No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Two: Fundamentals of Economic Behavior 51 There are several benefits of this division of labor. First, as mentioned, you may be able to eliminate some steps. Second, and most important, time is wasted transitioning between steps. If you just stay in one spot and do the same thing over and over again, you can have more of your time effectively devoted to the production process. The final benefit of the division of labor is also hugely important: gains from specialization . If you devote yourself to one particular task, you can become very good at it—much better than anyone who is trying to do many tasks. Think about your high school girls’ basketball team. Leave aside physical talents, which obviously guide certain positions. The center is going to spend the bulk of her time close to the rim, and will practice boxing out to ensure she gets most of the rebounds. Does this mean she doesn’t dribble? Of course not. But she’ll spend a lot more time practicing on posting up than dribbling. The point guard, however, will practice little at rebounding but better be a very good passer and dribbler. The coach starts by assigning positions based on physical skills but very quickly gives different practice assignments to benefit from the gains from specialization . Not everyone on the team needs to be a superstar dribbler; not everyone needs to be the best shooter from the three-point line. The end result is a much more effective team. Henry Ford was credited with perhaps the most effective exploitation of the division of labor when he began using the production line for his Model T cars in the early 1900s. Ford’s efficiency was driven by many variables, such as interchangeable parts and other production techniques. But the division of labor was instrumental; by having an individual assemble just one part on a car over and over, production increased greatly and costs came down, putting an automobile within reach of the common man. ADAM SMITH AND THE DIVISION OF LABOR Adam Smith, in the very first pages of An Inquiry into the Nature and Causes of the Wealth of Nations , introduced the division of labor. He used the example of producing pins (the kind that hold hats in place). If a man was trying to make these by himself, Smith thought he wouldn’t be able to produce more than 20 pins in a day—maybe only one pin. But by dividing the eighteen distinct steps among different workers, Smith had seen pin production increase to about 4,800 pins per person per day—a productivity gain of at least 240 times, and perhaps as much as 4,800 times. Wow! The division of labor and associated gains from specialization lead to greater production, far in excess of what the individual producers would ever need to consume (even if there were ten producers, like in Smith’s pin example). This opens the door to beneficial trade: one group can produce one item very efficiently and trade with others for items the second group produces very efficiently. The advent of money greatly facilitates this trade, and we’ll explore the role and function of money in chapter 10. gains from specialization: as workers specialize in a few tasks, they can become very efficient; this typically results in increased output per worker in addition to higher quality