Chapter 4. The Division of Labor and Production

CHAPTER 4

THE DIVISION OF LABOR AND PRODUCTION

1. The Division of Labor and the Productivity of Labor

Human life and wellbeing depend on the production of wealth. The production of wealth vitally depends on the division of labor, that is, a system of production in which the labor required to support human life and wellbeing is broken down into separate, distinct occupations. As we have seen, under a system of division of labor, the individual lives by producing, or helping to produce, just one thing or at most a very few things, and is supplied by the labor of others for the far greater part of his needs.

The division of labor raises the productivity of labor in six major ways, and thereby achieves a radical increase in the efficiency with which man is able to apply his mind, his body, and his nature-given environment to production.

It increases the amount of knowledge used in production by a multiple that corresponds to the number of distinct specializations and subspecializations of employment. This makes possible the production of products and the adoption of methods of production that would otherwise be impossible.

It makes it possible for geniuses to specialize in science, invention, and the organization and direction of the productive activity of others, thereby further and progressively increasing the knowledge used in production.

It enables individuals at all levels of ability to concentrate on the kind of work for which they are best suited on the basis of differences in their intellectual and bodily endowments.

It enables the various regions of the world to concentrate on producing the crops and minerals for which they are best suited on the basis of differing conditions of climate and geology.

It increases the efficiency of the processes of learning and motion that are entailed in production.

It underlies the use of machinery in production.

The Multiplication of Knowledge

To understand how the division of labor represents a multiplication of the knowledge used in production, it is only necessary to realize that in a division-of-labor society, such as our own, there are as many distinct bodies of knowledge used in production as there are distinct specializations and subspecializations of employment. Steel producers, for example, have a different body of knowledge from that of auto producers. Wheat farmers have a different body of knowledge from both of these and even from that of other farmers, such as vegetable growers or dairy farmers. The bodies of knowledge of all such specializations enter into the process of production in a division-of-labor society, and each individual is enabled to obtain products reflecting the total of such knowledge. Thus, steel producers give the benefit of their knowledge to the whole rest of society; in return, they are able to receive from the rest of society the benefit of the specialized knowledge held by all other categories of producers. And so it is with the members of every specialization.

This is a result of enormous importance, and its significance needs to be carefully considered. What a division-of-labor society represents is the organization of the

same total sum of human brain power in a way that enables it to store and use vastly more knowledge than would otherwise be possible.

To grasp this point fully, we must consider the contrasting case of a non-division-oflabor society, such as exists in most of Asia, Africa, and Latin America. In those areas, where the overwhelming majority of people live as virtually self-sufficient farmers, each family knows essentially what all the others know about production. To confirm this fact, one might imagine an effort to compile all the knowledge entering into production in such places. One might imagine a corps of interviewers who obtain a grant from the U.S. government to go out and write down all that the rural farm families of these areas know about production. After interviewing the first such family in each area, very little additional information would be gained from interviewing the hundreds of millions of other such families. What this means, in essence, is that the sum total of the knowledge used in production in a non-division-oflabor society is limited to what the brain of just one or two individuals can hold. Any one farmer, or farmer plus his wife, in those areas holds practically all of the knowledge that is used in production in the entire society.

To put it mildly, such a situation is a case of wasteful duplication. It is the wasteful duplication of the mental contents of the human brain—the wasteful use of man’s ability to store and use knowledge. In this respect and in this sense, a division-of-labor society is indispensable to the efficient use of the human mind in production. To the degree that production is divided into separate specializations, with separate bodies of knowledge, the same total of human brain power is enabled to store and use more knowledge, to the benefit of each and every individual member of that society. This is the meaning of the proposition that the division of labor represents the multiplication of the knowledge used in production. It multiplies such knowledge to the degree that specializations and specialized bodies of knowledge exist. And it multiplies correspondingly the benefits that man is able to derive from the use of his mind.

The enlarged body of knowledge that a division-of-labor society makes possible is the precondition for producing products and adopting methods of production that require more knowledge than any one person, family, village, or tribe can possess. To illustrate this fact and be able to appreciate its importance, let us consider the amount of knowledge required to produce a relatively simple product, such as a ballpoint pen, which almost everyone uses practically every day in our society.

To make the pen, far more knowledge is required than is possessed by the producers of the pen. They can begin with the purchase of plastic, ink, pen points, and various types of machinery. What they know is how to produce such pens from this stage on. But others must know how to produce the plastic, the ink, the points, and the equipment. Still others must know how to produce the petrochemicals, from which the plastic comes; the various chemicals from which the ink is made; the metals from which the points are produced; and the components for the equipment.

At further stages of remove from the pen, yet still others must know how to refine petroleum, how to explore for it, drill for it, and store and transport it; how to produce the drilling and refining equipment, the parts and materials to make that equipment, and so on. Tracing now the chemicals for the ink, the metals for the points, and the components for the pen-making equipment further back, we are led into the chemical industry, the mining industry, and the machine tool industry. At practically all stages, we encounter the construction industry, which had to erect the various factories involved; the electric power industry, which provides the factories and machines with light and power; and the transportation industry, which moves the various products and means of production to where they are required. And these industries lead us back to the industries producing the materials and equipment they in turn require.

We find that the production of a seemingly simple product like a ballpoint pen is not so simple after all. It is closely tied to the production of most of the rest of the economic system in a virtual spider web of complexity, with threads running back and across to almost every other branch of industry in ways that are too complex even to be completely and accurately named by anyone, let alone actually understood in the way required for production. This “simple” product is the result of vastly more knowledge applied to production than any one individual, family, village, or tribe could ever hope to acquire.

