Adam Smith believed that the wealth of nations was derived from their division of labor and accumulation of capital goods for the production of necessaries. However, the reason for improvement in productive ability of labor is not the number of people employed but the proportion of those employed to the proportion of those not employed.
According to Adam Smith, the number of people employed in the manufacture of necessaries is proportional to the amount of capital stock employed in the production of the same necessaries. There are different methods used in the accumulation of capital stock in factories. Different quantities are used to put the labor into action depending on the different methods of employing the capital in the production of necessary items. Although nations display similar advancement in skill levels, dexterity of the employees and their judgment, they use different paths in their application of labor in productive processes. The interesting observation was that the outcomes of the different nations were no similar in the quality of their products. Some of the nations applied policies that focused on giving encouragement on the industry of their towns, while others focused on the industry of the nation. In their focus on industries found in towns such as arts, business, and manufacturing, as opposed to agriculture, the circumstance of introducing the different policies were hugely different (Smith 193).
The different plans employed in labor management were the result of private interests of different people; they resulted in different theories of economics. Some of them show the significance of town industries, while others highlight the significance of agriculture.
Work was divided into branches that were developed into peculiar trades themselves making the whole process peculiar if one considered the work done by individuals. Smith observed that division of labor resulted in improved productivity for the entire system in cases where one individual performed all the tasks. The separation of tasks was seen to be more rampant in countries that were more developed in terms of their industries. The countries that had higher income levels at the time were beating their neighbors in manufacturing as well as industry. However, their superiority in industry was apparent and had more capital and labor employed in their farms than the other countries. The increase in productivity of employees is the result of the increased dexterity, saving of time that was lost in moving from one station to the other, and the invention of machines that would aid workers in increasing their output.
Adam Smith was of the opinion that the ability to exchange one commodity for another gives a rise to the division of labor. Therefore, the market and extent of it must be factors of the limited market power. In case the market is unusually small, no individual would have the willingness to dedicate him or herself to one employment. Therefore, exchange facilitates trade in surplus production for the commodities that the individual wants but does not produce. This means that wealthy nations have access to large markets for exchanging their production. Thus, such nations can only achieve the required production through the division of labor. In this case, division of labor becomes a crucial aspect in ensuring the competitiveness of countries thus enabling them to exchange and gain from the trade.
The observations of Adam Smith concerning some industries showed that some industries could only survive in large towns. Villages and small market towns were not sufficient markets for products made using specialized labor. The small villages and poor countries were comprised of subsistence producers of all the commodities they required. The performance of all the small pieces of work necessary for subsistence results in low productivity and leads to the inability to produce any surplus. Increase in needs of the people extends the market available for the different commodities in order to ensure that the surplus production can be consumed. The riverbanks and seacoasts offer an opportunity for the industries to subdivide and improve. In most cases, the improvements take time to extend to the inland parts of the country.
Capital accumulation is a critical factor in the wealth of nations because it enables them to specialize in the production of commodities that can be traded. Capital accumulation is supportive of the division of labor because it enables the production of machines that aids in the improvement of productivity of workers. Wealth, according to Adam Smith, is derived from production as opposed to the accumulation of factors of production. Therefore, it is through investment in the different industries that a country achieves productive capacity to enable specialization in production. Specialization, on the other hand, enables workers to gain adequate skill in order to produce high quality products for exchange. Trade, being the central theme in economics, highlights a need for countries to invest in their transport networks in order to facilitate the flow of goods from distant places to their markets. Capital accumulation through the improvement of production networks is a significant factor in their accumulation of wealth.
However, the countries that were well-off during Adam Smith’s time were not the ones that encouraged foreign trade. These countries derived their wealth from improvements in internal navigation. It is also clear that countries with no inland navigation did not have an opportunity to develop because of their inability to carry commerce and communication. The lack of adequate inlets to many countries acted as a barrier to their development because they could not access foreign commerce. In these nations, specialization resulting from division of labor and capital accumulation would not be fully exploited because the surplus production could not be disposed (Smith 310).
The ideas expressed by Adam Smith in relation to division of labor are coherent today. The issues presented in the book show that the division of labor results in economies because of the ability of the labor force to produce more than they could produce if they were not specializing. Division of labor enables workers to acquire a high level of skill in one trade as opposed to many different trades. Skills acquired through specialization enable workers to produce commodities that are of high quality and thus are able to compete effectively with others in foreign commerce.
Smith posits that foreign commerce is an agent for accumulation of wealth for nations. Thus, countries without access to international trade cannot fully exploit the benefits of specialized production and end up being relatively poor (Smith 300). These arguments are solid and coherent, because the situation in the world market requires economies to invest in their productive capacity in order to acquire wealth. The accumulation of capital is a significant factor in the ability of economies to respond to changes in the market. Capital accumulation is required in order for economies to enable production and specialization in their productive efforts.
Adam Smith’s ideas about trade and production are that the source of wealth is not the accumulation of factors of production, but the ability to utilize factors such as labor and capital in production. These ideas are applicable in today's economies because some of the economies that lack resource endowment leverage their availability of human capital in growth. Human capital is developed through investment in training and education in order to impart required skills. Therefore, capital accumulation is vital in enabling the training of employees and results in high quality workers that are highly productive. Capital accumulation also enables economies to invest in factories and other production facilities in order to boost their production. Therefore, capital accumulation is essential in achieving productive efficiency thus promoting the wealth of the countries (Smith 223).
Division of labor is an essential part of the production environment in modern economies. Workers in today’s economy specialize in few tasks and achieve high levels of competence in their jobs through training and education. Division of labor becomes a source of competitive advantage in order for the economies to produce high quality commodities and services that can enable them to achieve wealth. The realization that economies have to focus on production of goods and services allows countries to produce what they can at a surplus. Today, every economy is involved in foreign trade, which enables them to access commodities that they cannot produce efficiently. Wealth of nations today is a factor of their ability to turn their available resources into products and services required in the foreign market. Welfare is improved by the increased access to goods and services.
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In conclusion, Adam Smith in the “Wealth of Nations” shows the importance of division of labor in enhancing the productive capacity of labor. Labor was one of the most influential factors of production during Adam Smith’s time. Economies had realized the need to specialize and divide their work into units that are handled by different workers. Division of labor enabled people to become efficient in their work because of increased skill acquisition. The workers were able to increase efficiency by reduction in the time spent in moving from one station to another. Machine use also enabled people to improve their efficiency and increase the skills acquired in producing the required commodities. The ideas expressed by Adam Smith in relation to division of labor and capital accumulation are applicable in today’s economy. This is because it is only through the division of labor that productive efficiency is achieved. Capital accumulation is a source of wealth for nations today because it enables production of machinery for manufacturing purposes. Capital accumulation also enables the imparting of skills and knowledge, which also increases the productivity of workers and thus the wealth of the countries.