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The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 1, Book 1, Chapter 2 : Of the Principle which Gives Occasion to the Division of Labor | Summary



In this short chapter, Smith identifies the human "propensity to truck, barter, and exchange one thing for another" as the source of the division of labor. This tendency, he says, runs deep in human nature and is one of the things separating humans from other animals. Moreover, the inclination to barter is "common to all men"—even a beggar will trade the old clothes he receives for food, lodging, or other necessities.

From this tendency, Smith argues, the division of labor occurs naturally. As people trade with one another to meet their needs, some of them gradually specialize in taking care of specific needs, such as food, shelter, and clothing. With this in mind, he says, it is a mistake to attribute the division of labor to "the difference of natural talents." People acquire different skills in adulthood because they are brought up differently, not because they are innately different from one another. Even two very seemingly different characters, such as a philosopher and a porter (think "baggage clerk"), owe their differences to "habit, custom, and education," rather than to any innate disparity in intelligence. Thus, Smith concludes, differences in talent are usually an effect—not a cause—of the division of labor.


In setting forth his explanation for different talents, Smith appeals to human nature, a favorite topic of discussion for Enlightenment-era philosophers of all kinds. Jean-Jacques Rousseau (1712–78), a Swiss contemporary of Smith's, based many of his theories of education and social development on the idea of an original human nature corrupted by societal pressures. Smith generalizes even further, claiming that human nature—inasmuch as it relates to commerce—is the same worldwide, whether among hunter-gatherers or Edinburgh bank officers. On this point, Smith much more closely resembles French philosopher Voltaire (1694–1778), whom he met during his European travels, and who believed in a uniform human nature across all cultures and times. The idea is certainly a convenient one for Smith's project, since it allows him to describe skills as a kind of acquired asset, "bought" with education and "sold" in terms of a higher wage for work performed. Natural talents and personality traits, although they certainly count as economic assets in some sense, are harder to treat as commodities in this way.

As the economic ideas in The Wealth of Nations grow more complex, Smith spends less time on what modern readers might call the "psychological" dimension of work and consumer behavior. In part, this may be because Smith already dealt with human nature at length in The Theory of Moral Sentiments (1759). Whether or not this earlier work is consulted, it is helpful to keep in mind that Smith's economic ideas are grounded in a specific, 18th-century view of human motivation. This is one point on which later economists, recognizing the irrationality of human behavior, have often parted ways with Smith.

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