A division-of-labor society is obviously indispensable for the production of all the wonderful products introduced over the last two centuries, from steam engines to rocketships. By the same token, it is equally indispensable for the ability to use modern, efficient methods of production in making goods that can be produced in modest quantities with little or no division of labor—for example, being able to use tractors and chemical fertilizers to help produce wheat.

The Benefit from Geniuses

Closely related to the multiplication of the knowledge used in production is the fact that the division of labor makes possible a radical and progressive increase in the benefit derived from the existence of geniuses. In the absence of a division-of-labor society, geniuses, along

with everyone else, must pass their lives in producing their own food, clothing, and shelter—assuming they are fortunate enough to have survived in the first place. Perhaps their high intelligence enables them to produce these goods somewhat more efficiently than do other people. But their real potential is obviously lost—both to themselves and to the rest of society.

In contrast, in a division-of-labor society geniuses are able to devote their time to science, invention, and the organization and direction of the productive activity of others. Instead of being lost in obscurity, they become the Newtons, the Edisons, and the Fords of the world, thereby incalculably raising the productivity of every member of the division-of-labor society.

The effect of a division-of-labor society is thus not only to increase the total of the knowledge that the same amount of human brain power can store and use, but also to bring that knowledge up to a standard set by the most intelligent members of the society. The average and below-average member of a division-of-labor society is enabled to produce on the strength of the intelligence of the most intelligent. Thus, in a division-of-labor society, people even of minimal intelligence are enabled to produce and obtain such goods as automobiles and television sets— goods which on their own they would not even have been able to imagine.

And in each succeeding generation, geniuses are able to begin with the knowledge acquired by all the preceding generations, and then make their own, fresh contributions to knowledge. In this way, the knowledge and productive power of a division-of-labor society are able progressively to increase, reaching greater and greater heights as time goes on.

Concentration on the Individual’s Advantages

In a division-of-labor society, not only productive geniuses, but everyone is enabled to concentrate on the kind of work for which he is best suited by virtue of his intellectual and bodily endowment. This principle applies to artistic and musical geniuses, to individuals with the kind of rare talents required to perform surgical operations or to be a champion athlete, on down to people whose special advantage may consist merely of such attributes as the possession of relatively keen eyesight or relatively great physical strength.

As with productive geniuses, those with the potential ability to be great artists or musicians, great surgeons or athletes, or outstanding creators or performers of any kind, would not be able to realize their potential in the absence of a division-of-labor society. Because even if they managed to be born and reach adulthood, their time would be taken up with growing their own food and making their own clothing and shelter. In a division-oflabor society, on the other hand, such individuals can realize their potential. And all the rest of mankind gains from it—from being able to enjoy the art and music they create, from being able to live because of the surgical operations they perform, and from being able to have the pleasure of observing the feats they accomplish.

In a division-of-labor society, every productive advantage that individuals possess tends to be put to use and to raise the productivity of labor. Imagine, for example, the case of just two people: Robinson Crusoe and Friday. Assume that Crusoe is particularly skillful in fishing, but not very skillful in hunting. Assume that with Friday, it’s just the opposite: he is very skillful in hunting, but not particularly skillful in fishing. To make the case more concrete, imagine that it takes Crusoe 1 day to catch 10 salmon, and 2 days to hunt a deer; while Friday requires 2 days to catch 10 salmon, but only 1 day to hunt a deer. If the two men work independently of each other, without dividing labor, then in 3 days each will have caught 10 salmon and hunted 1 deer. Their combined output will be 20 salmon and 2 deer. But if they divide labor, with Crusoe concentrating on fishing, and Friday on hunting, then in exactly the same time, their combined output will be 30 salmon and 3 deer—that is, 50 percent more. For in 3 days Crusoe can catch 30 salmon, while Friday can hunt 3 deer.

In a society of millions, hundreds of millions, or however many people, each person tends to concentrate on the specific things for which he is intellectually and physically best suited. And thus the production of everything tends to be carried on in the most efficient way it can be carried on in the circumstances. The production of everything tends to be carried on by those who can do it relatively best.

Geographical Specialization

A special aspect of individuals concentrating on what they do best is the more efficient utilization of land and natural resources. What an individual does best depends not only on his intellectual and bodily endowments, but also on the external conditions of nature that confront him. An individual living in a tropical climate, say, is able to grow tropical fruits or vegetables far more easily than someone living in a temperate climate, if the latter can grow them at all. An individual living close to rich deposits of iron ore, say, is able to mine such ore far more easily than someone not living close to such deposits, if the latter can mine iron ore at all.

Thus, a major aspect of the gains provided by the division of labor is that it raises the productivity of labor in the exploitation of land and natural resources. For what many people do best and are led to concentrate on is precisely the exploitation of advantages afforded them

by climate and by their proximity to special types of land and natural resources.

The result of specialization along these lines is that every geographical area can obtain products that depend on the special advantages of other areas. Each area that possesses special advantages concentrates on those advantages to some degree and produces more of the products in question than its own inhabitants consume. The difference is exchanged for the products of other areas, which possess different advantages. The effect is that every area can obtain the benefit of the special advantages of every other area. Thus, the people of the whole United States can be supplied with iron ore from Minnesota, coal from Pennsylvania, oil from Texas, wheat from Kansas, corn from Iowa, and oranges from Florida. And, of course, the gains are international: the whole world can benefit from Brazil’s advantages in coffee growing, Saudi Arabia’s oil deposits, and the advantages of the various American states just described.

