Adam Smith

Adam Smith’s, The Wealth of Nations; a Current Synopsis

Kenneth D Neat, CPA, CFE, MSA, MST (PhD Candidate)

Florida Atlantic University

Dr. Carl Pacini

June 24, 2010

Adam Smith

Wealth of Nations

Book I: Of the Causes of Improvement...

Of the Division of Labour: Smith states that "the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour." To illustrate this, he describes the extensive division of labour within the "trifling" industry of pin manufacture, along with the astounding resultant productivity, and labourers' dexterity; then levers this as an introductory microcosm of the greater, yet less obvious division of labour in the broader economy. The advantages of this division were likely the driving force behind diversification of the trades and industry, and this diversification was greatest for nations with more industry and improvement. Agriculture is differentiated from industry for its comparative lack of division of labour, and the attendant lack of improved productivity; hence, while poor nations could not compete with rich nations in manufactures, they could compete in agriculture.

Smith lists three causes, arising from division, of improved productivity:

• the labourer's dexterity - due to specializing, year-round, in a specific task

• time not wasted passing from one task to the next - as in agriculture - as well as the more consistent and focused effort when working in just one area

• The machines and tools that have evolved in conjunction with increasingly specialized labour.

Of the Principle which gives Occasion to the Division of Labour: Chapter 2 illustrates the growth in division of labour. Smith hypothesizes that early societies benefited from specialization in a natural and spontaneous way - that one person may focus on hunting while another concentrates...