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Adam Smith's Division of Labor
Essay 1 — Introduction to Adam Smith’s Legacy
Like
Aristotle, Adam Smith (1723 – 1790) was a polymath (a learned man in many
fields) who had an eagle-eye to see an interconnected world. Only a selected
minority of talented individuals can probe the depths of the human condition
and attain a global vision. Adam Smith was one.
Although
today Adam Smith is recognized as the father of political economy, his legacy
includes major works on rhetoric, logic, ethics, literature and criticism,
astronomy, history, the law, theology and even poetry.
To Smith,
labor was the discernible strand
that made possible for common people to enjoy the necessities and conveniences
produced by a nation. And within that strand, he saw that the division of labor was the direct cause
of efficiency, and that when it was complemented by the accumulation of capital
and machinery, opulence (or as we say today: prosperity) was the inevitable
result.
His
economic analysis established the major factors of production: the landholder
gets paid rent; the worker (laborer)
gets paid his wages. And the
producer —given his investment of capital (money, equipment, and facilities)— is
entitled to the profits. Although
some of the descriptive economic terms have evolved and others fallen into
disuse, all contemporary textbooks in macro and microeconomics are but a
revision of Adam Smith’s model—as brought to light in his landmark book The Wealth of Nations.
British economist, also a man of many
talents, John Maynard Keynes once wrote:
Practical men, who believe
themselves to be quite exempt from any intellectual influences, are usually the
slaves of some defunct economist. Madmen in authority, who hear voices in the
air, are distilling their frenzy from some academic scribbler of a few years
back.
Keynes was correct in his assessment, for
history has often proven that styles of governments —directed by practical men
and madmen in authority— are but the extract of the ideas of a small band of dead
economists, with much of these ideas contributed by Adam Smith.
Let’s name a few defunct economists: Adam Smith —the father of capitalism— gave
us the invisible hand of competition and self-interest, laissez-faire, and the
division of labor. Karl Marx
(1818-1883), hated free markets, and believed in a system of communism in which
government should own all the means of production. John Maynard Keynes (1883-1946) rescued capitalism by inventing
fiscal and monetary policies (with democrats favoring the former and
republicans the latter). Milton Friedman
(1912-2006) and his Chicago School of Monetarists believed in the total power
of the mighty dollar, and hated Keynes and his fiscal policy (deficit
financing).
Go figure the reach of these defunct
economists!
Even today are we slaves of these dead
economists’ ideas, for their followers continue to perpetuate their teachings. Hard
as I look for original thinkers, I fail to find them anywhere in the
contemporary economic landscape. Larry Summers, Alan Greenspan, Ben Bernanke,
Paul Krugman, and other minor economic luminaries are still distilling the
teaching of the above mentioned old masters. And so are madmen in authority
like Hugo Chavez and Fidel Castro.
Today the old band still plays, and old man
Adam Smith still rules.
This
Scottish moral philosopher and economist took ten years to write his magnum opus—The Wealth of Nations (1776). The textbook became not only the
foundation of classical economic theory, but also the moral imperative for
people’s liberty within the system of laissez-faire
capitalism.
Excerpted from my ebook Adam Smith's Division of Labor and Your Wealth. |
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