The Wealth of Nations Chapter 1: Of the Division of Labour

Think of a pin. Walmart sells 1,000 for $11, or 1.1¢ per pin. In your current or former line of work, how long would it take you to earn 1.1¢? At the Wisconsin minimum wage of $7.25, it would take about 6 seconds. Now imagine you had to make a pin on your own. From mining ore, to refining the metal, shaping it, cutting it, sharpening it, forming the plastic head, and combining them. Would that take you more or less than 6 seconds? (Yes, it’s a rhetorical question). This is not to mention the additional steps a seller of pins must go through: packaging, shipping, marketing, etc.

Others are clearly able to do all this, and still make a profit when they sell each pin for 1.1¢ (meaning it actually costs them less than this to complete all the steps above, and presumably much less than 6 seconds per pin for the entire process). Adam Smith gave the example of the pin in 1776, examining that a group of about 10 people in his time could make 48,000 pins per day. If they did not divide the labor of pin-making into these 10 different steps, Smith posits that each person on their own might be able to make 20, or maybe not even 1 per day. When they divide the labor in this fashion, they can each be attributed to making 4,800 a day (48,000 divided by 10 people), or 240x as many as if they worked alone and only made 20 per day. In Smith’s words, “The greatest improvements in the productive powers of labour, and the greater part of the skill, dexterity, and judgment, with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.”

When we split the tasks in the production of a good or service, and have individual people or even entire companies focus on a single step, everybody wins (at least economically, meaning things cost less to make. More will be said on the non-economic costs of extreme division of labor).

Watch this short video where the more recent economist Milton Friedman famously picked up a pencil and claimed, “There is not a single person in the world who could make this pencil. Remarkable statement? Not at all. The wood from which it's made, for all I know, comes from a tree that was cut down in the State of Washington. To cut down that tree, it took a saw. To make the saw, it took steel. To make the steel, it took iron ore. This black center, we call it lead but it's really graphite, compressed graphite, I’m not sure where it comes from, but I think it comes from some mines in South America. This red top up here, the eraser, a bit of rubber, probably comes from Malaya, where the rubber tree isn't even native. It was imported from South America by some businessmen with the help of the British government. This brass feral I haven't the slightest idea where it came from, or the yellow paint, or the paint that made the black lines, or the glue that holds it together. Literally thousands of people cooperated to make this pencil, people who don't speak the same language, who practice different religions, who might hate one another if they ever met. When you go down to the store and buy this pencil, you are, in effect, trading a few minutes of your time for a few seconds of the time of all of those thousands of people.”

If that’s true for a simple pencil, how much more true for everything else we use on a daily basis (including the laptop I’m typing on and the device you’re reading on).

There is no abundance, no wealth, without dividing up these tasks so that someone can become really good at getting ore out of the ground, while someone else can become really good at making saws, while someone else can become really good at cutting down trees, and on and on. The wealth we have, and the companies you invest in, seek to do very specific things very well, and it’s through this specialization (and cooperation in the free market) that goods and services can be offered profitably and made accessible to more people at a better price.

Let us know

• Left to your own skill and only what Mother Nature provides (no tools you don’t make yourself), is there a single thing you use today that you’d be able to make on your own?

• In your current or former line of work, what step/task/role did you play, and what was the larger good or service being offered that you assisted with?

Until next time, happy reading!