The Wealth of Nations. The Theory of Moral Sentiments

“The greatest improvements 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.” 

The division of labor is the revolutionary manufacturing theory coined by Adam Smith in The Wealth of Nations. The division of labor involves separating one process into distinct tasks, so workers may specialize in one aspect of the process. The division of labor leads to an increase in productivity and, according to Smith, to a large degree creates wealthy nations.

“It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature, which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.” 

Smith argues that the division of labor flows naturally from the propensity of humans to trade with each other to meet their needs, and consequently over time cultivate different skills, talents, and abilities. Because it is natural to humanity, in Smith’s reasoning, it must be a preferred course of action.

“As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market.” 

The size of the market determines the degree to which specialization can exist in the division of labor. In large towns, large populations and consequentially large markets allow for extremely nuanced specialization in the division of labor. In small towns, the division is less specialized and, in some situations, nonexistent, necessitating economic actors to perform all aspects of a given