Tuesday, May 08, 2012

More on the Extensive Division of Labour

Paul Walker, on his always worthwhile Anti-Dismal Blog HERE http://antidismal.blogspot.co.uk/2012/05/division-of-labour.html quotes from my post (6 May): “On Adam Smith’s Understanding of the Significance of the Division of Labour to an Economy Remains Neglected”, on Adam Smith’s Labourer’s “woollen coat” example and he contributes the following most interesting extracts from McNulty (1984), George Stigler, and others:
When discussing Adam Smith’s approach to the division of labour McNulty (1984: 237-8) comments, [h]aving conceptualized division of labor in terms of the organization of work within the enterprise, however, Smith subsequently failed to develop or even pursue systematically that line of analysis. His ideas on the division of labor could, for example, have led him towards an analysis of task assignment, management, or organization”. Such an approach would have foreshadowed the much laterindeed, quite recenteffects in this direction by Herbert Simon, Oliver Williamson, Harvey Leibenstein, and others, a body of work which Leibenstein calls “micro-microeconomics”. [ . . . ] But, instead, Smith quickly turned his attention away from the internal organization of the enterprise, and outward toward the market and the realm of exchange, perhaps because he found therein both the source of division of labour, in the “propensity in human nature [ . . . ] to truck, barter and exchange” and its effective limits.
As to the limits of the division of labour George Stigler noted that "The Division of Labor is Limited by the Extent of the Market.". Thus we have a division of labour across the market as well as within the firm. For an interesting example of this market division of labour consider the case of rife manufacture in Birmingham, England in the 1860s, [o]f the 5800 people engaged in this manufacture within the borough’s boundaries in 1861 the majority worked within a small district round St Mary’s Church. . . . The reason for the high   degree of localization is not difficult to discover. The manufacture of guns, as of jewellery, was carried on by a large number of makers who specialized on particular processes, and this method of organization involved the frequent transport of parts from one workshop to another.
The master gun-maker-the entrepreneur-seldom possessed a factory or workshop. . . . Usually he owned merely a warehouse in the gun quarter, and his function was to acquire semi-finished parts and to give these out to specialized craftsmen, who undertook the assembly and finishing of the gun. He purchased materials from the barrel-makers, lock-makers, sight-stampers, trigger-makers, ramrod-forgers, gun-furniture makers, and, if he were engaged in the military branch, from bayonet-forgers. All of these were independent manufacturers executing the orders of several master gun-makers. . . . Once the parts had been purchased from the “material-makers,” as they were called, the next task was to hand them out to a long succession of “setters-up,” each of whom performed a specific operation in connection with the assembly and finishing of the gun. To name only a few, there were those who pre-pared the front sight and lump end of the barrels; the jiggers, who attended to the breech end; the stockers, who let in the barrel and lock and shaped the stock; the barrel-strippers, who prepared the gun for rifling and proof; the hardeners, polishers, borers and riflers, engravers, browners, and finally the lock-freers, who adjusted the working parts”. (Allen (1929: 56-7 and 116-7), quoted in Stigler (1951: 192-3).)
As an aside, it could be argued that such a decentralised methods of production would be a guide to the way production would take place under a functioning version the neoclassical model of the “firm”. (It could be counter-argued that this form of production isn’t neoclassical since it is not clear that the neoclassical separation theorem is satisfied.)"
Today rifle manufacturing would be within a firm, so the advantages of the division of labour would be captured by the firm. An interesting question would be, Why the change? How have transaction costs changed to justify a movement from market production to single firm production?”
[Brad Delong's Blog HERE also picks up the Lost Legacy discussion.]
These excellent references by Paul Walker re-enforce Smith’s account of the extensive division of labour for manufacturing woolen coats in Chapter 1 of Wealth Of Nations.  I consider these examples, and others like them, a most important characteristic of the efficacy of markets as they have developed within commercial societies.  They are largely neglected in modern commentaries on complex market supply chains today.
Professor Michael Munger  HERE  reported his studies of modern day pin-manufacturing featuring the dramatic decline in small pin workshops from around 18 employees in Smith’s time, first to just a few in the 1920s and later to one or two pin manufacturers supplying whole countries with pins from batteries of automated, computer-managed pin-making machines, in the UK and US,  and more recently in China by the end of the 20th century.  This is much like the history of UK zip manufacturing moving to Japan in the 1960s.  Allyn Young commented on the growth of the division of labour in printing in his 1928 article.
I would suggest that studying how markets have developed and changed, utilising examples of both intensive (pin making) and extensive (woolen coat) divisions of labour,  would provide a useful background to the understanding of students and the general public of the benefits of markets, complete with the history of government regulations, not just for markets but for business laws and applications, and this aspects would be of more lasting benefit than the rehearsal of political ideologies, with little practical content.   Markets have contributed to the growth of living standards more effectively that the failures of social democratic aspirations in the 1960s to seize the ‘commanding heights of the economy’ and ‘national planning’, and earlier actual seizures of markets by Marxists of various hues, (including ex-socialist, Mussolini’s 1930s ‘corporate state’ failures). 
Of course, these valid lessons of relatively recent history are counter-balanced by the downsides of corporate greed (epitomized by Gekko’s ‘Greed is Good’ sound-bite) and the outright reckless risk-taking of finance and bank employees and directors, and, let us not forget, the expense on the public purse by the never-never illusions of competing social-democratic and center-right governments that borrowed-to-spend for decades for electoral advantage.


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