Adam Smith

Date: 2015-10-07; view: 393.

In the first sentence of An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Adam Smith foresaw the essence of industrialism by determining that division of labour represents a qualitative increase in productivity. His example was the making of pins. Unlike Plato, Smith famously argued that the difference between a street porter and a philosopher was as much a consequence of the division of labour as its cause. Therefore, while for Plato the level of specialization determined by the division of labour was externally determined, for Smith it was the dynamic engine of economic progress. However, in a further chapter of the same book Smith criticizes the division of labour saying it leads to a 'mental mutilation' in workers; they become ignorant and insular as their working lives are confined to a single repetitive task. The contradiction has led to some debate over Smith's opinion of the division of labour. Alexis de Tocqueville agreed with Smith: "Nothing tends to materialize man, and to deprive his work of the faintest trace of mind, more than extreme division of labour." Adam Ferguson shared similar views to Smith, though was generally more negative.

The specialization and concentration of the workers on their single subtasks often leads to greater skill and greater productivity on their particular subtasks than would be achieved by the same number of workers each carrying out the original broad task.

Smith saw the importance of matching skills with equipment - usually in the context of an organization. For example, pin makers were organized with one making the head, another the body, each using different equipment. Similarly he emphasised a large number of skills, used in cooperation and with suitable equipment, were required to build a ship.

In modern economic discussion the term human capital would be used. Smith's insight suggests that the huge increases in productivity obtainable from technology or technological progress are possible because human and physical capital are matched, usually in an organization. See also a short discussion of Adam Smith's theory in the context of business processes.