- “Smith champions competitive markets, the division of labor, and the institutions that uphold them. However, he argues that within this framework, the populace must not only exercise caution but also cultivate education, skill, dexterity, and sound judgment, as elucidated in Book V.”
This more vibrant perspective is introduced in the opening chapter of Book I of Wealth of Nations, where Smith asserts that the “greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour” (WN 1.1.1, p.13). This statement highlights two critical aspects of Smith’s analysis: firstly, the observed growth in per capita output is a direct consequence of the division of labor.
Secondly, there exists significant agency within this division, as those who wield skill, dexterity, and judgment can actively leverage it. At first glance, Smith appears to glorify the role of the entrepreneur or the factory manager who perfects the division of labor. Notably, Smith clarifies that while the division of labor is more extensively applicable in manufacturing compared to agriculture, it is essential to recognize that this very division can have unintended consequences.
Smith notes that while time-saving is a clear benefit of labor division, it can also lead to increased dexterity among workers. However, he refrains from claiming that each worker’s skill or judgment improves; in fact, he acknowledges the risk of de-skilling and diminished judgment, particularly as artisanal labor transitions to machine-aided production. The division of labor, then, is intricately linked to the invention of numerous machines that streamline tasks and empower one individual to accomplish the work of many (WN 1.1.5, p. 17).
To elucidate how this division inspires further innovation, Smith invokes his theory of human nature for the first time in Wealth of Nations: “Men are much more likely to discover easier and readier methods of attaining any object, when the whole attention of their minds is directed towards that single object, than when it is dissipated among a great variety of things” (WN 1.1.8, p. 20). He elaborates:
- “But in consequence of the division of labour, the whole of every man’s attention comes naturally to be directed towards some one very simple object. It is naturally to be expected, therefore, that some one or other of those who are employed in each particular branch of labour should soon find out easier and readier methods of performing their own particular work, wherever the nature of it admits of such improvement: A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the inventions of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it…One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his playfellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour” (WN 1.1.8, 20).
In Book V of Wealth of Nations, Smith astutely acknowledges that this narrowing of focus can lead to alienation, harming workers and carrying significant political ramifications. While the narrowing can be detrimental, it also fosters a subset of workers who, empowered by their roles, can enhance their productivity through better organization (“easier and readier methods”) or by innovating labor-saving technologies. To further elaborate, I offer four observations on Smith’s insights.
“The bottom-up mechanism of technological improvement that Smith showcases in the very first pages of Wealth of Nations shapes the division of labor.”
First, Smith anticipates Thomas Kuhn’s notion that constrained activities can stimulate ingenuity. From Smith’s posthumously published “History of Astronomy,” we glean that he viewed scientific theories as evolving machines, subject to refinement and potential revolutionary shifts.
Second, as illustrated by the playful boy, Smith clearly celebrates grassroots workplace ingenuity. This notion is not new; even early socialists like Thomas Hodgskin have drawn on Smith to emphasize the importance of innovation driven by workers on the ground.
Third, as highlighted by David M. Levy and Sandra J. Peart, Smith’s broader message conveys a sort of intellectual egalitarianism. He repeatedly asserts that ordinary laborers are often the ingenious creators behind much of the impressive machinery. Ingenuity, then, is a common trait, often ignited by the constraints of one’s social environment.
Fourth, Smith’s narrative counters the prevailing view that a modern political economy requires transforming workers into mindless, machine-like cogs in a Taylorist assembly line, managed by a scientific elite ensuring a sufficient savings rate. Instead, Smith argues for allowing ingenuity to flourish from the factory floor. Ingenious workers, he posits, are the true sources of productivity gains. Later in Wealth of Nations, when critiquing the physiocrats, Smith reiterates this point: “The improvement in the productive powers of useful labour depends, first, upon the improvement in the ability of the workman; and, secondly, upon that of the machinery with which he works” (WN 4.9.35, 676).
The technological advancements that Smith celebrates in the early pages of Wealth of Nations are pivotal in shaping the division of labor. These innovations lead to increased production, expanding markets ripe for further subdivision, higher profits for capital, and ultimately, cheaper goods that elevate living standards. Thus, capital accumulation emerges as a consequence, rather than the root cause, of technological progress—far beyond merely saving prudently.
In previous discussions, I’ve emphasized that the boy’s desire to play introduces the concept of liberty into Wealth of Nations. However, it’s essential to recognize that the boy, despite performing simple tasks, operates within a framework of machines crafted by fellow laborers, thus underscoring that even young workers can contribute their creativity to enhance productivity on the factory floor.
Furthermore, in Book I of WN, Smith asserts that the pursuits of science and philosophy, including his own, form part of the division of labor. He implies that as this division expands within the sciences, the pace of knowledge and productivity-enhancing breakthroughs will accelerate.
Book I of WN is extensive, and Smith encapsulates it twice, first in the “general introduction” and then in the title of Book 1: “Of the Causes of Improvement in the productive Powers of Labour, and of the Order according to which its Produce is naturally distributed among the different Ranks of the People.” This summary hints at a dichotomy between ‘artificial’ social mechanisms for enhancing workforce productivity and the ‘natural’ means of distributing the resultant products among society—assuming government interference is minimal. In contemporary parlance, we might say that the first book of Wealth of Nations explores the social factors contributing to worker productivity and how their outputs are allocated across the population when left unimpeded by governmental constraints.
