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Friday, August 24, 2012


“Because it is my social function to supply the world as well as I can with a certain thing, therefore I dread the world’s being so well supplied with it that I shall be able to get little or nothing for supplying more. It is impossible to exaggerate the importance of this consideration, or the penetrating and intimate nature of its bearing on every aspect of the social question.”

The Common Sense of Political Economy (1910)

 The Meaning of the Division of Labor

Our economic system is distinguished from its primitive prototypes before all else by its extreme specialization of labor, or what we call the division of labor. It is this central fact to which we must return again and again for an understanding of the modern world. Today, most people are engaged almost exclusively in the production of goods and services intended not for themselves but for others, with each one producing always the same goods and the same services. Except for some sectors of the agricultural economy—and even these have diminished rapidly in importance—the modern producer personally consumes only a fraction, if anything, of his specialized output. In some instances, it is true, the small farmer will produce first for his own needs and then exchange his surplus for other products. But it is difficult to imagine a Ford or a Krupp producing automobiles and cannon first for themselves and their families and then supplying to others the surplus which they cannot use. Even the worker in a shoe factory will buy his shoes, as a rule, in a shop, and it is improbable that he will recognize the pair that he buys as the one he himself has made.
To estimate correctly the role of the division of labor in the building of our civilization is the business of the sociologist and the economic historian. What is important for us to note here is the fact that the division of labor has enormously increased the productivity of human labor. The reasons for this are as follows:
(1) The division of labor allows each man to specialize in the kind of work best suited to his capacities.
(2) The division of labor tends to concentrate the production of each commodity in the place where natural conditions are most favorable (the spatial division of labor), a fact which is of great importance in connection with the international division of labor. It is the division of labor alone which brings it about that every type of production, within the national economy or within the world economy, can be established in the most favorable location.1
(3) It is specialization alone which permits the complete development of professional skill and the acquisition of that experience which distinguishes the specialist from the mere amateur. Thanks to the division of labor, a fund of experience, of knowledge, and of skill can be preserved and increased throughout the generations.
(4) The division of labor avoids the loss of output which ordinarily accompanies the change from one type of work to another.
(5) The division of labor—and here we touch on a most important point—makes possible the use on a vast scale of tools and machines. Because of the large outlays which are required for the purchase of such equipment, it can be profitably used only when it is fully used. It is not worthwhile to make a hammer to drive a single nail into a wall and many a handyman has had to have recourse to the carpenter rather than buy an expensive tool for which he could find only occasional use. Those familiar with farming know that the principal obstacle to the use of farm machinery lies in the peculiarities of agricultural production which prevent maximum use of the equipment. The economic principle in question is this: the use of machines is more limited and thus more dependent on an advanced division of labor, the more specialized are such machines; at the same time, the yield of a machine ordinarily increases with its degree of specialization. The secret of the low-priced automobiles which Henry Ford was the first to put on the market after World War I lay in the huge number of units produced; for these made possible the mechanization and automation of the entire Ford operation. The specialized machines required for this type of production are extravagantly expensive but they produced, thanks to the volume of output, a car which was at one time the cheapest in the world.
To achieve such high levels of output Ford was required, it is true, to limit production to a single model and to leave this model unchanged year in and year out. Ultimately, the exigencies of public taste forced him to replace the outmoded model by more fashionable ones. To this end, he spent millions for completely new machinery and tools.
A good example of the interrelationships between advanced specialization of the machine and greater output and of the resulting concentration of production in the hands of specialists is the manufacture of automobile bodies by means of special presses. So costly are these tools that only a very large number of orders can yield lower costs and, ultimately, lower prices. The consequence has been the emergence of a special body-building industry serving the automobile manufacturers.
From the last mentioned advantage of the division of labor is deduced an important economic principle. The use of tools and machinery in production means that consumption goods are not produced directly, but via the preceding manufacture of production goods (raw materials, machines, transport facilities, etc.). The more there is of this roundabout production and the larger the quantity of capital employed, the more “capital-intensive” will such production become. This introduces a new complication into the division of labor. For, given the difference between consumption goods and production goods (capital goods), it is apparent that a large part of a country’s total production serves for the production of capital goods and not for the production of consumption goods, and that the production of capital goods must itself become a specialized branch of manufacturing. We must picture the entire process of production as a series of descending levels. At the highest level, raw materials are procured; at a lower level, capital goods are manufactured; and at the lowest level, consumption goods are produced. Just as specialization and division of labor characterize production on any one level (horizontal division of labor), so also we find a division of labor between the different levels of production (vertical division of labor). In other words, there is not only a division of labor between the production of shoes and the production of paper, but also a division of labor between the production of shoes and the production of the fore-products (tools, machines, leather, hides, etc.) which enter into the manufacture of shoes.

Economics of the Free Society

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