Furthermore, the ability of each area to exploit its own advantages vitally depends on its incorporation into the division of labor. For example, very little iron ore could be smelted without coal to provide fuel. By the same token, very little coal could be mined without iron and steel to make possible the production of the necessary equipment. The exploitation of every natural resource is enormously improved by virtue of access to the resources of other areas.

Economies of Learning and Motion

The division of labor increases the efficiency of the processes of learning and motion that are entailed in production.

First, under the division of labor, the individual who learns an occupation is able to apply his learning repeatedly, because he devotes his full working time to that occupation. The effect of this repetition is that he becomes extremely proficient in the use of his knowledge. In effect, he subconsciously automatizes the knowledge— he learns it so well that he no longer has to think things out step by step, as one does before one has the necessary experience or after one has been away from a field for a long time. A worker who is constantly practiced in his work can obviously accomplish a great deal more in the same time than one who is not. Outside the division of labor, on the other hand, even in cases in which people might be able to acquire sufficient knowledge to accomplish something, they would most likely not have sufficient occasion to use that knowledge to become proficient in its use.

A good example of this, drawn from the context of our own society, is the case of a professional repairman versus a do-it-yourself homeowner. A good professional plumber, say, can usually spot the source of a plumbing problem very quickly, decide exactly what needs to be done, reach for the appropriate tools and supplies, and do it. The inexperienced homeowner, on the other hand, who tries to repair his own plumbing, must probably first read a book about how to do it, and then, assuming he has correctly diagnosed the problem and obtained all the necessary tools and supplies, fumble about trying to do it. Even if, later on, he needs to make the same repair again, the homeowner will probably experience many of his original difficulties, because probably so much time will have gone by that he will have forgotten much of what he learned the first time he made the repair.

This example illustrates the second way that the division of labor increases the efficiency of the learning process in connection with production: it increases the ratio of the time spent in using knowledge to the time spent in acquiring it. Our plumber spends a given amount of time learning how to make a given repair, and then makes that repair over and over again. The homeowner spends a given amount of time learning how to make a given repair, and then hardly ever uses the knowledge he has acquired. The learning time put in by the plumber is obviously much more fruitful. The same principle, of course, applies to all specialists in comparison with nonspecialists, and is the reason that it pays specialists to acquire vastly more knowledge about their work than it can ever pay nonspecialists to acquire.

Finally, the division of labor increases the efficiency of the learning process in connection with production by making education and communications—indeed, all the activities concerned with storing and transmitting knowledge—into specializations. These, like all other specializations, also tend to be carried on by those best suited for them. In this way, the diffusion of knowledge of all kinds, including, of course, all that pertains to production, tends to become more efficient.

Thus, the division of labor increases the degree to which knowledge of production is assimilated and therefore the proficiency with which it is used, the yield to the time spent in acquiring it, and the efficiency with which it is disseminated. These advantages, of course, are obviously closely related to the multiplication of knowledge that was discussed at the beginning of this investigation of the ways in which the division of labor raises the productivity of labor.

The division of labor also achieves a large increase in production simply by eliminating unnecessary motion in production. The tendency under the division of labor is to concentrate work of the same type in the same place, and, depending on the volume of work that can be so concentrated, to break it down into the simplest possible steps, consisting of the smallest possible number of separate motions.

For example, most factory-made products are produced under an arrangement whereby the typical worker remains in just one place and performs just one kind of operation in the course of his working day. Typically, he performs just one step in the making of just one component or part, or joins just one component or part to one other component or part. The advantages of such a system are that it eliminates the time that would otherwise be lost in walking back and forth from one place to another to do different kinds of work, in constantly picking up and putting down different types of tools, and in constantly having to finish up and perhaps clean up what one has been doing and warm up to what one is about to do. 1

Repetitious factory work is a further and important example of the division of labor’s enhancement of the yield to learning. It represents the yield to learning being raised so high that people can live by virtue of knowing merely how to perform a few simple motions. Under the division of labor, the intelligence of businessmen, capitalists, industrial engineers, and managers, achieves the isolation, concentration, and coordination of small, distinct steps in production, which then constitute highly productive jobs for people even of very limited intelligence. Because of the productive efforts of the first group, highly sophisticated products, such as automobiles and even computers, can be produced by members of the second group—by people who otherwise could hardly even conceive of such products, let alone produce them.

The Use of Machinery

Finally, the division of labor raises the productivity of labor by constituting the foundation for the use of machinery in production. It does so, first of all, by creating a sufficient fund of knowledge in a society to make the production of machinery possible. As explained in the discussion of the multiplication of knowledge, the division of labor is indispensable to the production of all products requiring the existence of an extensive body of knowledge—a body of knowledge greater than can be held by any one individual or family, or even village or tribe. Virtually all machinery is in this category.

The division of labor is equally indispensable to the existence of machinery in providing the extensive and widely scattered range of materials necessary for the production and use of most machines, such as iron, copper, lead, tin, leather, rubber, timber, coal, oil, and so on. In the absence of division of labor among the different regions of the world, it would be virtually impossible to obtain the materials required for the production and use of machines.

In addition, also as explained earlier, the division of labor makes science and invention into specializations carried on by geniuses, which, of course, greatly facilitates the invention of machinery. And, in reducing jobs wherever possible to a small number of distinct motions repeated over and over again, it enormously simplifies the problems of designing a machine or special tool to help do the work. As a result, machines and tools have frequently been invented by intelligent, ambitious workers who gave careful thought to the exact nature of the operations they performed every day and who thus discovered how their work might be aided by the application of some special mechanical device or implement.

