Economics

9 Pages 2250 Words

It is 1776, the year that marks the birth of our nation. It is also the year Adam Smith published his Inquiry into the Nature and Causes of the Wealth of Nations.

To make an ordinary common pin at that time, one person had many tasks: to draw out the wire, straighten it, cut it, put a point on it, grind the top to receive the head, make the head, attach it, and then whiten it to be shiny and smooth. “One worker doing it all could have made perhaps 20 pins a day; [It follows that] 10 workers could have produced 200.”

Now take those same 10 workers and divide the labor. Have one person draw out the wire, another straighten it, a third cut it, etc. By dividing the work so each worker performs only one function, the daily output increases to 48,000, or 240 times more than those same 10 performing all functions. That’s an amazing increase in productivity, accomplished by nothing more than having a worker do the same task, over and over, throughout the day.

I just described the well-known pin factory that Adam Smith used in his Wealth of Nations as an argument to divide labor tasks. That same insight gave birth to the mass-production factory. Adam Smith also included analyses of money, prices, wages, profits, income, and the different levels of wealth among nations. His reflections presented a new way of thinking about the economy of his time that continues to offer insight into the workings of every economy of every time. Smith provided the foundation for our present-day understanding of the market as a social force.

We have watched the market and analyzed its operation for the 228 years that have passed since Smith’s ideas entered into public discourse, so we know well what the market does. It affirms or rejects both old products and new products. It welcomes some innovations and rejects others. It changes our work, what we do and how we do it, moving us toward both refined specialization and new skills. ...