It is appropriate to begin a discussion of Smith's Wealth of Nations with the division of labour, since Smith himself begins there and since for Smith this division had crucial and decisive importance. His teacher Hutcheson had also analysed the importance of the division of labour in the developing economy, as had Hume, Turgot, Mandeville, James Harris and other economists. But for Smith the division of labour took on swollen and gigantic importance, putting into the shade such crucial matters as capital accumulation and the growth of technological knowledge. As Schumpeter has pointed out, never for any economist before or since did the division of labour assume such a position of commanding importance.
But there are more troubles in the Smithian division of labour than his exaggerating its importance. The older and truer perception of the motive power for specialization and exchange was simply that each party to an exchange (which is necessarily two-party and two-commodity) benefits (or at least expects to benefit) from the exchange; otherwise the trade would not take place. But Smith unfortunately shifts the main focus from mutual benefit to an alleged irrational and innate ‘propensity to truck, barter and exchange’, as if human beings were lemmings determined by forces external to their own chosen purposes. As Edwin Cannan pointed out, Smith took this tack because he rejected the idea of innate differences in natural talents and abilities, which would naturally seek out different specialized occupations. Smith instead took the egalitarian-environmentalist position, still dominant today in neoclassical economics, that all labourers are equal, and therefore that differences between them can only be the result rather than a cause of the system of the division of labour.
In addition, Smith failed to apply his analysis of the division of labour to international trade, where it would have provided powerful ammunition for his own free trade policies. It was to be left to James Mill to make such an application in his excellent theory of comparative advantage. Furthermore, domestically, Smith placed far too much importance on the division of labour within a factory or industry, while neglecting the more significant division of labour among industries.
But if Smith had an undue appreciation of the importance of the division of labour, he paradoxically sowed great problems for the future by introducing the chronic modern sociological complaint about specialization that was picked up quickly by Karl Marx and has been advanced to a high art by socialist gripers about ‘alienation’. There is no gainsaying the fact that Smith totally contradicted himself between Book I and Book V of the Wealth of Nations. In the former, the division of labour alone accounts for the affluence of civilized society, and indeed the division of labour is repeatedly equated with ‘civilization’ throughout the book. And yet, while in Book I the division of labour is hailed as expanding the alertness and intelligence of the population, in Book V it is condemned as leading to their intellectual as well as moral degeneration, to the loss of their ‘intellectual, social and martial virtues’. There is no way that this contradiction can be plausibly reconciled.
Adam Smith, though himself a plagiarist of considerable dimensions, also had a Columbus complex, often accusing other people unfairly of plagiarizing him. In 1755 he actually laid claim to having invented the concept of laissez-faire, or the system of natural liberty, asserting that he had taught these principles since his Edinburgh lectures in 1749. That may be: but the claim ignores previous such expressions by his own teachers as well as by Grotius and Pufendorf, to say nothing of Boisguilbert and the other French laissez-faire thinkers of the late seventeenth century.
In 1769, the contentious Smith levied a plagiarism charge against Principal William Robertson, upon the occasion of the publication of the latter's History of the Reign of Charles V. It is not known what the topic of the literary theft was supposed to be, and it is difficult to guess, considering the remoteness from Smith's work of the theme of the Robertson book.
The most famous plagiarism charge hurled by Smith was against his friend Adam Ferguson on the question of the division of labour. Professor Hamowy has shown that Smith did not break with his old friend, as had previously been thought, because of Ferguson's use of the concept of the division of labour in his Essay on the History of Civil Society in 1767. In view of all the writers who had employed the concept earlier, this behaviour would have been ludicrous, even for Adam Smith. Hamowy conjectures that the break came in the early 1780s, because of Ferguson's discussion at their club of what would later be published as part of his Principles of Moral and Political Science in 1792. For in the Principles, Ferguson summed up the pin-factory example that constituted the single most famous passage in the Wealth of Nations. Smith had pointed to a small pin-factory where ten workers, each specializing in a different aspect of the work, could produce over 48 000 pins a day, whereas if each of these ten had made the entire pin on his own, they might not have made even one pin a day, and certainly not more than . In that way the division of labour enormously multiplied the productivity of each worker. In his Principles, Ferguson wrote: ‘A fit assortment of persons, of whom each performs but a part in the manufacture of a pin, may produce much more in a given time, than perhaps double the number, of which each was to produce the whole, or to perform every part in the construction of that diminutive article’.
When Smith upbraided Ferguson for not acknowledging Smith's precedence in the pin-factory example, Ferguson replied that he had borrowed nothing from Smith, but indeed that both had taken the example from a French source ‘where Smith had been before him’. There is strong evidence that the ‘French source’ for both writers was the article on Epingles (pins) in the Encyclopédie (1755), since that article mentions8 distinct operations in making a pin, the same number repeated by Smith in the Wealth of Nations, although in English pin factories was the more common number of operations.
Thus Adam Smith broke up a long-standing friendship by unjustly accusing Adam Ferguson of plagiarizing an example which, in truth, both men had taken without acknowledgement from the French Encyclopédie The Rev. Carlyle's comment that Smith had ‘some little jealousy in his temper’ seems a vast understatement, and we are informed by his obituary notice in the 1790 Monthly Review that ‘Smith lived in such constant apprehension of being robbed of his ideas that, if he saw any of his students take notes of his lectures, he would instantly stop him and say, ‘I hate scribblers’. While there is also evidence that Smith allowed students to take notes, the point about his crabbed temper and Columbus complex is well made.
Smith's use of an example of a small French pin-factory rather than a larger British one highlights a curious fact about his celebrated Wealth of Nations: the renowned economist seems to have had no inkling of the Industrial Revolution going on all about him. Although he was a friend of Dr John Roebuck, the owner of the Carron iron works, whose opening in 1760 marked the beginning of the Industrial Revolution in Scotland, Smith showed no indication that he knew of its existence. Although he was at least an acquaintance of the great inventor James Watt, Smith displayed no knowledge whatever of some of Watt's leading inventions. He made no mention in his famous book of the canal boom which had begun in the early 1760s, of the very existence of the burgeoning cotton textile industry, or of pottery or of the new methods of making beer. There is no reference to the enormous drop in travel costs that the new turnpikes were bringing about.
In contrast, then, to those historians who praise Smith for his empirical grasp of contemporary economic and industrial affairs, Adam Smith was oblivious to the important economic events around him. Much of his analysis was wrong, and many of the facts he did include in the Wealth of Nations were obsolete and gathered from books 30 years old.