FINISH Division of Labour

04 Division of Labour

Division of Labour

"Self-sufficiency is the road to poverty." ~ Russell Roberts (The Choice)

This section builds from The Story of Us, particularly how it is essentially impossible for humans to exist beyond the barest of subsistence if each individual is required to obtain (via manufacture or trade) all the goods required to meet their needed and desired ends.

Term: Division of Labour Definition: The division of labour is the separation of tasks in any system so that participants may specialize. Individuals, organizations, and nations are endowed with or acquire specialized capabilities and either form combinations or trade to take advantage of the capabilities of others in addition to their own. Specialized capabilities may include equipment or natural resources in addition to skills and training and complex combinations of such assets are often important, as when multiple items of specialized equipment and skilled operators are used to produce a single product. The division of labour is the motive for trade and the source of economic interdependence. Source Reference: Division of labour - Wikipedia

Mental picture time: imagine a world where all people are perfect clones of each other, identical in all respects. Identical also in available nature given resources, AKA land, identical landscape surrounds each individual and so on. The result of this will be each person producing the same products and consuming them at the same rate and pattern of each other. This is the scenario where the division of labour would have no place since there is no requirement for trade. It is also not a scenario that defines our existence, humanity is not as described above. Aside from some similarities here and there, humans are unique individual entities with unique value scales, land and labour. Now, a human could still exist in a self sufficient manner but most do not. Why? The recognition of the advantages of division of labour: more efficiency and higher productivity both of which allow humans to achieve ends and get to a leisure state faster.

Story of Us redux:

Imagine you have landed on a deserted island, you are standing on the beach. You must find water since current stores would be limited to what you have at hand which may be nothing. You must also find food, again which may not be at hand.
  • Which do you find first?
  • When you find it, now what?
  • How do you carry it, store it?
  • If you choose to stay close by to the water source for example, what food will you eat if there is nothing immediately at hand?
  • You also must find time to build your shelter, but with what?
  • Assuming they are close by, but definitely may not be, how do you process the trees?
  • How do you make an axe, where will you find the materials for the steel?
  • How will you create the steel, build a blast furnace, smelt the, oh wait, where and how are you going to get the raw materials to make the steel in the first place?
  • Perhaps we drop this idea and use sharp edged stones instead for example. How long will it take to cut and shape a tree with a piece of rock as you tool?
All of that is just for starters. Furthermore, for each task you choose, you are, for the duration of that task, giving up the other tasks → reality of humanity: effective multitasking is a myth. This is also important since humans have a very finite life span without food and water; certain tasks cannot be put off indefinitely, survival is one of them. Survival tasks tend also to be repetitive in nature, at least in the beginning.

The solution to this problem is the concept of division of labour. Division of labour in its simplest form is the splitting up of tasks into smaller separate ones that appeal to each individual's specific skills, adeptness and pleasure derived from execution of the task. Labour or the results of labour are then traded in an unhampered free market.

Let's examine this desert island business a little closer. In the case of a single individual on the island, obviously there is no choice: do it all or perish, so we'll now add a few more folks landing together: Jones, Smith, Green, Brown, Sims and Berry.
The group had a brief meeting to figure out who is good at what and we find out that:
  • Jones is good climbing trees
  • Smith is a muscular individual
  • Green a methodical and logical thinker
  • Brown is a general handy person type
  • Sims is a farmer
  • Berry good at weaving.
They determine that the first two tasks are water and fire, followed by food and shelter.

Green has been put in charge of planning and decides that Jones will head out to locate and harvest coconuts.

Smith is going to be the 'floater' due to muscularity and will move between tasks depending on requirements. For example it might make sense to have Smith start out with Jones to help carry the coconuts to the decided upon processing and shelter point but then move on to assist Brown who has been allocated the shelter building task and will required heavy materials to be moved and processed, etc.

Sims has been assigned food location, determination of edibility and harvest/hunt.

Finally, Berry will be weaving thatch for the shelter roof and twisting vines into rope.

Once Jones and Smith have harvested some coconuts, the coconut water can be used for drinking, the meat for eating and the shell for holding items, including liquid and food stuffs. The processing of the coconuts is seen not to be a terribly difficult task to learn and be reasonable efficient at for the time being so Jones takes on this task while Smith heads off to assist Brown with the shelter.

