The Wealth of Nations

Ask any American what the most important document published in 1776 was. Any of them who can name a document published in 1776 will say “The Declaration of Independence!” Now ask them to name anything else written in 1776… I would argue that An Inquiry into the Nature and Causes of the Wealth of Nations was far and away the most important document published in 1776. While this book is important, please don’t buy it and don’t read it. You will not get far. The first 50 pages I read were difficult. I constantly read and reread the same sentences over and over trying to understand the antiquated language. Try out this one.

“If we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-opeation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which his is commonly accommodated. Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties of ten thousand naked savages.”

– Adam Smith

Instead of buying this book and letting it waste away on your bookshelf, allow me to distill out some of the most important ideas.

• Division of Labour
  • Smith uses the example of a pin manufacturer to illustrate his point that when labour is divided into individual tasks, each person can specialize and become more efficient. He speaks of a factory where if one man attempted to make a pin they would be lucky to make one a day, but through the division of labour into 18 separate parts, with each man performing two to three parts, that same factory can make 48,000 pins in a day. With ten employees, each one is 1/10th responsible for the total amount of pins created, or 4800 pins a day.
  • We see this division of labour in the more modern era with Henry Ford’s assembly line, or at a McDonald’s restaurant, where each employee performs separate and limited tasks that make a speedy drive through possible.
  • Another advantage of the division of labour from a business perspective is that employees are replaceable. Teaching someone how to do each of the 18 distinct parts of pin manufacturing will take time, and time is money after all. It will take the pin maker time to become more efficient and fluent in his pin making. If one day, that pin maker is trampled by a horse and carriage on his way to work, the employer is now faced with the difficult challenge of hiring and training another person to do all 18 tasks. If however, the pin maker only performs one role in the manufacturing process, then when that pin maker looses his hand in the pin stamping machine he will be much easier to replace.

More to come…