will be many items available per person. Second is the relative number of people working. A higher percentage of people working in a population should mean more stuff per person, all else equal.

Some countries might have better soil and more auspicious climate, or easier access to valuable natural resources, and these blessings might act as a sort of productive bonus. But in every country on earth, labor is a necessary condition for the production of anything. This means that both how many people are working, and also how efficient those workers are in producing things, are going to be essential ingredients in determining how many things we can make.

And really?

When we want to compare the relative wealth of nations, the productive efficiency of each worker is the more deciding factor, not how many people actually work. Among hunter-gatherer societies, essentially everyone who can work does work. But they are nevertheless very poor compared to modern countries. They don’t produce much per person. Resources are so scarce that infanticide was very common in H-G societies, for fear of the strain of higher future population on the environment. They also tended to have high murder rates which “helped” keep the population down.

But in developed nations, what we actually see is a class of people who don’t work at all but who can nevertheless consume ten times the amount, or even a hundred times the amount, of the majority of those who do work. The people who work are working so efficiently that we can provide for ourselves significantly better, even given a subset of the population who could work but don’t.

(A related point here is another class of non-workers: the record-breaking prison population in the United States. The prisoners’ lives are supported by the work that everyone else does. Given how long the human race spent on the ragged edge of subsistence, it can be astonishing to consider how easily the productive powers of our society can indefinitely support a prisoner population of millions, the largest rate of incarceration on the planet. There’s an enormous amount of resources we could free up if we could safely decrease that prison population. It would be a double blessing. Not only would our own work no longer be going to support them, but their own work would also contribute to the prosperity of the country.)

Even a low-wage worker in 18th century England had access to higher-quality goods in larger varieties and quantities than a hunter-gatherer. A modern US worker at the minimum wage can be even farther above the 18th century English worker, than that 18th century worker had been above a hunter-gatherer.

So this is where we’re going to start. What caused this improvement in the productive power of labor? Then how is the production distributed among the different classes of society?

Digressions into Modern Thought:
Skewed Distributions

A simple average can often be unhelpful and uninformative if we’re looking at a skewed distribution. Per capita GDP is a simple average, a mean.

Suppose there’s an economy of 10 people with a per capita income of 100,000 dollars a year. They seem to be doing okay, right? But what if there are actually nine slaves who each live off of 2000 dollars, and one god emperor who takes everything else? Then the median income of 2000 is a much more informative figure than the mean. In evaluating the well-being of the people as a whole, the person in the middle gives us the best sense for how the place is doing.

Median world income is a damn tough figure to derive, but it might be around 3000 USD. According to Pew, 15% of people live off an income of less than two dollars a day.

Those with an income above 34,000 USD a year are part of the 1%.

The Labor Force Participation Rate

Let’s look at our population. Count up all them people.

Now let’s start cutting people out from that number. Let’s focus on civilians, meaning we’re excluding members of the armed forces. Also let’s focus on people outside of prisons or nursing homes and the like. People in those institutions are going to be excluded, too. We’re also going to cut people under 16, because they’re kids. The number we’re left with is the civilian noninstitutional population. Straightforward enough.

These are the people who could potentially join the labor force, if we wanted. If they have a job, they’re in the labor force, and even if they’re actively looking for a job but don’t have a job yet, they’re in the labor force, too.

The number of people in the labor force, as a percentage of the civilian noninstitutional population, is called the labor force participation rate.

You can see it here.

What does “stuff” mean?

Economics is the story of stuff.

Okay, well and good. But what is “stuff”? The classical economists tended to focus on the production of tangible commodities – e.g. wool coats and hammers and quarters of wheat – but our modern conception of stuff is a lot looser. In its broadest theoretical conception, it can include literally anything that we like to do, or would prefer to do compared to what we have now.

In that sense, we can “consume” the enjoyment of watching the sunset with our loved ones.

The consumption of a sunset obviously presents serious problems for government statisticians. It’s not a thing that is easily measurable. But still, it’s a thing that can be enjoyed. A person could decide to do that, rather than working an evening shift, because they personally value that sunset more highly. Ideally, we’d like to be able to count that sort of thing. Of course, we can’t. Economic figures all have certain problems. There is always, always, always a tension between the pure idea in theory, and the limitations of real world data. For practical purposes, the production of an economy as measured by GDP is limited to what is actually, you know, measurable. That tends to be the kind of thing to which we can easily fix a dollar sign. Sunset enjoyment is excluded.