Lastly, by concentrating a large volume of work of the same type in the same hands, the division of labor makes the use of machinery and specialized tools economically worthwhile. For example, it pays a plumber to acquire not only all kinds of knowledge about plumbing, but also all kinds of specialized plumbing tools that it would not pay a homeowner to acquire. In the same way, it pays a largescale manufacturer to use all manner of machinery that it would not pay a small-scale manufacturer to use. This is because machinery and specialized tools are often very expensive. If their use is to be economical, they must be used fairly often, so that their high cost can be spread over a large number of units of output. Where this is not possible, it is probably cheaper to produce by hand. In concentrating work of the same type in the same place, the division of labor operates to ensure that the use of machinery pays. It increases the productive yield to specialized machinery just as it does to specialized knowledge, and thus makes its acquisition and employment worthwhile.

---

The above connections between the division of labor and the use of machinery make it possible to understand why the Industrial Revolution began in England in the late eighteenth century. At that time, England already possessed the highest degree of division of labor ever achieved and was also the world’s greatest commercial nation. It thus possessed or had access to the necessary fund both of knowledge and of materials required for the construction of machines. By the same token, it also possessed conditions favoring the invention and design of machines and the conditions in which their use would pay.

Far more importantly, because the use of machinery is utterly dependent on the division of labor, it follows that the division of labor must indirectly be credited with all the magnificent advances in human life and wellbeing that have taken place over the last two centuries or more and that have been the result of the use of machinery. These advances, ranging from improvements in sanitation to high-speed travel by jet aircraft, and elo—

quently summarized by the radical lengthening of life expectancy, were described at length in the preceding chapter. 2

2. The Division of Labor and Society

All of the preceding discussion of the division of labor can be summarized by saying that the division of labor increases the efficiency with which man is able to apply his mind, his body, and his nature-given environment to production. It expands his capacity to store and use knowledge, which knowledge it raises to a standard set by the most intelligent members of society. This standard in turn tends to rise higher and higher in each succeeding generation, as creative geniuses again and again enlarge the stock of technological knowledge. The division of labor also increases the degree to which knowledge of production is assimilated, the yield to the time spent in acquiring it, and the efficiency with which it is disseminated.

It increases the efficiency with which man applies his body to production inasmuch as it enables everyone to concentrate on whatever he is relatively best suited for by virtue of his bodily endowment. It also eliminates unnecessary motion in production. And, finally, it makes possible the addition of machine and mechanical power to the power of human muscles. This last enables man to accomplish physical results that would otherwise be unthinkable.

Similarly, by means of geographical specialization the division of labor increases the efficiency with which man applies his nature-given environment to production. And it does so even more by the use of ever improved machinery and methods of production that flow from the heightened and progressively increasing efficiency that it lends to man’s use of his mind and body. This enables man to obtain progressively more from his environment.

On the basis of all of the foregoing considerations, it should be obvious that from the perspective of the production of wealth and all that depends on the production of wealth, a division-of-labor society is the form of society that is appropriate to man’s nature. While man always possesses the faculty of reason, a division-of-labor society is necessary if he is to use his rationality efficiently in production. It is necessary if he is to actualize the productive potential provided by his possession of reason.

It should be equally obvious that the existence of a division-of-labor society is to the material self-interest of every individual. Whoever, in the words of von Mises, prefers wealth to poverty and life and health to sickness and death, is logically obliged to value the existence of a division-of-labor society and all that it depends on. For it is the essential foundation of all significant wealth and of the vital contribution made by wealth to man’s life and health. Take away a division-of-labor society, and production shrivels to the level of medieval feudalism, with its consequently recurring famines and plagues and resulting average life expectancy of twenty-five years— years, it should never be forgotten, whose passage was marked with cold, hunger, exhaustion, and pain. Apart from the amelioration provided by Western aid in the form of food and medicines, such continues to be the miserable condition of human life today in all that vast part of the world that is not integrated into the division of labor.

Thus, the widely held notion that life in society requires the sacrifice of the individual’s self-interest is totally mistaken in regard to a division-of-labor society. That notion applies only to societies characterized by force and plunder, not to a division-of-labor society. A division-of-labor society represents the mutual cooperation of individuals for the purpose of achieving their own individual ends. The radical and progressive increase in the productivity of labor it brings about makes it possible for everyone to achieve his ends incalculably better within its framework than outside of it. 3

These considerations have major implications for ethics. They imply that the ethical principle of respect for the persons and property of others is not something that is arbitrarily enjoined upon the human race by an outside authority, but has a rational basis in the requirements of the individual serving his own material self-interest. In order for the individual to enjoy the benefits of the division of labor, he needs the existence of other people who participate in the division of labor with him. He also needs those others to be secure in their persons and property—that is, to be free from the initiation of force and the threat of the initiation of force—and thus to be motivated and able to work and produce as efficiently as possible, so that there will be the most abundant and best possible supply of goods available for him to buy. Thus, it is to his self-interest that others, as well as himself, be secure from such threats as murder, assault, and robbery, and that others, as well as himself, be free. 4 These principles apply to all other human beings the world over who might potentially associate with him in the division of labor and thus contribute to his material wellbeing by enlarging and improving the supply of goods available for him to buy. Thus, the gains from the division of labor constitute an objective foundation for the existence of good will on the part of each individual toward the rest of mankind.

