The Wealth of Nations Theory by Adam Smith

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Table of Contents

Division of Labor and Wealth
Division of Labor and Exchange
Extra Credit
Work Cited

Division of Labor and Wealth

Division of labor is specifically the need to have a specialized labor force in a country an organization or institution. This makes it possible for a person to be an expert in a certain field according to Smith. In a country where this is the case, there is greater wealth than in countries where it is not. According to smith division of labor and specialization has an effect on efficiency. This makes it possible for an organization or a country to produce goods that are high quality and highly competitive in the market for goods and services otherwise known as the goods market.

Increased efficiency saves time and labor. This is because continuous input of labor in a particular field increases ones expertise and makes him or her have greater effectiveness while doing it. This reduces the unit time allocated to the production of a unit service or good which leads to more products within a short period of time. Massive production means that costs are reduced and hence gods and services are sold more cheaply compared to other goods in the market. Increased consumption in effect means that workers are paid well and this increases their purchasing power.

This pulley belt effect leads to more demand for goods and services and creates employment. The final sum is that the country benefits in terms of competitiveness in the market, production quality and unmatched production quantities that make it increase its wealth considerably. Although it is sometimes criticized for it will bring boredom and hence redundancy, Smith points out that governments have a role to play in training workers to have a clear view towards employment and to have up-to-date information regarding their field of expertise. This will greatly reduce boredom and create the very important motivation needed to make workers remain engaged (Smith, 46).

Division of Labor and Exchange

Smiths assumption was that consumers always choose the minimalist prices while buying commodities. This is not always the case as different customers may be looking for different things in a product including status, satisfaction and their tastes and preferences. The exchange value of a commodity, according to Smith is measured by the input in terms of labor that has been put into it. When labor is divided, therefore, the cost of a unit commodity is highly reduced.

This reduction in the price of commodities affects an individual in many ways over time. First, it creates more deposable income as income increases and the cost of buying reduces. This increased purchasing power means that a person will want to spend more and may want to save more. This savings according to economists constitutes investments in the short and long run. In essence, it means that an individual will invest a bit more due to the division of labor and the benefits that it comes up with.

Labor creates a surplus that might be invested again into the future is the bottom line that smith reached. He was interested in determining why diamond which had little demand than water was that valuable. He concluded that the amount of labor that is required to obtain a single unit of diamond was enormous as compared to the labor needed to obtain a unit of water. Therefore over time, it is important for an individual to weigh the value of commodities that he intends to buy and to have a clear look at disposable income (Smith, 40).

Extra Credit

The exchange value in the current economic world is not static. It keeps on fluctuating and creates a situation of uncertainty in the goods and monetary market. Therefore in the neoclassical economic reality, the thoughts furthered by Adam Smith are rendered inapplicable. It is especially impossible to have just a specific skill and to remain competitive in the job market. The job market requires more than just a special skill in a certain field. To be and remain relevant, one has to have a number of skills that fit together to form what is required by employers the world over. Mangers are required to have accounting, human resource skills, management skills and a host of other proficiencies to be able to control the docket awarded to them.

Technology has also played a major role in redefining the concept of economics. Some labor inputs are quite technical and are highly paid than others though common goals are been sought in the marketplace. The medium of exchange also varies from country to country. This variation means labor is not and cannot be priced similarly in as much as production is similar. Hence in the neo-classical economic theory, Adam Smiths view faces many challenges. The money market which forms the basis for the exchange value of currencies is highly volatile and has very high unpredictability levels. Therefore division of labor may work in the current economic situation but much is a hindrance that it becomes almost impossible to control its applicability.

Work Cited

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. London, United Kingdom: W. Strahan and T. Cadel, 1776. Print.

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The Wealth of Nations Theory by Adam Smith

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