Specialisation and Social Change: The Division of Labour

It has been suggested already that Smith, in common with the other members of the Scottish Historical School, regards the economic organisation of society as being a fundamental deter­minant of many of its other attributes.

Let us begin with basics by looking at what Smith has to say about the causes of economic growth. In his Introduction (Section 4) to the Wealth of Nations he isolates two factors. Firstly, the productivity of labour increases with the growing ‘skill, dexterity and judgement’ of the labourer, and secondly, the proportion of productive labourers who are engaged in what Smith calls ‘useful labour’ gradually increases.

Smith regards the first of these as being the most important, for as he points out, in many primitive societies, virtually everyone is productively employed, despite which per capita product is at, or at times below, subsistence level. He directly links increases in productivity with a progressive division of labour, this being a consequence of his general perspective which views socio­economic development in terms of the application of labour to the raw materials provided by nature. Viewed from this perspec­tive, changes in the level of national income are seen as changes in the productivity of that labour as specialisation develops. This indeed is the theme of all of Book I of the Wealth of Nations and is clearly set out there, in the opening sentence of the opening chapter:

The greatest improvement in the productive powers of labour, and the greatest part of the skill, dexterity and judge­ment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.

And in the same chapter (Section 5), he explains that this is

... owing to three different circumstances; first to the increase in dexterity in every particular workman; secondly to the saving of time which is commonly lost in passing from one species of work to another; and lastly to the invention of a great number of machines which facilitate and abridge labour.¹

Smith’s famous discussion of the working of a pin factory is, of course, an illustration of the increase in productivity resulting from the division of labour, and he holds that ‘... in every art and manufacture, the effects of the division of labour are similar to what they are in this trifling one...^, (PfW, 1.1.4.)

He views the intrinsic productivity of the division of labour as holding both at the level of the individual firm, and for society as a whole. Indeed he clearly regards both aspects as being essen­tially the same thing, for he says:

What takes place among the labourers in a particular workhouse, takes place for the same reason, amongst those of a great society. The greater their number, the more they naturally divide themselves into different classes and sub­divisions of employment. (P½V, I.VIII.57.)

Already we can begin to see that the division of labour is Smith’s central dynamic concept; it is, as it were, the ‘vehicle’ of social evolution, and we shall see later that it links with the process of sympathetic interaction to become the carrier of human rational­ity, as objectified in social institutions and structures. Indeed, upon a full analysis of Smith’s model, it will become clear that the division of labour is the only dynamic element in his schematisation. Schumpeter has clearly recognised this point in his History of Economic Analysis, for he there writes:

... nobody, either before or after Adam Smith ever thought of putting such a burden on the division of labour. With Adam Smith it is practically the only factor of economic progress.²

And a similar view is expressed by Campbell, Skinner and Todd in their introduction to the Oxford Edition of the Wealth of Nations, where they say:

The division of labour remained central to the institutional analysis.

Given the present interpretation of Smith’s underlying epistemological perspective, we can see that the fundamental role played by the level of specialisation will have implications for the adequacy of social institutions. Since the division of labour is the carrier of dynamic change, Smith naturally relates the progress of society to the extent to which the division of labour has progressed. That is to say, the degree of specialisation defines the material context, relative to which the social structures created by sympathetic interaction take their relevance and meaning. Further, it is a logical implication of Smith’s dynamic epistemology that the process of development should be continuous, and that any ‘cutting up’ of this process into discrete phases should be largely arbitrary (see Chapter 3). I, therefore, take the ‘four stages’ theory to be a heuristic device, rather than a fundamental organising principle (which is how Meek sees it),⁴ in that any number of ‘stages’ can be distinguished, depending upon where we choose to make the cuts. It is significant from this point of view that the four stages view is much more explicit in the Lectures than it is in either the Theory of Moral Sentiments or the Wealth of Nations, although the same dynamic perspective is to be found in all three works. However, as a heuristic device, the four stages approach is very valuable and I will follow Smith in making use of it. The stages he distinguishes are, firstly, hunting and gathering, ‘such as we find amongst the native tribes of North America’. Secondly we have pastoral society in which animals are domesticated and grazed by nomadic tribes. This leads on to the third, agricultural, stage where land is tilled in settled communities, and finally we have commercial society where commodities are exchanged in a market economy.