Furthermore, it can be stated categorically that these principles are in no way lessened, let alone contradicted, by the existence of free economic competition. On the

contrary, as later chapters will demonstrate, they are powerfully reinforced by the existence of such competition. The effect of free economic competition is to improve the organization and efficiency of the division of labor. It is both to provide everyone with the opportunity to work and produce in the area in which he is best suited and to increase the output per unit of labor, especially on the part of individuals of lesser ability. Thus it enables everyone to enjoy a higher and continually rising standard of living. 5

3. Rebuttal of the Critique of the Division of Labor

Because of the dependency of human life and wellbeing on wealth, and of wealth on the division of labor, it should now be obvious that in the name of the value of human life and wellbeing, a division-of-labor society is itself a cardinal value, and should be upheld with all the means at our disposal. Indeed, every individual who decides that he is better off working for money and buying the things he wants, rather than attempting to produce for himself, acts to build or maintain the division-of-labor society as he thereby positions himself in it; and in this way he affirms its value. A division-of-labor society is formed and maintained precisely on the basis of such self-interested actions of individuals. 6

Despite the fact that man’s vital interests depend on it, the division of labor has been attacked, most notably by Marx and Engels, who blame it for making work boring and unpleasant, for “alienating” the worker from his work, and for making him narrow and one-sided rather than broad and well rounded in his interests and capacities. Socialism, they boast, will abolish the division of labor and turn work into a pleasure. 7

These accusations are nonsensical. Work in a routine factory job may well be boring and unpleasant for many people. This is particularly likely to be so in the case of people who have the potential for doing much more intellectually demanding work but who, for psychological reasons, are unwilling to challenge themselves and acquire the necessary skills. Yet even so, routine factory work is far less boring and unpleasant than the work of primitive farmers, which preceded it, and from which tens of millions of people in the Western world willingly fled to take factory jobs. Even now, large numbers of housewives consider it less boring than housework, which consists of little more than a wide variety of boring jobs. A dull job performed for money is almost always less dull than one performed merely for the sake of a given physical result, because the money can be exchanged for so many different things and thus at least ties the work to interesting possibilities.

Furthermore, if a fuller measure of capitalism existed, even the otherwise most monotonous, repetitious types of factory work would be given an important measure of challenge and excitement through the establishment of piecework and competition among individual workers and, perhaps, among assembly-line teams. Under such conditions work becomes perceived as the direct, immediate means of putting money into one’s pocket. Workers then go at the otherwise dullest kinds of jobs with enthusiasm. Physically, the dullest kind of job can be no duller than pulling the handle of a slot machine over and over again, which multitudes eagerly do in gambling casinos, in the hope of winning a jackpot. In a factory operating under the piecework system, each such operation brings a guaranteed small jackpot, as it were. 8

It is also significant that a free market operates to offer premium wage rates for any jobs that most people find relatively dull and unappealing, and, by the same token, to reduce the wage rates of jobs that most people find relatively exciting and attractive. 9 Consistent with this fact, to the extent that intellectually overqualified people presently in relatively dull jobs decided to do what was necessary to find more demanding, more interesting, and, at the same time, higher-paying jobs—higher paying because of the higher skill requirements—the effect would be that everyone who had to remain in the relatively dull jobs would be compensated by receiving higher wages. The effect of the establishment of the higher wages in turn would be to provide an inducement to employers to seek ways to make such jobs more interesting, in order to attract workers without having to offer such higher wages. (Of course, the increase in the supply of labor in the more-skilled fields, into which the previously overqualified workers moved, would operate to reduce wage rates in those fields.) 10

The charge that factory work is “alienating” rests on a view of the average factory worker as being incapable of intellectually understanding the importance of his particular work to the final product. It assumes that to take personal pride in his work, a worker has to be in the position of a medieval cobbler and oversee the process from raw material to finished product. It does not see that a worker can conceptually understand that, for example, the welds he performs help to keep an airplane in flight or an automobile in operation. The charge of alienation does not see that in a division-of-labor society a worker can take pride in the fact that he contributes to the production of magnificent products whose very existence would appear absolutely miraculous to any medieval cobbler.

Finally, it is in a division-of-labor society that the average worker, for the first time in all of human history, has the opportunity of actually becoming something of a Renaissance man, if that is what he chooses to be. The

division of labor has raised the productivity of labor so high that today the average member of a division-of-labor society has both substantial real wealth at his disposal and substantial leisure in which to enjoy it. The average worker today can easily afford an extensive personal library—in paperback—of books on science and philosophy. He can afford an extensive collection of fine musical recordings and prints of the greatest works of art. He has the leisure to engage in all kinds of athletic activities, including year-round swimming if he lives in a sizable town or city. In short, he has open to him in no small measure precisely the kind of life that the ancient Greeks thought could be enjoyed only by a slave-owning aristocracy. Further improvements in the productivity of labor under the division of labor will place still more wealth and leisure at the average worker’s disposal.

In addition, the proportion of truly interesting and challenging jobs in the economic system has steadily increased with the progress of the division of labor, and will continue to increase in the future, if the division of labor and capitalism are preserved. Today, a far larger proportion of the population than ever before works in the professions, in management, and in various mechanical and skilled trades that have sprung up and grown with the intensification of the division of labor. These jobs are in addition to those of the custom craftsmen that came into existence with the first revival of the division of labor in early modern times, and that the enemies of the division of labor like to contrast with factory work— forgetting that before the factories, very few people held such jobs as craftsmen and that the overwhelming majority were half-starving, illiterate peasants. Computerization and automation, if allowed to proceed, will make possible substantial further improvements along these lines.

