The Encyclopedia of Libertarianism

Division of Labor

The notion of the division of labor is central to classical liberalism and the theory of a market economy. The division of labor refers to the situation that obtains when different individuals perform different tasks and then trade with each other in order to get what they prefer. Instead of having John grow his own food and be his own doctor, John, who is primarily a farmer, trades his products for money, which he then uses to buy many diverse goods and services from others, among them medical care.

Discussions of the division of labor go back to Plato and have been dealt with by numerous writers over the centuries. However, it was not until 1776 and the publication of Adam Smith’s Wealth of Nations that an extensive analysis of the division of labor against the backdrop of a modern economy was offered. Smith pointed out that the immense productivity advantages of the market economy rest on the division of labor. The example he offered of the manufacture of pins, which demonstrated how more pins are produced when tasks are divided across many individuals, has become a classical illustration of the benefits that follow from the division of labor. Yet Smith also understood that the division of labor is a far broader concept. Individuals pursue different avocations, regions grow different products, countries have different exports, and so on.

Smith coined the famous maxim that “division of labor is limited by the extent of the market,” which meant that only large and well-developed markets could support a high degree of specialization. If we imagine 10 people stranded on a desert island, none of them will have the luxury of specializing. Such a small group cannot support a science fiction writer, a biochemist, and a writer of computer software. In reality, the group would have to spend almost all of its effort in gathering, hunting, or growing food. Populous and wealthy societies, however, are highly diverse, as evidenced by the numerous different occupations we find in any advanced society.

Thus, we can see that the market and the increasing division of labor hold a symbiotic and mutually reinforcing relationship. The division of labor boosts the productivity that drives the growth of the market. At the same time, a larger market enables more specialization and a greater division of labor. Thus, healthy economic growth creates feedback effects that lead to further economic growth. Contemporary economists refer to the concept of increasing returns to describe this feedback process.

Smith, it should be noted, also recognized some of the disadvantages to the division of labor, as did Adam Ferguson in Scotland and Jean-Jacques Rousseau in France. In some cases, it can lead individuals to perform the same tasks in an extremely repetitive and boring fashion. Many of the classical economists, among them John Ramsey McCulloch and Jean-Baptiste Say, otherwise strong defenders of a market economy, recognized that the division of labor could dull the faculties of many workers. This criticism, however, has become less persuasive over time. The widespread introduction of labor-saving devices has eliminated many repetitive jobs and increased the number that involve creative content, working with others, and idiosyncratic decision making.

The theory of comparative advantage, an essential element of classical economics, is connected closely to the idea of the division of labor. It makes economic sense for each person to produce what he or she can make most efficiently and then trade for other products. The relevant notion of advantage here is comparative, not absolute. If a lawyer is a better typist than her secretary, the lawyer may still have the secretary do the typing so that the lawyer’s time can be employed in higher value activities. But comparative advantage suggests that some division of labor will always be present.

Marxist economists have led a frontal assault on the notion of division of labor because they find it destructive of individual initiative and independence of will. Marx, extending Smith’s notion that the division of labor could alienate workers, argued that workers could never be truly happy or fulfilled while consigned to repetitive tasks, something that capitalism demanded. Communism, in contrast, would abolish most of the negative aspects that accompanied the division of labor. In place of the drudgery of mindless repetition of some minute task imposed on the worker in an advanced capitalist system, Leon Trotsky foresaw a future in which “man will become immeasurably stronger, wiser and  subtler; his body will become harmonized, his movements more rhythmic, his voice more musical. The forms of life will become dynamically dramatic. The average human type will rise to the heights of an Aristotle, a Goethe, or a Marx.”

The concept of the division of labor continues to command the attention of economists, sociologists, and other social scientists. It is perhaps most important to developing and emerging economies, in which a high proportion of the population is engaged in agriculture or staff the government bureaucracy. These economies often seek to increase their division of labor in a productive and sustainable manner. But the division of labor is both a cause and a symptom of growth. There is no magical recipe for a more effective division of labor as distinct from the more general problem of how to stimulate economic growth and liberalize political institutions.


Further Readings

Buchanan, James M., and Yong J. Yoon. The Return to Increasing Returns. Ann Arbor: University of Michigan Press, 1994.

Durkheim, Émile. The Division of Labor in Society. New York: Free Press, 1964.

Marx, Karl. Economic and Philosophic Manuscripts of 1844. New York: International Publishers, 1964.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: The Modern Library, 1937.

Trotsky, Leon. Literature and Revolution. New York: Russell & Russell, 1957.

Originally published .