But if in the future we could somehow manage to measure the enjoyment from sunsets, we absolutely would try. We’ll have more to say along these lines later when we get into Adam Smith’s theory of value.

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Late on a Friday afternoon is not the time I can read the thread with the attention it deserves, but the weekend approacheth. Thanks for this - I look forward to reading the discussion.

Regards,
Shodan

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Excellent idea. I think the most powerful idea is that people respond to incentives as they perceive them even when they would claim otherwise. Thomas Sowell talks a lot about systems that have unintended consequences because incentives aren’t honestly discussed or admitted.

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Looks like a fascinating thread. I’m in … although I’m not sure what I can contribute. Why do we start with the idea that labor is a “fund”? Why not a “resource” or “commodity”? “Fund” just sounds like an accountant’s way of keeping track of things.

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I agree with that. I’ve thought GDP and wealth destroying policy like wage floors were terribly misguided ideas adopted in part because people confuse currency/money with wealth. Wealth is not the sum of the current and inaccurate dollar value of stuff. Wealth is actual stuff and producing less stuff to pay certain people more and pricing others out of the labor market is economic stupidity.

Even the problem of what is measurable is problematic because of the fact that what is measured depends on certain assumptions that aren’t necessarily true. Such as selling large amounts of stuff changes the price and dollar value. I like how the CIA approaches things. https://www.cia.gov/library/publications/the-world-factbook/docs/profileguide.html

They realize that things matter.

This can be simply stated that things and services don’t have an intrinsic currency value. The value of something is strictly what it is. Which is obviously circular. But any other value must be determined via trade or enforced via superior force. A pine tree is not worth $x nor is a unit of labor.

The question that I want answered is that these aren’t difficult concepts to differentiate. So why is it that the political class and their flunkies work so hard to disingenuously conflate them?

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(playing devil’s advocate here, because I dislike wage floors too) I think the politicians and flunkies that support them would say that fair distribution of wealth is more important than total wealth. Going back to the example given of the 9 slaves and 1 emperor, if we could enact a policy that would double the emperor’s wealth, a cold-hearted calculating economist might say that that’s great, the 10-person country just almost-doubled its GDP.

Unfortunately, 90% of its population is no better off than before. What a shameful injustice, say the politicians and flunkies. Instead, let us enact a policy that requires that each slave be paid $4,000 instead of $2,000. Ignoring for a moment that the emperor might lay off some of these doubly-expensive slaves, now 90% of the country’s population is substantially better-off than they were before, even though we’ve only had a minuscule increase in GDP. The wage floor is seen as the more “fair” policy, even though it leaves the country as a whole poorer than alternatives.

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I’d say to that stop focusing on currency or possession of currency as the end goal. Currency is only a tool to facilitate trade and create real wealth. If the issue is wealth distribution focus on wealth distribution.

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A famous article on the subject:
On the folly of rewarding A, while hoping for B

I am coming around to the idea that it’s incentives that are fundamental, not markets. Markets happen to usually be a very good way of aligning individual incentives with societal interests, but this obviously breaks down in some cases. Careful examination of where the interests lie will reveal the source of the breakdown, and possibly indicate how to fix the market (or develop an alternate system of incentives).

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Good question.

Apart from the fact that Adam Smith used the word, so I’m using it as well, I like the word “fund” because it feels a bit incongruous there. It feels a bit odd. A small red warning light goes off in the head, a klaxon faintly trills in the ears. Labor is a fund? Whu-Whut?

In today’s terminology, this relates to the difference between micro- and macroeconomics.

I work for a university. They pay me but not with food, nor with a place to live, nor in gasoline poured directly into the tank of my car. I get paid in the moneyz. So from my personal (micro!) perspective, I look at the money that I have as the fund I rely on to get the things that I want. I dip into that fund to make purchases. But as I said above, that doesn’t work for the country as a whole. Turn all of our genuine resources into cash, and we’re all in big damn trouble. As an individual, I rely on money. As a civilization, we do not pay for what we want with money. We pay with the sweat of our brows, with the grinding stresses we put on machines, with the electrons that are harnessed and whizzed off in the direction we think they’ll be useful, etc.

