Definitions and Basics

Division of Labor, from the Concise Encyclopedia of Economics

Though the scientific understanding of the importance of division of labor is comparatively recent, the effects can be seen in most of human history. It would seem that exchange can arise only from differences in taste or circumstance. But division of labor implies that this is not true. In fact, even a society of perfect clones would develop exchange, because specialization alone is enough to reward advances such as currency, accounting, and other features of market economies.

Division of Labor, from An Animal That Trades at AdamSmithWorks:

Michael Munger takes a deeper dive into the history and significance of the division of labor in this three-part series at AdamSmithWorks:

Division of labor is one of the most important concepts in social science, not just for economics but for the study of societies in general. Many scholars, such as Ibn Kalduhn in the 14th century, or Emile Durkheim in the 20th, have considered the importance of division of labor for how societies function. But Adam Smith’s discussion in The Wealth of Nations united two key concepts: division of labor as a motor for generating prosperity, and market systems based on self-interest as a fuel for that motor.


Adam Smith, biography from the Concise Encyclopedia of Economics

The main cause of prosperity, argued Smith, was increasing division of labor. Smith gave the famous example of pins. He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day….

Explore the pin factory described by Adam Smith in the Wealth of Nations at

Workin' at the Pin Factory

Publicado por Adam Smith Works en Miércoles, 17 de enero de 2018


In the News and Examples

Division of labor and interdependence: I, Pencil, by Leonard Read.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year….

I, Smartphone is a video based on the essay “I, Pencil,” created by the Institute for Faith, Work & Economics.

Division of labor and specialization in corporations: Corporations, from the Concise Encyclopedia of Economics

To look askance at executives who supply little or none of the corporation’s capital, as many of the corporation’s critics do, is really to condemn the division of labor and specialization of function. Corporate officers operate businesses whose capital requirements far exceed their personal saving or the amounts they would be willing or able to borrow….

Specialization and Wealth, by Dwight Lee. At

A remarkable degree of social cooperation emerges through market communication. Now, let’s consider some of the advantages we realize from that cooperation. At a general level these advantages are obvious. It simply makes sense that we can produce more if our actions are in harmony than if we are working at cross-purposes. But to really understand economics, we must consider the link between cooperation and productivity in detail.

Wealth seldom comes as manna from heaven. It has to be produced by applying human effort, intelligence, and patience to natural endowments that yield their bounty reluctantly. This should be obvious. But one measure of the success of the marketplace at improving our productive powers is that it has become all too easy for people to assume that wealth is part of the natural order of things. Academics and policy wonks consider the distribution of wealth to be the primary issue, while dismissing any concern that their policy prescriptions could hamper its production. They drone on and on about the causes of poverty (or the “improper” distribution of wealth), apparently unaware that determining the causes of wealth is the serious challenge….

A Little History: Primary Sources and References

The Division of Labor is Limited by the Extent of the Market. Book I, Chapter 3 in The Wealth of Nations by Adam Smith.

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. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for….

See this overview of the first full chapter of Adam Smtih’s Wealth of Nations from Marginal Revolution University:

Mike Munger on the Division of Labor. EconTalk podcast episode exploring what Smith actually meant by “the division of labor is limited by the extent of the market.” Includes printable Listening Guide.

Mike Munger of Duke University and EconTalk host Russ Roberts talk about specialization, the role of technology in aiding specialization and how the division of labor creates wealth….

See also “I’ll Stick With These: Some Sharp Observations on the Division of Labor”, by Mike Munger on Econlib for a related article.

Smith’s pin factory example: Of the Division of Labor. Book I, Chapter 1, in The Wealth of Nations by Adam Smith

Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations….

English Theories of Foreign Trade, Before Adam Smith: II: International Division of Labor in Chapter 2 of Studies in the Theory of International Trade by Jacob Viner

A few writers prior to Adam Smith stated or approached closely some of the specific economic arguments for unrestricted trade which were later to serve as the core of the free-trade doctrine of Adam Smith and the English classical school….

Advanced Resources

Part 2, Chapter 8, Human Society in Human Action by Ludwig von Mises

The principle of the division of labor is one of the great basic principles of cosmic becoming and evolutionary change. The biologists were right in borrowing the concept of the division of labor from social philosophy and in adapting it to their field of investigation. There is division of labor between the various parts of any living organism.

Related Topics

Economic Growth

Markets and Prices

Benefits of Trade and Comparative Advantage

Trade, Exchange and Interdependence