Green in the meantime has also planned out a grid like route for the search of a water source and is busy hunting H2O.

Once the shelter is well underway, Smith is headed over to assist Sims in the transportation of located foodstuffs back to the processing and shelter location.

Jones has processed enough coconuts for the immediate time and so sets about getting a fire going. He being the tree person has located the raw materials for burning, Berry has provided the twisted vine rope to make a bow for stick twisting and Smith's muscularity is used to pull the bow too and fro to create the friction required for fire ignition.

And so on.

We can easily see from this simple example how division of labour is the foundation of social co-operation and the extreme benefits of this approach.

Let's also contrast this against two other possible approaches:
  • Upon landing on the beach, each of the individuals immediately sets about squabbling and fighting over the available goods they landed with. This wastes the scare time resource, personal energy resource, risks destroying through breakage some of the resources they landed with and risks injury and/or death to the individuals thereby reducing the scarce human resources available. Not a great plan at all.
  • Smith, the strongest of the bunch, fashions or obtains from the landed resources a weapon of sorts with which Smith uses to subjugate the others. All resources, present and future, will be given to Smith who in turn will dole out meagre scraps back to the others. This will most likely result in reduced productivity from the others due to lack of food energy as well as potential health problems. As time passes, Smith will be faced with a cycle of declining resources for both himself and the group until Smith alone is left and will probably perish. Further, none of the group will be putting forth any sort of real effort since the results of same are taken by Smith anyway so why bother. Lastly, energy of the others will be consumed by plotting the overthrow of Smith; remember human action, the exchange of status quo for a better one.
Clearly, neither of these approaches are good ones whereas cooperation (even if the participants do not like each other) via division of labour is the far superior approach to ensure long term success.

Factories are often used as a example of division of labour, vehicular plants are a pretty good ones due to the differing skillsets required to assemble a functioning vehicle, but it extends way beyond that. The factory employees generally don't make the equipment they use to create their product, canvas belts for conveyors, electric motors for overhead cranes, the cranes themselves, the pens and paper the office uses, the desks and chairs, the safety equipment and uniforms, the pipes for plumbing, the toilets and lockers for staff, even some of the parts used to directly create the product, the list goes on and on. This is all about the division of labour where individuals and groups of individuals play to their strengths, compete on an open market for sale and exchange of their products thus always striving for the best possible product, created in the most efficient manner and resulting in a balance between the lowest possible market price and realizing the highest possible profit.

Ludwig von Mises said

…racial hatred is not a natural phenomenon innate in man. It is the product of ideologies. But even if such a thing as a natural and inborn hatred between various races existed, it would not render social cooperation futile and would not invalidate Ricardo's theory of association. Social cooperation has nothing to do with personal love or with a general commandment to love one another. People do not cooperate under the division of labor because they love or should love one another. They cooperate because this best serves their own interests. Neither love nor charity nor any other sympathetic sentiments but rightly understood selfishness is what originally impelled man to adjust himself to the requirements of society, to respect the rights and freedoms of his fellow men and to substitute peaceful collaboration for enmity and conflict.

Human Action, Part 2, Ludwig von Mises (1949)

Ludwig von Mises said

Even where creatures such as ants and bees come together in “animal communities,” all movements and changes take place instinctively and unconsciously. Instinct may very well have operated at the beginning and in the earliest stages of social formation also. Man is already a member of a social body when he appears as a thinking, willing creature, for the thinking man is inconceivable as a solitary individual. “Only amongst men does man become a man” (Fichte). The development of human reason and the development of human society are one and the same process. All further growth of social relations is entirely a matter of will. Society is the product of thought and will. It does not exist outside thought and will. Its being lies within man, not in the outer world. It is projected from within outwards.

Society is co-operation; it is community in action.

To say that Society is an organism, means that society is division of labour. To do justice to this idea we must take into account all the aims which men set themselves and the means by which these are to be attained. It includes every inter-relation of thinking and willing man. Modern man is a social being, not only as one whose material needs could not be supplied in isolation, but also as one who has achieved a development of reason and of the perceptive faculty that would have been impossible except within society. Man is inconceivable as an isolated being
, for humanity exists only as a social phenomenon and mankind transcended the stage of animality only in so far as co-operation evolved the social relationships between the individuals. Evolution from the human animal to the human being was made possible by and achieved by means of social cooperation and by that alone. And therein lies the interpretation of Aristotle’s dictum that man is the πσλιτιχὸν (the living body politic).