Furthermore, Marx and Engels were wrong because the wealth and leisure and the resulting education and level of knowledge that a division-of-labor society makes possible are powerful forces working against feelings of “alienation.” While it is true that alienation—a sense of lack of belonging and lack of control in one’s life—is a growing problem in present-day society, it is not because of, but in spite of the existence of the division of labor. The wealth the division of labor makes possible enables us to gain control over our physical circumstances. Our houses are not blown down by every strong wind. We do not starve when the rain does not fall or when the locusts come. We do not, as a common occurrence, see our children and loved ones or our friends and neighbors dead and dying around us. We do not live in the constant fear of disaster, disease, and death. Yet that is the normal state of life in non-division-oflabor societies. By the same token, when a disaster does strike us from which we cannot escape, we are at least able to understand it as a natural phenomenon, and not as the visitation of the wrath of some mysterious power. Wealth and education are the physical and intellectual means of being in control of our lives, and therefore of not being alienated. Both depend on the productivity of a division-of-labor society.

Marx and Engels were correct about one thing, however: socialism, if it were ever imposed on a global basis, would abolish the division of labor. The division of labor that socialist regimes inherit from a preceding era of capitalism can endure, in a crippled, highly inefficient state, only so long as an outside capitalist world exists which is large enough, and foolish enough, to subsidize the socialist regimes with such things as free food and the proceeds of government-guaranteed loans, and which provides a continuous market for the purchase of emergency supplies. 11 Recent revelations about the poverty of Eastern Europe and the former Soviet Union fully confirm these propositions.

A division-of-labor society is a capitalist society.

4. Universal Aspects of Production

While the division of labor is the hub of production under capitalism, and creates the need for the science of economics, there are other important aspects of production as well. These aspects are present in one form or another both under capitalism and all other imaginable forms of economic activity, such as feudalism and that of Robinson Crusoe on a desert island. They may be described as universal aspects of production. It behooves economics as a science to take notice of them. Thus we shall consider here the general concepts of production, product, producer, labor, land, and capital goods, and also the concept of consumption with respect to its multifaceted relationship to production. Later on, in Chapter 11, we will show how the existence of the division of labor profoundly modifies the whole concept of productive activity, including these other aspects. 12

Physically, production can be defined as man’s alteration of matter in form or location, in accordance with conscious design, in order to make the matter thus altered serve a further purpose. (In a division-of-labor society, as we shall see, the concept of production becomes more complex. It incorporates, as a necessary feature, the earning of money, and comes to include the rendition of services performed for money. 13 ) When the matter thus altered undergoes some significant physical, chemical, or biological change—such as the making of flour from wheat, metal from ore, or wine from grape juice—man may be said to produce a distinct product, and a new good may be said to result. Where the alteration is relatively minor, or consists of a mere change in location—for

THE DIVISION OF LABOR AND PRODUCTION 131 example, removing stains from clothing or carrying water from one place to another—production takes place, but a distinct product does not result; no new good is produced. A product is matter that has been altered in one or more of the above ways (e.g., flour), or the alteration in matter that we perceive as essentially unchanged (e.g., the removal of a stain). A producer in the physical sense is one who effects such alterations.

All production, of course, entails the performance of human labor. Labor is the means by which man’s mind transmits his designs and purposes to matter. It is man’s application of his bodily and mental faculties for the purpose of altering matter and thereby making it serve a further end.

By the same token, all production also entails the presence of preexisting matter, which is to be altered. The ultimate source of this matter is always nature. The name which economists have traditionally given to nature’s contribution to production is land. “Land” includes land as we normally think of it, namely, pieces of ground, plus all the natural resources within it and all the trees and plants and animals that are naturally present upon it— i.e., present without man’s intervention. It also embraces bodies of water and their contents, air, and, eventually no doubt, even outer space, insofar as these things are employed in production. Land and labor together are sometimes referred to as the original factors of production. (The description of land as an original factor of production can be misleading, however, insofar as man is responsible for whatever wealth-character it possesses. 14 )

Materials of production which are themselves products or otherwise the result of the previous performance of labor, plus tools, implements, and machines, and buildings used in production (and land too, insofar as it has been improved by the previous performance of labor), have traditionally been called capital goods. It must be stressed, however, that this description can at most be allowed to stand only in the context of a non-division-oflabor economy. As will be shown later, the division of labor exerts such a profound influence on virtually every aspect of economic activity that its existence requires that many materials of production, and even many tools and machines be categorized as consumers’ goods rather than capital goods—for example, the materials required for serving meals in the home, and all sorts of tools and machines found in homes, such as knives and forks, hammers and screwdrivers, washing machines, sewing machines, and automobiles. In a division-of-labor society, the concepts of capital and capital goods, like that of production, come to incorporate as a necessary feature the purpose of earning a money revenue or income. 15

Products produced are continuously used up, worn out, or simply deteriorate through the action of nature, as when they rust or rot. The using up, wearing out, or deterioration both of products and nature-given goods (such as mineral deposits) is consumption, in its physical sense. And a consumer in this sense is one who uses goods up, wears them out, or in whose possession they deteriorate.

