Chapter 10: The Division of Labor Clarified

I have come to realize, since writing this essay, that I overweighted the contributions and importance of Adam Smith on the division of labor. And to my surprise, I did not sufficiently appreciate the contributions of Ludwig von Mises.

Despite the enormous emphasis on specialization and the division of labor in the Wealth of Nations, much of Smith’s discussion was misplaced and misleading. In the first place, he placed undue importance on the division of labor within a factory (the famous pin-factory example), and scarcely considered the far more important division of labor among various industries and occupations. Second, there is the mischievous contradiction between the discussions in Book 1 and Book 5 in the Wealth of Nations. In Book 1, the division of labor is hailed as responsible for civilization as well as economic growth, and is also praised as expanding the alertness and intelligence of the population. But in Book 5 the division of labor is condemned as leading to the intellectual and moral degeneration of the same population, and to the loss of their “intellectual, social, and martial virtues.” These complaints about the division of labor as well as similar themes in Smith’s close friend Adam Ferguson, strongly influenced the griping about “alienation” in Marx and later socialist writers.1

But of greater fundamental importance was Smith’s abandonment of the tradition, since Jean Buridan and the Scholastics, that emphasized that two parties always undertook an exchange because each expected to gain from the transaction. In contrast to this emphasis on specialization and exchange as a result of conscious human decision, Smith shifted the focus from mutual benefit to an alleged irrational and innate “propensity to truck, barter, and exchange,” as if human beings were lemmings determined by forces external to their own chosen purposes. As Edwin Cannan pointed out long ago, Smith took this tack because he rejected the idea of innate differences in human talents and abilities, differences which would naturally lead people to seek out different specialized occupations.2 Smith instead took an egalitarian-environmentalist position, still dominant today in neo-classical economics, holding that all men are uniform and equal, and therefore that differences in labor or occupations can only be the result rather than a cause of the system of division of labor. Moreover, Smith inaugurated the corollary tradition that differences in wage rates among this uniform population can only reflect differences in the cost of training.3 ,4

In contrast, the recent work of Professor Joseph Salerno has illuminated the profound contributions of Ludwig von Mises’s emphasis on the division of labor as the “essence of society” and the “fundamental social phenomenon.” For Mises, as I wrote in the essay, the division of labor stems from the diversity and inequality of human beings and of nature. Salerno, in addition, brings out with unparalleled clarity that for Mises the division of labor is a conscious choice of mutual gain and economic development. The process of social evolution therefore becomes “the development of the division of labor,” and this allows Mises to refer to the worldwide division of labor as a vital “social organism” or “oecumene.” Mises also points out that division of labor is at the heart of biological organisms, and “the fundamental principle of all forms of life.” The difference of the “social organism” is that, in contrast to biological organisms, “reason and will are the originating and sustaining form of the organic coalescence.” Therefore, for Mises “human society is thus spiritual and teleological,” the “product of thought and will.” It therefore becomes of the utmost importance for people to understand the significance of maintaining and expanding the oecumene that consists of the free market and voluntary human exchanges, and to realize that breaching and crippling that market and oecumene can only have disastrous consequences for the human race.5

In the standard account, writers and social theorists are supposed to mellow and moderate their views as they get older. (Two glorious exceptions to this rule are such very different libertarian figures as Lysander Spooner and Lord Acton.) Looking back over the two decades since writing this essay, it is clear that my views, on the contrary, have radicalized and polarized even further. As unlikely as it would have seemed twenty years ago, I am even more hostile to socialism, egalitarianism, and Romanticism, far more critical of the British classical and modern neoclassical tradition, and even more appreciative of Mises’s great insights than ever before. Indeed, for someone who thought that he had absorbed all of Mises’s work many years ago, it is a constant source of surprise how rereading Mises continues to provide a source of fresh insights and of new ways of looking at seemingly trite situations. This phenomenon, in which many of us have experience, bears testimony to the remarkable quality and richness of Mises’s thought. Although he died almost two decades ago, Ludwig von Mises remains more truly alive than most of our conventionally wise contemporaries.

[Excerpt from “Freedom, Inequality, Primitivism, and the Division of Labor,” in Egalitarianism as a Revolt Against Nature, and Other Essays (Auburn, Ala.: Mises Institute, 2000), pp. 299–302.]

• 1On Ferguson’s influence, see M.H. Abrams, Natural Supernaturalism: Tradition and Revolution in Romantic Literature (New York: Norton, 1971), pp. 220–21, 508.
• 2Edwin Cannan, A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848 (3rd ed., London: Staples Press, 1917), p. 35.
• 3Contrast Smith’s egalitarianism with the great early-fifteenth-century Italian Scholastic, San Bernardino of Siena (1380–1444). In his On Contracts and Usury, written in 1431–33, Bernardino pointed out that wage inequality on the market is a function of differences of ability and skill as well as training. An architect is paid more than a ditch digger, Bernardino explained, because the former’s job requires more intelligence and ability as well as training, so that fewer men will qualify for the task. See Raymond de Roover, San Bernardino of Siena and Sant’ Antonio of Florence, The Two Great Economic Thinkers of the Middle Ages (Boston: Baker Library, 1967), and Alejandro Chafuen, Christians for Freedom: Late Scholastic Economics (San Francisco: Ignatius Press, 1986), pp. 123–31.
• 4Modern neoclassical labor economics fits in this tradition by defining “discrimination” as any wage inequalities greater than differences in the cost of training. Thus, see the standard work by Gary Becker, The Economics of Discrimination (Chicago: University of Chicago Press, 1957).
• 5Joseph T. Salerno, “Ludwig von Mises as Social Rationalist,” Review of Austrian Economics 4 (1990): 26–54. See also Salerno’s critique of Eamonn Butler’s uncomprehending reaction to Mises’s insights, charging Mises with the “organic fallacy,” and “difficulty with English.” Ibid., p. 29n. The implicit contrast of Mises’s view with Hayek’s emphasis on unconscious action and blind adherence to traditional rules is made explicit by Salerno in the latter part of this article dealing with the socialist calculation debate, and in Salerno, “Postscript,” in Ludwig von Mises, Economic Calculation in the Socialist Commonwealth (Auburn, Ala.: Ludwig von Mises Institute, 1990), pp. 51–71.