Smith’s primary concern is to analyze a society familiar to his contemporaries and suggest pathways for its improvement. This is evident in his summary and title, where the population he refers to is neither a monolithic entity nor a disorganized band of equals; rather, it reflects a socially stratified and hierarchical society akin to that of Smith’s own era. This nuanced understanding of ‘ranks’ (and ‘society’/’people’) is crucial—Smith aims to elucidate the world in which he resides.
Smith further articulates the broader importance of Book I in the general introduction. While setting aside the significance of “soil, climate, or extent of territory of any particular nation,” he identifies two central determinants of per capita worker output: “first…the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed” (WN Intro.3, p. 10). Smith emphasizes that the development of the first determinant is paramount; a lack of skill, dexterity, and judgment among the workforce will inevitably lead to widespread impoverishment and famine. Thus, when per capita output is high, hunger and scarcity can be significantly mitigated. This presents the moral foundation of Smith’s political economy.
Smith conceptualizes per capita worker output as a ratio, as he does with most significant quantities in Wealth of Nations. Policy can influence both sides of this equation. Therefore, population size should logically hold substantial weight in Smith’s analysis. However, as Friedrich Engels observed in one of his early writings, Smith shows little interest in the implications of demography for his arguments. The significance of population size is first notably emphasized by Malthus, a keen reader of Smith.
It’s plausible that Smith’s marginalization of population size was intentional. Throughout Wealth of Nations, particularly in Book IV, he critiques the Mercantile political economy, viewing John Locke as its foremost proponent. For Locke, “numbers of men” are pivotal to the craft of governance (Second Treatise, chapter V, section 42). By relegating population size to a secondary consideration, Smith redirects focus towards the mechanisms and cultural norms that define workers’ “skill, dexterity, and judgment.” This inquiry encompasses what today’s economists would term ‘human capital,’ yet Smith’s perspective extends beyond this, as he also emphasizes the importance of workers’ judgment. Implicit in this discussion is an exploration of how prudence and taste are cultivated within a population, a theme Smith fully develops in Book V.
Returning to the two primary themes of Book 1, Smith asserts that in a commercial society, the natural distribution of production is influenced by three fundamental factors: labor, capital, and land, which correspond to three distinct categories of revenue streams that generate purchasing power:
- “The whole of what is annually either collected or produced by the labour of every society, or what comes to the same thing, the whole price of it, is in the manner originally distributed among some of its different members. Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value” (WN 1.6.17, p. 69).
These separate revenue streams correlate with three predominant social classes (or, as Marxists might argue, categories): workers; owner-entrepreneurs, whom Smith refers to as the merchant class; and landholders. Naturally, these categories can be further divided—between manufacturing laborers and agricultural workers, or between entrepreneurs and financiers, for instance. Smith often makes these distinctions when delving into specifics. Importantly, he notes that the interests of wage-earning laborers and profit-seeking owner-entrepreneurs frequently conflict, while landowners and laborers can share some common interests.
Through these distinctions, Smith crafts an abstract model for analysis and causal exploration. He reveals how this natural distribution is routinely distorted and corrupted by force, governmental connections, and regulation. Books III and IV detail how feudalism, physiocracy, and mercantilism undermine this natural distribution through coercive governance.
“Smith’s main focus is to provide an analysis of a society familiar to his readers, and how to improve it for the better. We can illustrate the former by attending to how even in Smith’s summary and title the population he refers to is neither a homogeneous mass nor a small anarchic band of equals; it is a socially differentiated and hierarchical society like the one Smith’s readers lived in. …Crucially, then, Smith endeavors to explain the world that he lives in.”
With this framework established, let’s explore the relevance of population to Smith’s argument. After elucidating the division of labor and its underlying mechanisms in the initial chapters, Smith introduces a vital dimension at the start of chapter 3: “As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market” (WN 1.3.1, p. 31). Importantly, the size or reach of the market is at least partially determined by the density and number of participants involved. He notes, “There are some sorts of industry, even of the lowest kind, which can be carried on no where but in a great town” (WN 1.3.2., p. 31). Here, it’s clear that Smith refers to a prosperous town, but part of what makes a “great town” great is indeed its population size and density.
The essence of Smith’s account regarding the division of labor is worth quoting:
- “It is 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….Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation” (WN 1.1.11, p. 22).
Both of these observations are significant. The latter is often highlighted by market advocates who underscore its capacity to coordinate economic activities among a vast number of individuals, even if such coordination is beyond our calculative capabilities. The former reinforces two critical points: first, that the division of labor is intended to benefit the least advantaged (to echo Rawls); and second, that this universal prosperity, which naturally arises from the division of labor, is a byproduct of effective governance. As Smith elaborates in Book III, the historical trajectory of humanity has often been marred by chaotic and violent governance.