Production and consumption are related in a double way. On the one hand, every product produced is subsequently consumed. On the other hand, every product reflects a prior consumption in the process of its own production. The production of bread, for example, entails the consumption of flour and other ingredients, and of the pots, pans, oven, and building which are employed in its production. There is no product the production of which does not entail consumption. Even the cave man, in producing the very first products, had to consume nature-given goods. And all production above the cave man level entails a consumption of previously produced products. The materials consumed in production come, for the most part, to be themselves products, and even where the materials remain nature-given goods, as in mining, products are nonetheless consumed in the form of the wearing out of tools, implements, machinery, buildings, and other installations, at least some varieties of which are employed in all branches of production without exception once economic activity advances beyond the most primitive level.

The recognition that consumption is entailed in the very process of production itself, led the classical economists to distinguish between two, and sometimes three, very different kinds of physical consumption, which they called, respectively, productive, unproductive, and reproductive consumption. Retaining these terms, I define them as follows:

Productive consumption: consumption for the purpose of production. For example, the consumption of flour and ovens for the purpose of baking bread, as above; the consumption of steel and stamping equipment for the purpose of producing automobiles; the consumption of cloth and sewing machines for the purpose of making clothing.

Unproductive consumption: consumption not for the purpose of production. For example, the eating of bread, the driving of an automobile for pleasure, the wearing of clothes.

Reproductive consumption: that variety of productive consumption in which the product produced can play the same role in further production as the goods consumed in its own production, or can be employed in the production of such products. The consumption of seed in the production of wheat and the wearing out of trucks in making deliveries to truck factories are obvious examples of reproductive consumption. The same phenome—

non is no less present, however, in the wearing out of oxcarts in the construction of a railroad. For though physically very different, oxcarts and railroads play the same role in production, in that both are means of transport. The using up of steel in the manufacture of iron mining equipment is likewise reproductive consumption, as is the subsequent wearing out of the iron mining equipment. For iron mining equipment indirectly serves in the production of steel, which, in turn, serves in the production of iron mining equipment.

The concepts of productive and, especially, reproductive consumption are closely related to a proper concept of capital goods. Capital goods, in the physical sense, are goods productively or reproductively physically consumed. For example, the flour and ovens, steel and stamping equipment, cloth and sewing machines, and the seed, trucks, oxcarts, and steel and iron mining equipment, as above. As we shall see, in the context of a division-of-labor, monetary economy, in which anything that is used in the production of a product to be sold can make possible its own replacement by way of exchange— that is, by using the sales proceeds its products bring in, to purchase its replacement—the concepts productive consumption and reproductive consumption become synonymous. 16 And the concepts capital goods and capital come to be inseparably connected with the question of whether or not the goods are purchased, or the sums of money are expended, for the purpose of bringing in subsequent sales revenues. 17

The aggregate of capital goods in the possession of an individual can be described as his capital. And capital can be defined as wealth reproductively employed—that is, as wealth employed in the production of wealth. (In the context of a division-of-labor economy, capital is wealth employed in the earning of money.)

It is obvious that if the supply of capital goods is to be maintained, a substantial proportion of production must be devoted to their production in order to replace the supplies undergoing productive consumption. If the proportion of labor and capital goods devoted to the production of capital goods is large enough to more than offset productive consumption, then capital accumulation takes place—i.e., the supply of capital goods grows. If the proportion is insufficient, then capital decumulation takes place. 18

The supply of capital goods is of vital significance to production because it is a major determinant of the productivity of labor—i.e., the output per unit of labor. A larger supply of capital goods per capita operates to raise the productivity of labor, and a smaller supply to reduce it. More capital goods make it possible to produce not only more of various products, but products whose production would otherwise be completely impossible.

For example, while a plow enables a farmer to grow more food than he could grow without it, a blast furnace of some sort is necessary in order to produce any steel at all. A growing supply of capital goods is indispensable to the adoption of more advanced technologies and to the continuing rise in the productivity of labor. 19

As previously indicated, the existence of division of labor operates to raise the productivity of labor in large measure by virtue of increasing the supply of capital goods per capita. 20 This is actually the effect of division of labor in all the ways that it serves to increase production, insofar as the products are capital goods. In particular the most important sources of gain from the division of labor—namely, the multiplication of knowledge, the benefit from the existence of geniuses, and geographical specialization, all of which are indispensable to technological progress and the use of machinery and ever-improved machinery—make their contribution to the productivity of labor mainly by means of bringing about capital accumulation. 21

The present discussion of the role of division of labor in capital accumulation indicates that in addition to the proportion of total production in which capital goods are produced being a determinant of their supply, and thus of the productivity of labor, there is a further, equally important factor: namely, the general efficiency with which labor and existing capital goods are used. The more efficient an economic system is in the utilization of its labor and existing supply of capital goods, the greater will be its ability to accumulate additional capital goods. This is because a greater efficiency in the utilization of labor and existing capital goods means that with any given supply of capital goods it can produce a larger total product, including a larger supply of capital goods for any given proportion of its productive efforts that it devotes to the production of capital goods. The effect of this, in turn, is that the proportion of its output which it needs to have in the form of capital goods in order to make possible the replacement of the capital goods consumed in production—its maintenance proportion, so to speak—is correspondingly reduced. To whatever extent the economic system was already devoting to the production of capital goods a larger proportion of its efforts than was required for mere replacement, this reduction in the maintenance proportion further widens the margin by which it accumulates capital.