Each is characterised by a specific level of the sub-division of labour, because, as we shall see, the division of labour is itself a dialectical concept, it is regarded as being both the cause and the effect of socio-economic change. Thus the degree of sub-division defines the type of society, whilst at the same time, the type of society generates the possibilities of sub-division and limits their extent.

Smith, at various points in the Wealth of Nations traces the effects of the division of labour from ^l... that rude state of society in which there is no division of labour, in which exchanges are seldom made, and in which every man provides everything for himself...’ (WN, II, Introduction I) through agricultural society, which ^l... does not admit of so many sub-divisions of labour, nor so complete a separation of one business from another...^, (WN, I.I.4)⁵ — as does a society having a manufacturing sector, and on to commercial society⁶ where the division of labour has ‘thoroughly taken place’.

Here: ‘... it is but a very small part of [his needs]... which a man’s own labour can supply him. The far greater part he must derive from the labour of other people.’ (WN, I.IV.I.)

It should be noted here that in the transition from an agri­cultural to an exchange economy, the division of labour itself is seen by Smith as undergoing qualitative change. Agriculture enables a large number of people to be supplied with food by the labour of comparatively few farmers. This generates the possibility of specialisation on a large scale, since those who are freed of the need to till the land can become tradesmen supplying each other, and the farmers in a market economy. As Meek and Skinner commented some years ago in a perceptive discussion of two fragments by Smith on the division of labour:

... the division of labour properly so called exists only where there is specialisation, both in terms of area of employment and process of manufacture.

And they go on to quote Smith as saying, in these fragments, that whilst the first three stages gave increasing scope to the division oflabour, ‘... the complete division of labour... is posterior to the invention even of agriculture.’

Thus, a commercial economy is characterised by social special­isation, and in such an economy the exchange of the products of labour between specialised workers is not found in direct personal relationships (as it was in the more ‘primitive’ economies) but in the network of market relations.⁸ This qualitative shift in Smith’s genetic account of the stages of economic development has interesting consequences to which I will return shortly.

First, however, a further point must be established, which is that Smith always seeks to explain the development of morality, laws, customs and social institutions as being relative to, and satisfying the needs of, specific historical stages of economic development. We can see this most clearly in his lectures on justice, where he consistently shows how laws and institutional structures are called forth by the developing needs of a particular society. Two examples will serve to illustrate a theme which pervades these lectures:

We shall first treat of occupation, the laws of which vary according to the periods of human society. The four stages of human society are hunting, pasturage, farming and commerce... The age of commerce naturally succeeds that of agriculture. As men now confined themselves to one species of labour, they could naturally exchange the surplus of their own commodity for that of another of which they stood in need. According to these stages occupation must vary. {LJ∙. 1766, p. 459. See also Lf. 1762-63, p. 14.)

He goes on to explain the way in which these laws of occupation are formed by reference to the workings of sympathetic interaction.

Again, writing on the ‘first ages of society’, he says:

Thus amongst hunters there is no regular government, they live according to the laws of nature.

A variation on this same general theme is present in the Theory of Moral Sentiments where morality is shown to be socio-relative and to develop with the economic progress of society. He says for example:

Since our sentiments concerning beauty of every kind, are so much influenced by custom and fashion, it cannot be expected, that those, concerning the beauty of conduct, should be exempted from the domination of these principles. (TMS, V.2.1.)

In the case of morality, however, Smith holds that some actions — such as the conduct of a Nero or a Claudius — are intolerable to the human passions in any society so that ‘no custom will ever reconcile us to them’. But despite this ¹... though the influences of custom and fashion upon moral sentiments is not altogether so great, it is however perfectly similar to what it is everywhere else.’ (TMS, V.2.2.)

Further, when we come to the Wealth of Nations, we find a very clear linking of law, policy and institutions to the developing economic structure of society. Thus, for example, writing on farm­ing, he shows how the accumulation of a surplus product, coupled with a growth in merchanting and manufacture, created in the landlord a desire for extra income to purchase commodities, but:

His tenants could agree to this upon one condition only, that they should be secured in their possession for such a term of years as might give them time to recover with profit, whatever they should lay out in a further improvement of the land. The expensive vanity of the landlord made him willing to accept this condition; and hence the nature of long leases. (WN, III.IV. 13. See also V.I.g.25.)

