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SPECIALISATION, DIVISION OF LABOUR AND EXCHANGE

Candidates should understand the benefits of specialisation and why specialisation necessitates an efficient means of exchanging goods and services, such as the use of money as a medium of exchange. Adam Smith is generally regarded as the father of economics. Smith was a moral philosopher and his first book ‘the Theory of Moral Sentiments’ was published when he was a professor at the University of Glasgow. After agreeing to take a wealthy young nobleman on a European tour, Smith used the experience to meet and discuss with the great thinkers of his age and to observe the continental economy. ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ was published in 1776, the year of the declaration of American Independence, and at the cusp of the Industrial Revolution. The impact was enormous and his tremendous influence on government policy endures to this day. The opening chapter, in large part, answers the question posed, why are some nations wealthier than others? Smith identifies that a key factor is the principle of the division of labour. Little can be added here to Smith’s masterful account of the operation of a pin factory and I urge you to read the original. Division of labour by product The pygmies of Zaire are a tribal people living the way their ancestors have done for millennia. The men use bows and arrows to hunt in the rainforest, the women look after children and cook. Clothes consist of little more than loincloths, if indeed they wear any; shelter is made from tree branches and palm leaves gathered from nearby. There is a very limited amount of agriculture and occasionally small items are traded, for example some coffee beans for a knife. The pygmies provide an example of a subsistence economy where there is almost no division of labour beyond men hunting and women carrying out domestic chores. By the standards of developed countries there is a very poor standard of living and life-spans are...