So in the larger (macro!) sense, what “fund” do we use to pay for what we want? What’s the price we pay? We could use a different word. We could use “resource”, or “commodity”, or something else.

Or we could use an old word in a new way to call attention to the weirdness that happens when we move from small to large, from the individual perspective to the big picture perspective. This is what we generally choose to do: we take a crowbar to an old word in order to pry open its meaning far enough so that we can use it for other purposes. A similar problem is going to happen when we start talking about “saving”. This is a previous thread that I’m still reasonably proud of which discusses the micro/macro problems with the word saving. The language issues are ponderous and problematic, and they are not going to go away.

I think they’re much harder than they seem.

Adam Smith was working within a tradition. People within that tradition had been trying to figure out how prices work for more than a century before, and it was another century after him until the modern (marginal) subjective theory of value was finally devised. That’s just a loooooong time. If we add classical inquiries, Aristotle himself in Book I of the Politics makes the distinction between the use of a shoe for wearing, and the use for exchange. This is exactly the same topic Adam Smith brings up 2,100 years later. Two millennia! And Adam Smith didn’t get it right either.

An analogy: People in the Ancient Near East were solving a subset of quadratic equations, and even some cubic equations, from around 2000 BC. The general solution of cubic equations, covering all cases, wasn’t discovered until around 1650 AD, which is to say, 3650 years later. That’s more than the difference between today and the founding of the Roman Republic. That’s just an amazingly long amount of time.

It requires imaginary numbers. Square root of negative one, whatever that is.

We teach these numbers to kids in high school. Okay. But even now, imaginary numbers make some people very uneasy. Here’s Cardano talking about his original thinking for discovering the general solution to the cubic:

Mental tortures!

That’s math and not econ, but I feel there’s a parallel. It’s natural for people to extrapolate from their own experience. The number line, even including negative numbers, feels pretty “real”. Pretty concrete. It takes an extra painful level of abstraction to say, shit, I don’t know what the hell the square root of negative one means but I’m going to calculate out that damn thing anyway. Of course, today this is all kiddie play. Modern mathematicians work on levels of abstraction that are, like, twenty times higher than this. But the first rung of abstraction still took millennia to figure out. Literal millennia. The first step is much harder than it looks.

The first rung in the theory of value is likewise, I believe, much harder than it looks to anyone who’s already standing a step or two higher than that. In a very real sense, it was the work of millennia for us as a species to climb those first couple steps, and I think we need to appreciate that.

Trying to figure out that value is subjective, that other people legitimately view the world through passions and prejudices far different from our own passions and prejudices, is a similar sort of jump to looking at the square root of negative one and saying, hell, let’s pretend it exists and see what happens. Frankly, I think the subjective theory of value is much harder than imaginary numbers. (After all, it was thought up two centuries later.) But what the two difficult concepts share is a general unpleasantness that comes from looking at the world in a weird way, absolutely alien from the way we’re normally accustomed to doing.

The first rung of abstraction is by far the hardest. It’s no surprise, really, if a big chunk of people never make it even that far.

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It should be acknowledged that as he was thinking about these ideas, too, that Smith actually did hit on the basics of almost all our modern economics, including price theory. So much of his work ends up running around trying to deal with the fact that lots of things in economics are inherently contradictory at some level.

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wow–that’s one of the longest OP’s ever! My brain hurts…

Now, I ain’t smart enuf to answer it…so I’m just gonna point out that for other non-smart Dopers, there’s a great book that is relevant:

P.J O’Rourke is a funny author, and he does a fine job writingabout Adam Smith’s masterpiece:
As he says, “I read it, so you don’t have to”.
He also has a humorous hour-long youtube lecture on Smith and The Wealth of Nations.

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We can all look forward to the time when all the topics brought up by “The Wealth of Nations” are exhausted so we can dive right into Gibbons “Decline and Fall of the Roman Empire”.

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The Division of Labor

We are way more productive than our ancestors.

Like, waaaaaaaaaaaaaaaaaaaaaaaaaay more.

And the people in Great Britain at the beginning of the Industrial Revolution were significantly more productive than hunter-gatherers. Each person on average could make more stuff with similar levels of toil, not only in straight quantity but also in the quality and diversity of products that they could churn out. Hunter-gatherers did not have the ability to produce ships that could circumnavigate the world, nor muskets, nor heavy plows, nor printing presses, nor great stone cathedrals, nor a thousand other things that the earliest of industrial economies could manage. (Cite: the Civilization series of games. Early options are quite limited.)