Or again, when giving a genetic account of money as a social institution (which eventually leads on to a discussion of banking), Smith explicitly relates its introduction to the development of society, whilst linking this in turn to the progressive division of labour. He traces the evolution of money from cattle in ‘the rude ages of society’, through gold and silver bars, and into coined money, relating the type of money to the specific historical stage of economic development.

Taking his work as a whole we find an explicit linking of human development in its totality to the changing economic structures of society. As Skinner has pointed out: ‘Even if the work done by Smith and his contemporaries finds parallels and precedents, nevertheless it does appear to have been remarkable for the weight of emphasis which it placed on economic factors.’⁹

Further, as was suggested above Smith also regards the legal, moral and institutional structures of society as influencing directly the level of the sub-division of labour and its effectiveness. This, of course, is why agricultural societies, for example, cannot achieve a very high degree of specialisation. Indeed, it is for precisely this reason that so much of the Wealth of Nations is concerned with attacking social institutions, laws, or customs that Smith regards, at best, as being appropriate only to earlier stages of development.

Many of his attacks on ‘monopoly’ for example, are explicitly based on the premiss that it interferes with the efficient sub­division of labour, or prevents such sub-division being carried forward as far as it otherwise might be, and this is also true of his attacks on the restrictions then in force on the mobility of labour (see Chapter 6).

On the positive side, he regards social institutions such as money as greatly facilitating the efficient and widespread division of labour, and through this, influencing economic growth.

We can now summarise what has been established so far: The division of labour is intrinsically productive and is the source of economic growth, and functions in such a way that the degree of economic development is related to the level of specialisation attained. Laws, morality, customs and socio-economic institutions are related to the level of economic development, which forms the ‘context’ within which they function. Finally, as the institu­tional framework of society develops in response to changes in the level of economic development, it in turn facilitates further, and more efficient division of labour. From this we can see that the division of labour is both the cause of the economic and institutional development of society and its effect; a truly dialectical interaction.

The link between the economic context and the behavioural and institutional development of society is extremely complex, because of the role of ratiocination in the formation of social structures. We will have to get to grips with this problem in due course, but for the present it should be noted that I am not suggesting that Smith holds to a strong form of economic determinism. The materialist element in his model is much more subtle than this, mainly because the element of judgement and interpretation permits a range of response within any given socio­economic context.

For the purpose of analysis, we can regard the model as functioning at two levels: Firstly at the very general level which is concerned with providing a historical explanation of the evolu­tion of successive forms of social organisation. At this level the model has no fine structure, being concerned only with broad outlines. I will call this Smith’s ‘general theory’ of socio-economic development. Secondly, the model also functions at the level of explaining the progressive development of commercial society, seen as one of the evolutionary stages covered by the general theory. Here the central structure of the model is unchanged, but there is much more institutional content, in that the model is tightly linked to a specialised exchange economy. In other words the contextual framework is more fully specified and this enables the related social structures to be more fully analysed. I will call this Smith’s ‘special theory’ of socio-economic development.

The move from the general to the special theory involves a qualitative change in the division of labour concept and this can be regarded as the reflection of an actual change in social organis­ation which accompanied the growth in the market economy. Given the distinction, it turns out that we have so far been examining Smith’s model at the level of his general theory. Without losing sight of the overall framework, we must now, therefore, expand the analysis to include the fine detail, and thus pick up the institutional content implicit in the special theory.

First, let us note that Smith regards the degree of technological innovation as being controlled by the extent of the division of labour. For example, he says:

... the invention of all those machines by which labour is so much facilitated and abridged, seems to have been originally owing to the division of labour... in consequence of the division of labour, the whole of every man’s attention comes naturally to be diverted towards some very simple object. It is naturally to be expected that some one or other of those who are employed in each particular branch of labour should soon find out easier and readier methods of performing their own particular work... (MW, 1.1.8. See also £/: 1766, p. 492.)

