1st sector vs 2nd sector
In the first chapter of Wealth of Nations Adam Smith talked about the difference between labour and manufacturer. He believes that manufacturers hold the means of production. Since the increase of a single manufacturer could greatly improve their production while a labourer can’t. Why can't laborers improve their production? Because their production is limited by time and land. While the manufacturer doesn't.
Specialization Efficiency
Adam Smith then went into detail on why production increased through specialization. He saw a core problem of low production on the micro and macro side. As put it simply: breaking of the flow.
First is the change of occupation in the Macro side, when you change an occupation, you also need time to adapt to the new job with learning of new skills. People with multiple occupation would also lose lots of time in commuting. Just like in the micro side, imagine the production of pencils. Suppose 3 people wanted to make a pencil, if they each made a pencil themself it would be very inefficient. For simplification I will break it into 3 steps: 1. Inserting the lead into the wood. 2. The arming of rubber on top of the pencil. 3. The sharpening of the pencil.
Adam said the production will increase if each person focuses on a single step rather than each of them trying to make a pencil on their own. Why is that so? Let’s think of the process of making the pencil alone. First we have to insert the lead, then we have to search for the rubber to put it on top with a different motion. Lastly you have to find the sharpener, sharpen the pencil, put the sharpener down and repeat step 1.
Now think about the 3 people each focus in a single step. They will repeat the same motion without change or thought about which steps they are in and commit mistakes. Beside that the constant picking up and dropping of the sharpener would compile a lot to wasted time and production. Thus it is a lot more efficient for each of them to focus on a single step
like in the macro side to focus on 1 job.
Cooperation of multiple production
As the means of production increases, there will be an abundance of surplus, which encourages people to trade their surplus with each other. This helps to create a wide variation of specializations to cooperate. Suppose producing pencils again, I need to trade my pencil for my survival needs such as food and water. But it isn’t just what I need to survive, we have to think about the different specializations for us to produce pencils. Such as miner who mines for lead, wood from lumbers. People who transport the material to us, which requires cars, boats etc… Which also have their own separation of divert specialized labour needs. These wide areas of specialization we need just to create pencils!
Personal thought about Chapter 1
It is interesting that in 1776, Adam Smith had already thought about how to increase efficiency and how people focus on a single task would increase production, and through that to create an efficient society. I guess that’s the reason that soon after this the industrial revolution started. Even after more than 200 years as I am reading this in the modern day I still learned something. The base for Ford’s production line was already presented here.
Although he saw the abundance of products we could create as a society, I don’t think he saw how this specialized society would grow into the depressing capitalistic system which Marx saw as the problem.
I believe a fair society would thrive better, but is that true? And what is fair?
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