Posted tagged ‘Specialization’

Specialization And The Division of Labor

October 6, 2015

The video below shows what an individual would have to go through to make a chicken sandwich if there was no division of labor and exchange. This represents a primitive life style that many of us alive today don’t understand because we were born at a time in history that has seeming abundance. But our current standard of living has existed for only a short period of time when you consider the recorded history of the world. The division of labor, specialization, trade, capital formation and accumulation, a medium of exchange {money}, are examples of market phenomena that spontaneously evolved over time. None of these were results of a centrally planned economy. We take these things for granted. In fact we fight against these things at every turn when we vote for more government intervention into the free market, not realizing that government interventions are hampering these very institutions that created our prosperity in the first place.

I liked this video because this is really I Pencil shown from a different perspective. Entrepreneurs specialize in producing the specific goods that go into making a chicken sandwich. Because of specialization and economics of scale, what is needed to produce a chicken sandwich can be purchased from a grocery store at a low price, stored in your kitchen, and used at your convenience. So instead of spending $1500 and six months producing a chicken sandwich, you can make it when you want to at a low price.

Here is I Pencil as explained by Milton Friedman in his Free To Choose series from the early 80’s.

Here is an article titled ‘The Firm And The Division Of Labor‘ by Per Bylund that goes into more detail about the division of labor. Here are some excerpts.

“Ludwig von Mises emphasized the division of labor as social cooperation and argued that every civilized society is based on the prosperity as well as the mutual dependence caused by the division of labor.

“Eugen von Böhm-Bawerk showed how society, at least the parts that choose division of labor instead of barbarism, consistently develop more roundabout and productive production processes that consist of ever more stages and involve (are dependent on) more people. The roundaboutness or “length” of a production process denotes the number of tasks it includes, where each task is continuously more narrowly defined. The alternative to the division of labor is that the baker has a small field out back where he grows and harvests his wheat, has a mill where he grinds it into flour, and a self-built oven to bake the bread. A longer or more indirect production method, which Böhm-Bawerk talks about, amounts to a farmer specializing in the production of wheat, a miller to grind the wheat, and a baker to produce the dough and bake bread in an oven made by someone specializing in oven making.

“Everybody involved in the production of bread (or any other product or service) — directly or indirectly — is dependent on consumers’ valuation of it. If it cannot be produced cheaply enough, nobody in the chain of productive tasks can sell their intermediate products. The whole economy aims to do this single thing: to produce goods that satisfy the needs and wants of consumers.”

Related ArticleWe’re All Born In The Middle Of The Story, at austrianaddict.com.

Specialization And Trade Create Wealth

July 24, 2013

In our previous post I briefly touched on specialization and trade. Civilization advances  through specialization and trade not just from the stand point of creating more wealth, but also from the stand point of creating a more peaceful world because of the cooperate involved in trade. This short video from LearnLiberty.org, featuring Art Carden, is a very good explanation of these concepts.

Specialization and trade utilize scarce resources, time, labor, and capital as efficiently as possible. Labor, time, capital, and resources are freed up, because of specialization and trade, and can now be used for other activities that couldn’t have been attempted before these scarce resources were freed up. These new activities may prove to be productive or they may not. The good news is that in a free market they will be allowed to succeed or fail depending on their ability to produce more value than the cost of the production.

For a more in-depth analysis of this subject read, People Can Just Get Along, by Robert P. Murphy, at mises.org.