This implies that technological innovation is not itself regarded as being the initiator of a dynamic process of change; is not seen as an exogenous variable, but rather as an endogenous function of the level of specialisation. Clearly bound up with this, is Smith’s view that innovation is embodied in labour rather than in the machines themselves. In other words, he works with a sort of ‘learning by doing’ model in which human knowledge and ingenuity are the carriers of innovation and are themselves reciprocally related to the degree of specialisation.

Further, he does not in general speak of the quantity of machinery per worker increasing but rather of the quality, usually, as mentioned earlier he sees such qualitative improvement as a process of simplification. His usual practice is to take the quantity of capital per worker to be fixed, for a given industry, and then to develop his analysis using ‘capital’ principally as a wages fund.

The view that machinery becomes simpler with technological innovation seems odd at first sight, and is one which, even in the 1770s must have squared ill with empirical observation. However, on the present interpretation, we can take this as an implication of Smith’s epistemological position; machinery is a way of improving man’s interaction with nature, and simplification is the process of refinement in fitting the instrument to the external function required. Like linguistic or scientific analogies, machines are at first a ‘bad fit’ with a recondite external reality, but are gradually rendered more fitting and appropriate, by successive refinements. The role of the imagination is important here, in that it postulates the various modifications that are ‘fitted’ against reality. This process is accelerated as the division of labour increases for this focuses the imagination more closely on the process in hand.

Given this interpretation, it becomes very clear why Smith sees technological improvement as being embodied in human know­ledge, rather than in the machinery itself.

The second point to be made, is that Smith holds that the increase in the division of labour, because it is intrinsically productive, will in short run increase profitability. Although a proportion of these extra profits may be consumed, in general this is not the case. As he puts it:

Though the principle of expense, therefore prevails in almost all men on some occasions, and in some men on almost all occasions, yet in the greater part of men taking the whole course of their life at an average, the principle of frugality seems not only to predominate but to predominate very greatly. (WN, II.III.28.)

The bulk of the profits will therefore be invested, thus setting more labourers to productive employment. It follows from this that the ratio of productive to unproductive labour (the second source of economic growth identified above), is itself related to the division of labour, but indirectly, being a function of capital accumulation.

The increase in profitability in any given sector, causes new investment to flow into that sector, so that at a constant capital per man, more labour can be employed in those areas where it is most productive. The central role of capital in the dynamic process is, therefore, to carry the division of labour furthest in the areas where it is most productive — capital is the regulating mechanism which keeps the division of labour on, or near, its optimum growth path. The demand for labour temporarily exceeds supply in the areas of increased profitability, and wages are competed up so that: ‘The wages of labour... are never so high as when the demand for labour is continually increasing.’ (WW, I.VIII.22) and this, of ∞urse, calls forth a larger supply of labour. Taking the economy as a whole, not only does the increasing division of labour pull more labour into productive work, but it also calls forth, through higher wages, a larger absolute supply of labour as population increases.

As Smith puts it, if the demand for labour is continually increasing:

... the demand for labour must necessarily encourage in such manner the marriage and multiplication of labourers as may enable them to supply that continually increasing demand. (WN, I.VIII.40.)

Both of these effects increase effective demand. In the case of labour attracted into productive employment from the personal service sector, the increase in effective demand will be because of the higher standard of living enjoyed by those who have transferred.

Smith’s theory of wages is not simply a bare subsistence model, since there is a socially defined ∞mponent, at least in growing or static economies. Since his overall model is dynamic and pro­gressive, the growing economy is in fact the standard case; he does indeed hold that economies can also regress, but, such regres­sions seem to be ‘contingent’ events rather than a direct implica­tion of the logical structure of his model (see Chapter 6).

The absolute growth of effective demand is related to the divi­sion of labour in a similar way, but here the time scale is clearly much longer, being linked to the rate of human reproduction.

The division of labour is itself limited by the extent of the market (f½V, I.IIL1) and so the increase in demand in turn makes possible a further division of labour, upon which the cycle begins anew.