This point can be illustrated by considering the conditions of a self-sufficient farmer, whose own product is the source of the capital goods he uses in further production. If such a farmer can use one bushel of crop in the form of seed to produce an output of two bushels of crop, then in order to maintain his stock of seed and produce the same-sized crop in the next year, the farmer must

THE DIVISION OF LABOR AND PRODUCTION 133 employ half of his output as seed. If he becomes more efficient, and can produce three bushels of crop for every one of seed, then he requires only one-third of his output to replace his stock of seed. If he continues to devote half or more of his output to seed, he is now enabled to accumulate capital and increase his production, or to do so more rapidly than before.

The exact same principle applies to the accumulation of capital goods in a complex division-of-labor economy such as our own. Just as in the case of the self-sufficient farmer, the physical source of capital goods for us is the product of our economic system. For taking a division-of-labor economy as a whole, it resembles the situation of the self-sufficient farmer in that there is nothing outside of it to provide capital goods. The physical source of capital goods in a division-of-labor economy, as with a self-sufficient farmer, is always its own output.

It is worth noting that production with capital goods always represents an indirect, more time-consuming process of production as compared to production without capital goods. For labor must first be applied to the production of the capital goods and only then to the production of consumers’ goods. The greater lapse of time between the performance of labor and the achievement of its ultimate result is, of course, compensated for by the larger size of the result and by the fact that in many cases results of the same kind could simply not be obtained otherwise. The use of labor in a hand-to-mouth process of production—for example, to pick fruits and nuts growing wild in the forest—is the most direct, least-time-consuming method of production one might imagine. Yet the product of such a process of production is insignificant in comparison with processes of production in which labor is used first to produce tools and implements; and if labor were not first used to produce materials as well, no products could be produced beyond the crudest, most primitive type. 22 The division of labor is intimately bound up with the question of the time factor involved in production insofar as one group of workers begins its production with capital goods produced by previous groups of workers. Such temporal succession in the stages of division of labor can be described as the division of labor in its vertical aspect.

In any discussion of universal aspects of production, some mention must be made of the law of diminishing returns, which has application under all economic conditions. However, inasmuch as this law has already been explained in the last chapter, it is not necessary to explain it again. 23 It is only necessary to stress that it is the framework provided by the division of labor and capitalism, and the resulting continuous ability to achieve technological progress and accumulate capital, that makes it possible to counteract and more than counteract the influence of the law of diminishing returns.

Notes

1. These particular advantages of the division of labor are sometimes lost sight of in misguided efforts to make unskilled factory jobs more interesting. One such recent effort in the automobile industry failed with a loss of over $800 million in just eighteen months. This was a case in Sweden, in which assembly lines were abolished and replaced by work groups of ten to fifteen members with responsibility for building vehicles on their own. See “Saab Is Closing Plant After Venture’s Loss,” New York Times, February 9, 1991.

2. See above, pp. 76–78.

3. On the contribution of the division of labor to the self-interests of the individual, see Ludwig von Mises, Human Action, 3d ed. rev. (Chicago: Henry Regnery Co., 1966), pp. 143–176. See also idem, Socialism (New Haven: Yale University Press, 1950), pp. 289–358; reprint ed. (Indianapolis: Liberty Classics, 1981). Page references to Socialism are to the Yale University Press edition; pagination from this edition is retained in the reprint edition.

4. See von Mises, Human Action, pp. 170–174.

5. On these points, see below, p. 144 and pp. 343–371 passim. 6. Cf. above, pp. 27–31. Also cf. von Mises, Human Action, pp. 143–144.

7. Karl Marx, Economic and Philosophic Manuscripts of 1844; Karl Marx and Friedrich Engels, The Holy Family: A Critique of Critical Criticism (1845); The Communist Manifesto (1848);

Friedrich Engels, Anti-Dürhing (1878).

8. The piecework system is often mistakenly attacked on the grounds that it operates perversely. To wit: it is argued that the incentives the piecework system provides result in increased production, which, if great enough relative to the demand for the product, in turn results in the piece rates being cut and thus in workers earning less money than they did before. The error in this argument is essentially the same as that which is present in the doctrine of overproduction and in criticisms of Say’s Law. See below, pp. 561–564, in particular the analysis of the hypothetical case of the potato growers who double their production and earn less as the result of doing so. See also p. 568 and pp. 655–656. The ultimate effect in all such cases is to raise the general standard of living, including the standard of living of those who might initially lose by the process of improvement.

9. For the explanation of this fact, see below, p. 195.

10. For a discussion showing how the consistent implementation of procapitalist policies, namely, a free market in labor and a 100-percent-reserve gold standard, would create a wide range of readily available employment opportunities, see below, p. 594. In such conditions, people would have an incentive to develop the ability to do a variety of jobs and to move between those jobs.

11. On the necessary failure of socialism and its incompatibility with the division of labor, see below, pp. 135–139 and 267–282

passim. 18. See below, pp. 622–629.

12. Much of the material in this section originally appeared in 19. On this point, see below, pp. 631–632. my article “Definitions Pertaining to Production and Consump-20. See above, pp. 127–128.

tion, Il Politico 32, no. 1 (March 1967). 21. For a discussion of increases in production as a source of 13. See below, pp. 442–462 passim, and above, 41–42. capital accumulation, see below, pp. 629–631 and 634–636. 14. See above, pp. 39–41 and 63–66. 22. Cf. Eugen von Böhm-Bawerk, Capital and Interest, trans. 15. See below, pp. 442–447. George D. Huncke and Hans F. Sennholz (South Holland, Ill.: 16. See below, pp. 444–445. Libertarian Press, 1959), 2:77–118. 17. See below, pp. 445–447. 23. See above, pp. 67–69.