Points of Discussion for Chapters 1-3 of the Wealth of Nations

1. Thinking in terms of the three great spheres of the economic activity of a society (sphere of production, distribution, circulation), where does Adam Smith begin his enquiry? What are the possible implications of this starting point? Considering the three chapters in terms of the sphere of economic activity, what can you say about Smith’s progression (Ch. 1 Of the Division of Labour, Ch. 2 Of the Principle which gives Occasion to the Division of Labour, Ch. 3 That the Division of Labour is Limited by the Extent of the Market)?

2. “Adam Smith provides the best defense and explanation of the modern process of economic globalization in the first three chapters of the Wealth of Nations (1776)” Would you agree or disagree with the statement? What are some of the ideas that Smith might be missing? Also, we might look at point 14 below.

3. How general is Smith’s discussion of the division of labor supposed to be? Recall the passage towards the end of Chapter 1: “In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens. Like every other employment too, it is subdivided into a great number of different branches, each of which affords occupation to a parculiar tribe or class of philosophers; and this subdivision of employment in philosophy, as well as in every other business, improves dexterity, and saves time. Each individual becomes more expert in his own peculiar branch, more work is done upon the whole, and the quantity of science is considerably increased by it.” In addition recall the beginning of the second paragraph: “The effects of the division of labour, in the general business of society, will be most easily understood, by considering in what manner it operates in some particular manufactures.” And later, “In every other art and manufacture, the effects of the division of labour are similar to what they are in this [pin factory] very trifling one;… The divison of labour, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers of labour.” Do you suppose he means ‘proportionable’ in a strict sense here?

4. What are the implications of placing so much emphasis on the division of labour for explaining the differences between the ‘wealth of nations’. What else might influence the differences between nations?

5. “The nature of agriculture, indeed, does not admit of so many subdivisions of labour, nor of so complete a separation of one business from another, as manufacturers.” True or false? What – or better, Who – might Smith be attacking here? When comparing nations, where does the advantage most lie for the ‘advanced’ or wealthy countries (recall, the Porland, Frence, England comparison).

6. What determines the productivity of labor? How is this accomplished?

7. Is the division of labor seen only within a business?

8. “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, thought but a small part, has been employed in procuring him this accommodation, exceeds all computation. … [woolen coat as example] … if we examine, I say, all these things [that different types of activities that went into the coat and its delivery] and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.” Now, isn’t this the type of thing that micro has always attempted to explain? Can’t we say the same for our morning bowl of cereal? Is the micro question the welfare implications of this or simply the description of the coordination that must occur?

9. Smith begins Chapter 2 with the following: “This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.” Later, “It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contract.” These statements have given rise to much controversy. In your opinion is Smith correct in his views about human nature? What is the point behind the comparisons to the dogs not trading bones and to “almost every other race of animals”? We will see that Smith likes to draw comparisons between human beings and the animal kingdom.

10. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” The butcher in this statement has become famous in the economic literature. How has this statement manifested itself in modern economics? Given this passage and the stuff about truck, barter, and exchange, can we say Smith assumes individuals attempt to Maximize their Utility?

11. Smith returns to the implications of exchange for the division of labour: “As it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of [recall the activities involved in making the woolen coat], so it is this same trucking disposition which originally gives occasion to the difvision of labour. In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and be becomes a sort of armourer. ….” Again, what does this say about globalization? What does this say about how general Smith wants the analysis to be at this point? If this is so natural, what prevents it from happening? Does Smith have a specific target in mind to attack?

12. The following type of statement appears quite frequently throughout book 1: “And thus the certainty of being able to exchange all that surplus part of produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent or genius he may possess for that particular species of business.” First, focusing on the underlines portion, what if we were to aggregate the individuals? Second, what determines the specific occupation in which the individual will have ‘talent or genius’? Would this be influenced by the type of society (slaved-based, feudal, capitalism)? Third, again thinking about globalization, what idea might Smith be missing here when it comes to the question of what to specialize in?

13. What are the implications of the following: “The difference of natural talents in different men is, in reality, much less than we are aware of: and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour.”?

14. Smith appears to stress the benefits of the division of labour within these chapters. However, consider the following passage from much later in the book [chapter on Education of Youth]: “In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations; frequently one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations,, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur [I thought we were told about the child that invented something so that he could go out and play with his fellow? And, what about this “child” – what does that say to us? At any rate, wasn’t one of the benefits of the division of labour the ability of the labourer to figure out new ways of doing the tedious task?]. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become [Ouch!!!]. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. … His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it. [ok, now what about globalization?]

15. “As it is this disposition which forms that difference of talents, so remarkable among men of different professions, so it is this same disposition which renders that difference useful. Many tribes of animal …[again with the animals] … Among men, on the contrary, the most dissimilar geniuses are of use to one another; the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men’s talents he has occasion for.” Ok, so let’s really deal with this issue. Is the natural disposition to ‘truck, barter, and exchange’ a necessary and sufficient condition for all this good stuff? Is capitalism (or, if you prefer, a market-based economy) a necessary and sufficient condition? What about the family unit? Military complex? Inside the large corporation?

16. What sets the limit to the division of labour (and, hence, the productivity of labour, hence the output of society)? From the beginning of chapter 3 we read the following:

“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 the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.”

Smith has made a bit of a resurgence among traditionally very different groups of economists. These economists have focused on the process of growth and development. Thus far, what can we say about Smith’s theory of growth and development? How would you draw for Smith the average cost curves for a business? What would the production possibilities function for the society as a whole look like? If these are valid ways to characterize Smith, what might they imply for modern economic theory (either micro or macro)?

Now, before we go too far along this path, what are we to make of the following: “As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not till a long time after that those improvements extend themselves to the inland parts of the country.” Does the division of labor cause technologicial change or the other way around?

Quick reading note for the next part (in case I forget to mention it). In Chapter 4, the really important stuff for us comes only right at the beginning and right at the end. You can safely skip/skim from “In all countries, however, men seem at last to have been determined by irresistible reasons to give preference, ….” to “The Word VALUE, it is to be observed…” The stuff in-between though not bad is less important for us now. Chapter 5 is fairly difficult, the first part is a must read, however he goes off a bit on some history that you can safely skip/skim from “The Romans are said to have had nothing but copper money till within five years before the first Punic war…” until the end of the chapter.