Part of Smith’s legislative science in Wealth of Nations is to impart the art of governing a large populace in a manner that fosters “good government or happiness of their society” (WN 5.1.f.51, p. 783). Smith’s early examples of effective governance include the state’s role in regulating and securing coins, weights, and measures (WN 1.4.7, pp. 40–1). When the state debases any of these, he deems the outcome ‘disordered’ (WN 1.5.41, p. 63).
Significantly, Smith also integrates governance and citizenship within the framework of the division of labor. This is poignantly articulated in a passage he added to the sixth and final edition of TMS in 1790:
- “The prudent man is not willing to subject himself to any responsibility which his duty does not impose upon him. He is not a bustler in business where he has no concern; is not a meddler in other people’s affairs; is not a professed counsellor or adviser, who obtrudes his advice where nobody is asking it. He confines himself, as much as his duty will permit, to his own affairs, and has no taste for that foolish importance which many people wish to derive from appearing to have some influence in the management of those of other people. He is averse to enter into any party disputes, hates faction, and is not always very forward to listen to the voice even of noble and great ambition. When distinctly called upon, he will not decline the service of his country, but he will not cabal in order to force himself into it, and would be much better pleased that the public business were well managed by some other person than that he himself should have the trouble, and incur the responsibility, of managing it. In the bottom of his heart he would prefer the undisturbed enjoyment of secure tranquillity, not only to all the vain splendour of successful ambition, but to the real and solid glory of performing the greatest and most magnanimous actions” (TMS 6.1.13, pp. 215–216, emphasis added).
While invoking republican discourse that disavows factionalism and the spirit of partisanship, Smith simultaneously rejects the republican-democratic ideal of continuous, collective governance. Instead, he advances the concept of liberal citizenship. The division of labor enables citizens to engage in pursuits beyond governance. As Smith perceptively notes, many individuals lack a genuine inclination towards political involvement. This sentiment is not entirely laudatory; Smith believes there is true merit and honor in public service and in responding to the call of civic duty.
Ultimately, Smith stands as an advocate for competitive markets, the division of labor, and the institutions that underpin these systems. Yet, within this framework, he contends that the populace must not only act prudently but also strive for education in skill, dexterity, and sound judgment, as he elaborates in Book V.
This article has been cross-posted from Liberty Matters, part of the Liberty Fund network. It is part of the series “Compounding Interest: Revisiting the Wealth of Nations at 250“.
Endnotes
[1] Brewer, Anthony. “Economic growth and technical change: John Rae’s critique of Adam Smith,” History of Political Economy 23.1 (1991): 1. Brewer cites Rae’s Statement of Some New Principles on the Subject of Political Economy.
[2] See the editors introduction of the Glasgow edition of TMS, p. 18
[3] That Smith is interested in analyzing per capita output is clear by the way Smith defines annual national purchasing power, which he treats as a ratio between the annual total worker output and the number of people who consume that output (subtracting net imports from abroad). Or to put this anachronistically, worker output per capita is fundamental to a nation’s wealth according to Smith
[4] This is consistent with and further articulated in Smith’s account of scientific discovery in his posthumously published “The History of Astronomy” in Essays on Philosophical Subjects.
[5] See Levy, David M. “Marxism and alienation.” New Individualist Review 5 (1968): 34-41.
[6] Popular Political Economy. Four lectures delivered at the London Mechanics Institution (London: Charles and William Tait, 1827). https://oll.libertyfund.org/titles/hodgskin-popular-political-economy-four-lectures-delivered-at-the-london-mechanics-institution
[7] Peart, Sandra, and David M. Levy. The street porter and the philosopher: conversations on analytical egalitarianism. University of Michigan Press, 2009.
[8] Schliesser, Eric Adam Smith: Systematic Philosopher and Public Thinker (OUP 2017), chapter 8.
[9] Rosenberg, Nathan. “Adam Smith on the division of labour: two views or one?” Economica 32.126 (1965): 127-139.
[10] Why ‘almost’? In the introduction the last word of this summary is not ‘people’ but ‘society.’ In other places Smith does not use these interchangeably. However, both are politically constituted and have an implied social hierarchy (‘ranks’).
[11] Williams, Callum. “Famine: Adam Smith and Foucauldian Political Economy.” Scottish Journal of Political Economy 62.2 (2015): 171–190.
[12] Schliesser, Eric, ‘Smith and Anti-Mathematicism’, Adam Smith: Systematic Philosopher and Public Thinker (OUP 2017), Chapter 13.; 13
[13] Friedrich Engels’ (1843/44) “Outlines of a Critique of Political Economy.” https://www.marxists.org/archive/marx/works/1844/df-jahrbucher/outlines.htm
[14] Fleischacker, Samuel. On Adam Smith’s Wealth of Nations: A Philosophical Companion. Princeton University Press, 2009.
[15] Pack, Spencer J., and Eric Schliesser. “Adam Smith, natural movement and physics.” Cambridge Journal of Economics 42.2 (2018): 505–521.
*Eric Schliesser’s (PhD, The University of Chicago, 2002) research encompasses a variety of themes, ranging from the history of philosophy and the natural sciences and forgotten 18th-century feminists (both male and female) to political theory and the history of political theory and the assumptions used in mathematical economics.
Read more by Eric Schliesser.
