Wealth of Nations, Chapter 2

  1. In chapter 1, Smith argues that division of labor yields productivity gains
  2. How does division of labor come about?
  3. Smith says that if does not come about through human planning, foresight, or wisdom
  4. Division of labor comes about as a consequence of man's disposition to trade
  5. Since he can trade for goods, a man doesn't need to make everything he needs. Thus, there is an emergence of a division of labor.
  6. He develops a talent for those goods he makes
  7. He is able to make an excess (i.e. more than he consumes) of the goods that he has developed a talent for making
  8. He has excess which can be traded for other goods that he needs or desires
  9. He is not as efficient at producing other goods (for which he has not developed a talent)
  10. So he focusses on that labor for which he has a talent and can produce a large excess, for which he can trade, i.e. he focusses on the labor which will maximize his wealth
  11. His talent reinforces the division of labor
  12. The "marketplace" is the set of goods and the trading of those goods
  13. Bottom line: it's the ability and desire to trade which produces the division of labor