People could create more on average with an early industrial economy, and so they possessed more on average. We might say today that the primary key to this great productive power is machines. And we would be right. But there’s another thing that’s going on here, something complementary with the machines, the flip side of the same coin.

This is the division of labor

It’s easiest to understand the importance of the division of labor from simple examples. Our prime example today is without question the assembly line: a machine specifically designed to facilitate the division of labor in manufacturing. Each person is at their position, doing a different job. The entire rationale behind the productive power of the line is that each person along that conveyor is doing a different kind of work. Human beings are capable of learning a limitless number of tasks, and by designing machines cleverly, we can create an effectively limitless number of tasks for us to do.

But before Henry Ford, the stereotypical example of the division of labor was Adam Smith’s pin factory. It was a useful example for the same reason the assembly line is useful to think about today. Pin making was not the most important business in the world, but still, the entire drama could be seen in a single building, at a single time, where a careful observer could see the power of the process. And if you ever have the chance to visit a modern automobile factory, I’d highly recommend you do so for the same reason. It is quite a sight to see.

For now, though, let’s vicariously visit the late 18th century pin factory.

Take a single person, not trained in the industry. With the hardest work, this person might not manage a single pin in a day and would definitely not make 20 pins. But the work can be divided into different tasks, each one a trade by itself, in which a particular individual can train to specialize in that particular task.

Smith talks about a smaller factory he personally visited which had only ten workers doing these eighteen operations. They also had substandard equipment. But these ten trained workers together could produce 48,000 pins in a single day, which is to say 4,800 pins per worker.

This is at least two orders of magnitude more than a single untrained person alone. It might even be three orders of magnitude.

By dividing the labor up into smaller pieces, and giving one worker each piece in which they could specialize, we have already seen a major increase in productive power. And we’re still talking about the 18th century here, right at the beginning of the Industrial Revolution in England. It hadn’t yet exploded into the force that would reshape the entire 19th century. Says Marx nearly a century later:

I don’t even know the numbers today. They would be staggering. We have more and better machines, which allow more and more finely divided and specialized labor.

This is where our productivity comes from.

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I’d add to that the adoption of standards and the concept of interchangeable parts allowed the world to act as a virtual factory and that is huge.

On a personal note, I wonder if it would have been better to study economics instead of engineering.

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In a hunter-gatherer society with only the most basic tools, there will be very little division of labor. Essentially everyone works, and essentially everyone works exactly the same job: finding food. This task might still be divided a bit: maybe the men go hunting over longer distances while the women gather closer to camp. Maybe one person is especially skilled at fletching arrows, and another skilled in creating ornamentation. (Ask an anthropologist for more detail.) But without advanced equipment, this division of labor can only go so far.

Even long before Adam Smith’s day, the division of labor had permeated through the entire society. The providers of food still made up the majority, but even so, there was a significant chunk of the population who were no longer engaged in providing the means of their own subsistence. They engaged in other kinds of work, and traded their own services for food. 18th century here, and this is already well established.

Why is the division of labor so powerful? Three reasons.

The first and arguably most important reason was already discussed: the division of labor allows more machines. This also works the other way in a complementary and self-reinforcing fashion: more and better machines allow for a deeper division of labor. Adam Smith, writing at the beginning of the Industrial Revolution, did not yet have any proper notion for how sophisticated the machinery would eventually become. He focused primarily on the importance of the superhero division of labor, with machines always in the picture accompanying the hero but as a sort of sidekick. Later authors would tend to turn that around.

As I said, they go together, basically two sides of the same coin. You can’t reeeeaaaally have one without the other.

Where do the machines come from in the first place? Today we think of engineers dedicated to the task of designing from scratch new equipment that works better than the old equipment. Obviously this happens a lot, and in fact, this is itself a benefit of the division of labor. Anyone whose entire job it is to focus on the elaboration of a single idea is going to do that mind-work better than someone who has to take a break every half hour to pull some weeds from the field. The quality of engineering, and thus the creation of new machines, is itself improved by the specialized worker who concentrates on only that.