Socialism, Ludwig von Mises (1922)
But wait, there's more, it gets even better! :)

Comparitive Advantage


Term: Opportunity Cost Definition: Imagining back to our deserted island, the sole inhabitant, Jones, is faced with a choice of either picking berries or catching fish. We can say then that Jones has the opportunity to pick berries or the opportunity to catch fish. Since multitasking for Jones is not an option, when he chooses either berry picking or fishing, he is giving up, forgoing, the other one. This giving up, forgoence, is the cost. Putting the two together: the opportunity cost.

Term: Absolute Advantage Definition: Looking at two skill sets from two individuals, Smith and Brown. In any given amount of time, say 8 hours, Smith can either acquire 20 berries or 10 coconuts whereas Brown can acquire 25 berries or 15 coconuts. In the context of economics, Brown has the absolute advantage over Smith.

Term: Production Possibilities Frontier Definition: A production–possibility frontier (PPF) or production possibility curve (PPC) is a curve which shows various combinations of the amounts of two goods which can be produced with the given resources and technology, where the given resources are fully and efficiently utilized per unit time. A PPF illustrates several economic concepts, such as allocative efficiency, economies of scale, opportunity cost (or marginal rate of transformation), productive efficiency, and scarcity of resources (the fundamental economic problem that all societies face).

This tradeoff is usually considered for an economy, but also applies to each individual, household, and economic organization. One good can only be produced by diverting resources from other goods, and so by producing less of them.
Source Reference: Production–possibility frontier - Wikipedia

Visiting our deserted island once again, we're going to change up the dynamics this time with two folks on the island, Green and Brown. Here are our production possibilities (OK, gotta have a couple of charts in an economics discussion ;) but these are all easy to grasp). The chart represents an the number of items produced per person, per day and for example purposes assumes that production volumes and costs are achievable day in and day out. This is not the case in the real world obviously and the models here are oversimplified to be sure, but the overall concept remains valid nonetheless.

So what our chart here is saying is that in one day, Green can produce either 30 coconut or 10 fish or a ratio of amounts in between. Conversely, in the same time frame, Brown can produce 10 coconut or 30 fish or a ratio of amounts in between.

The numbers themselves give a good clue as to what the next step would be: Green specializes in berry production, Brown in fish. We can look a little deeper here to get some further guidance and this is where Opportunity Cost (OC) comes in.

When Green goes full on fish in the time frame and obtains 10, 30 coconuts were left hanging around. Those 30 coconuts were his OC for obtaining the 10 fish. When Brown goes full on fish, 30 hit the net and 10 coconuts are left behind.

Reducing it down to single fish

Fish Production
Green's 10 fish = 30 coconuts
      1 fish = 3 coconuts OC

Brown's 30 fish = 10 coconuts
   1 fish = 1/3 coconut OC

Relative to Green, Brown has the lower OC on coconut production and therefore the comparative advantage. Let's check out coconuts this time:

Coconut Production
Green's 30 coconuts = 10 fish
    1 coconuts = 1/3 fish OC

Brown's 10 coconuts = 30 fish
   1 coconut = 3 fish OC

This time around, relative to Brown, Green has the lower OC on fish production and therefore the comparative advantage.

So what does this mean then?

Brown and Green have decided that fish and coconut taste good together so a trade is in order: both of them would like some of what the other has.

From our comparison above, Green has the lowest OC in coconut and is going to specialize in them while Brown has the lowest OC for fish and will take on that gig. Let's assume a price based also on comparative advantage. Each individual will enter the market looking to purchase the other good at a price lower than their OC for the same item. In this example, both OCs are the same so for simplicity sake, we'll assume that a 1 to 1 price ratio was agreed upon, 1 fish = 1 coconut. Both parties like this as:
  • Green's OC for 1 fish is 3 coconuts which Green can now obtain on the market for 1 coconut
  • Brown's OC for 1 coconut is 3 fish which Brown can now obtain on the market for 1 fish.
Turns out that a 1 to 1 ratio with fish and coconut also yields the best taste so Green and Brown are both looking to get 15 fish and 15 coconuts each. The graph below shows where they will land with division of labour in play and each specializing in their respective comparative advantage.