Division of Labor and Capital Accumulation as Sources of the Wealth of Nations

Adam Smith believed that the wealth of nations was derived from their division of labor and accumulation of capital goods for the production of necessities. However, his arguments may not be congruent with the conditions and circumstances, which are in the twenty first century.

Division of labor is the sub division of work into smaller portions so that the task being done can become easier. Smith gave an example of nail manufacturing industries where the work done involved cutting a long wire of iron and sharpening it.

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When one individual did this work, the artisan could only make a hundred nails a day. However, if this work was subdivided into different portions such that one person cut the wires, another person sharpening, and packaging by another person the number of pins produced would have been four thousand. This showed that division of labor led to increased output (Smith 24).

The subdivided labor called for specialization where an individual had to become a master of particular skills. Before division of labor was invented, an individual could manage to do a set of activities alone. The people in the economy were therefore jacks of trades but they were masters of none. Division of labor called for being a jack of no trade but a master of one trade (Smith 108). One had to be a specialist in one area and in the case of nail industry; one had to be a specialist in cutting nails and be unskilled in sharpening them.

The division of labor also brought about efficiency, which is the percentage of the amount of effort applied compared to the amount of goods or services produced. In the division of labor, more output was produced compared to where there were no divisions of labor. The efficiency also came because of improvement in quality.

The work done by the solo artisan of sharpening the nails after cutting them would be probably of lesser quality. The nail-sharpening specialist whose only work is to sharpen the nails would do the work because; tired people produce low quality work.

More inventions came up during this period of division of labor more than any other time previously. This is because; the individual who is assigned a particular task had to find ways of doing the work faster. If it was the nail cutter, he had to look for ways to cut the nails faster. This involved devising equipment and tools, which were meant to make the work easier. Nail cutters were invented during this period as well as wheat threshing machines and the locomotives (Smith 238).

There was low costs of production because of division of labor. This is because the number of laborers employed to do the work was significantly reduced when there was division of labor. Four individuals would produce four thousand nails compared to the one hundred nails produced by one artisan.

Therefore, it could have taken forty artisans to produce four thousand nails in a day. This low cost of production also implied that those who engaged in division of labor had an added competitive advantage because their goods and services were cheaper compared to goods, which were locally produced. This meant that an economy or a country with industries that engaged in division of labor could export their goods to other countries thus increasing their nation’s foreign exchange as well as the gross domestic product (Smith 388).

Before the concept of division of labor was invented people engaged in a number of activities, they only produced enough goods for their subsistence consumption, and there was no surplus. The increased output that came with the division of labor changed the concept of wealth accumulation as people and industries could produce goods in surplus, which they could sell to individuals in different countries.

This surplus was the major source of wealth because; apart from the domestic consumption, it resulted to capital accumulation. The surplus goods could be sold elsewhere and they represented the worth of the industry, the individuals as well as the nation (Smith 450).

The capital accumulation was indeed the way to go in regard to the accumulation of wealth because; other factors of production that led to great wealth such as land were out of reach for most people. Capital refers to the machineries, buildings and other assets that are involved in the process of production. For a company to increase its production it had to increase its capital or its equipment.

For this to be done companies or individuals who owned these companies had to forfeit their ownership and allow other people to own part of the company through the initial public offering, which allowed a private owned company to be held by the public. This was a major source of wealth, as the public had to buy the portion offered in terms of stock (Smith 457). The origin of the term shares means the amount of capital one owns in an industry.

Critical Evaluation. The ideas expressed by Adam Smith in relation to division of labor are still applicable today although not all of them. 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 argues 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 29).

These arguments are solid and coherent because; the situation in the world market requires economies to invest in productive activities 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.

However, in the twenty first century when there have been many cases of down sizing and retrenching in major corporations leaving thousands of people jobless, the idea of specialization has to be reconsidered.

This is especially because with the advent of integrated technology or the merger of technologies where machines are becoming more incorporated such that one machine can do more than one task; individuals who specialize in one area will lack employment. The division of labor is therefore more applicable in corporations and nations more than to the individual laborer.

Labor has also undergone major changes in the sense that the modern world has more skilled labor than it had in the nineteenth century. Labor has become more competitive than it were before. This implies that economies, which will thrive, are those whose labor is specialized in various tasks or else the changes in technology might edge them out.

Concerning capital accumulation, there are other significant changes, which have occurred and may lead to a redefinition of capital. This is because capital is not only quantified in terms of tangible items or equipment but also non-tangible items, which give a nation or company advantage.

These explain why a company like Google is valued at several billion dollars though it has no tangible assets such as buildings or land; it only deals with information technology. We nowadays have more companies, which do not have any tangible item, yet they are valued at billions of dollars.

Conclusion

Adam Smith in the “Wealth of Nations” shows the importance of division of labor in enhancing productive capacity of labor. Labor is one of the most influential factors of production.

Many countries have realized the need to specialize and divide their work into units that can be handled by different workers. Division of labor has enabled people to become efficient in their work because of increased skills acquisition. The workers are able to increase efficiency by reducing the time spent in moving from one station to another.

The use of machines has enabled people to improve their efficiency and increase the skills required in production of commodities. Capital accumulation is a source of wealth for nations because; it enables production of machinery for manufacturing purposes. Capital accumulation helps imparting of skills and knowledge, which increases the productivity of workers and thus the wealth of the countries.

Works Cited

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. London: The University of Chicago Press, 1976. Print.

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