(This is obviously true of think-work more generally. I know basically nothing of engineering, but I can econ like nobody’s business. And even within economics, the work is divided. I’m not any kind of expert in game theory or econometrics, but as these things go, there are not terribly so many people clinging to this dirt ball who know more about money than I do.)

Better equipment can also come from the other end of the process, from the person whose job it is to work directly with the machine. Adam Smith tells an anecdote of a boy responsible for continually opening and shutting the connection between the boiler and the cylinder of an one of the earliest engines. The story goes that the boy eventually saw he could tie a string that would do his work for him, leaving him free to engage in the less demeaning activity of childhood play. Thus was the practice of engineering advanced. I’ve read that Japanese companies started a practice of rewarding workers on the line for any idea that advances productivity, and that this practice has spread a bit to other places.

There are a couple more interesting wrinkles about the division of labor that we can also mention. A further advantage is that anyone who is focused on a single task can gain skill and speed at that task. The worker on the assembly line (or the pin factory) does essentially the same job all day long. They become very good at job, which means they can do it very quickly. And the more quickly they can do the job, the more quickly the assembly line can move. Focusing on a single task develops skill at that single task.

An additional and somewhat more subtle advantage of the division of labor is that the very act of switching tasks slows us down. A single worker in the pin factory must walk from station to station, changing the nature of the work that they’re doing. It might not look like much, but it’s actually a huge cost. For one thing, once we’ve disengaged from one activity, we have a tendency to dawdle a bit before jumping into the next task. Even worse, after jumping into the new task, it takes some time for us to warm up to that new activity and get going at full efficiency, even supposing that we’re fully trained in it. And obviously, it takes more time to become fully trained in any one activity if we’re jumping from place to place. Division of labor, accompanied by specialization in one particular task, is a great deal more productive than that.

Division of labor permeates society.

The assembly line is easy to see and understand, but the work of creating a car is much more divided than you can witness in a single factory. Car manufacturers have literally hundreds of different suppliers. Those suppliers in turn have suppliers of their own. Each one of those suppliers, even the drivers of the trucks who make deliveries to the factory, are involved in the division of labor that helps create an automobile.

The truck drivers are capable of delivering any kind of shipment, not just auto parts. They specialize in moving their big rigs around, without it even being strictly necessary for them to know exactly what they’re transporting. But the delivery of the right parts, at the right time, is itself essential to the automobile manufacturing process. So are the mines, and the energy producers, and in a certain sense, even the farmers whose food sustains the workers in the factory.

Even the seemingly simplest of objects, like a basic wooden pencil, is created from an interconnected process that not a single person understands fully. This is a point that Leonard Reed tries to get across in his important (but maybe somewhat annoyingly written) I, Pencil

Division of labor permeates our society. We specialize in in singular tasks, and then we spend all of our lives embedded in a net of deep interdependence that is so vast and complex that none of us can actually understand it.

We all rely on each other to an extent that the human brain is literally incapable of fully appreciating.

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Kaizen - Wikipedia?

That sentence is to me the key to solving the problems that economics is designed to solve. As long as humans are an integral part in the creation of wealth, systems of incentives to maximize wealth production are vitally important, yet in my opinion, underrated or even worse ignored for political gain.

The rest of your post is good information. The only thing that worries me in the rest is the idea of treating humans as a cog in a giant machine. A life time of monotonous labor, even if theoretically efficient, seems soul crushing.

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Isn’t the whole idea behind capitalism that no one “treats” humans as anything. The people are free to decide for themselves. If they want to spend a portion of their life laboring as a cog in a giant machine, in exchange for some goods they value, then they are free to do so, and if it sounds “soul crushing” to them, they’re free not to do that?

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I suppose. But I don’t look at capitalism itself as anything more than a tool. The principles of capitalism and the promotion of economic natural selection to advance progress along a fitness curve are useful tools to improve wealth and in turn the quality of life for humanity and other critters as well.

I think capitalism combined with economically rational policy to mitigate shortcomings of capitalism leads to superior outcomes for people in general.

In other words I don’t treat capitalism as the end goal. It’s a means to an end. I just happen to think that capitalism is >>>> central planning for meeting the needs or desires of the market because the pricing mechanism is >>>> corrupt, murderous, power hungry central planners or statists.

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What are the economically rational policies to mitigate shortcomings of capitalism that you’re referring to?