This part of the special theory model can now be summarised before it is further developed: Firstly a division of labour, which is intrinsically productive, takes place. This causes short term profits to rise, with the surplus being reinvested and in turn the demand for labour rises, so that wages are competed upwards. The labour supply increases partly due to the productive sector, and partly due to absolute growth. These effects cause an increase in effective demand (both absolute and relative) and finally the widening market makes possible a further division of labour.

In the process of this cycle there has been technological innovation, a growth of capital, population and (probably) standard of living, these all being endogenous variables. As we have already seen, there will also have been changes in the institutional structure of society.

Two peripheral comments can be made concerning the time scale of this complex interaction, which seems very extended when compared with that of our contemporary models of economic growth. Firstly, as part of a dialectical model, the interaction between the division of labour and the widening market should be thought of as a continually present tension, rather than as a cyclic series. To put that another (and less adequate) way, there will be a vast number of such interactions occurring simulta­neously, each having a different time scale. Secondly, Smith’s model (of which the above schematisation is only a part) is designed to explain socio-economic change of both a quantitative and qualitative nature, and the leisurely nature of the process reflects this orientation. By the time Ricardo was writing, the orientation of the mainstream of economics had changed, and the static analysis of an existing form of social organisation had become the central preoccupation. In short, what Harrod has called Ricardo’s ‘magnificent dynamics’ in fact lacked the historical dimension and were, in terms of the present interpreta­tion, ‘magnificent statics’.

It is interesting that so many commentators on Smith, whilst noting the centrality of the division of labour in his analysis and recognising its dynamic nature, should have failed to see that this economic dimension forms the contextual progression within which sympathetic interaction functions. Such a position leads to one-sided interpretation of Smith, which sees him as a more or less ‘hard’ determinist, viewing man as functioning within a nexus of immutable laws.¹⁰ The locus classicus for this view is to be found in Marx, who wrote that:

We have the fatalistic economists... Economists like Adam Smith and Ricardo, who are the historians of the epoch, and have no other mission than that of showing how wealth is acquired in bourgeois production relations, of formulating these relations into categories, into laws and of showing how superior these laws, these categories are for the production of wealth, to the laws and categories of feudal society.¹¹

But even a less ‘partisan’ interpreter, of Schumpeter’s stature could hold that:

Division of labour is attributed to an inborn propensity to truck and its development to the gradual expansion of markets... It thus appears and grows as an entirely impersonal force, and since it is the great motor of progress, this progress too is depersonalised.¹²

Such views neglect the interaction between the institutional structure of society and the level of the division of labour.

Had this dynamic interaction been based upon a purely mechanistic form of Associationism, the overall picture would indeed have remained bounded by the limitations of mechanical determinism, supplemented perhaps by a teleological view of the working of Nature. But the role played by practical reason in the long-run evolution of social structures opens up a whole new dimension. Smith’s model constitutes a denial of the traditional implications of mechanistic Associationist psychology, and in doing so opens the door for a concept of human progress. By an inductive process the ‘sympathy’ mechanism builds the products of ratiocination and informed judgement into general rules of behaviour, laws and social structures; the raw material of human existence is indeed the product of the passions — but the ‘working up’ of this raw material into the institutional framework of society involves much more than mechanical induction.

Smith thus rejects the dualism of feeling and reason, and substi­tutes a dialectical model in which purposive human activity is,

in the ultimate analysis, the driving force of human history. Ego­centric individuals, motivated largely by emotions, are melded into society by a process of interaction, in which rational argument and judgement play a central role. The whole dynamic process is seen in historical perspective, and is firmly rooted in the concrete activity of men within the framework of their economic mode of production.

The division of labour is not, therefore, merely a mechanical and deterministic concept. It has a ‘fine structure’ generated by Smith’s metascientific anthropological premisses, which allows for human activity, both emotional and rational. In particular, human consciousness, although heavily conditioned by social factors is given a constructive role in the model; men labour within a contextual framework which, in small measure, they help to create.

It should, however, be stated that the major difficulty of the present interpretation is not to refute ‘economic determinist’ interpretations of Smith, but rather to justify calling an interactive model such as that reconstructed here, ‘materialist’ in any sense. As Knud Haakonssen has said:

It would seem that the basic question to be asked here is whether the ultimacy of ‘the economic’ means that all social phenomena can be explained as ultimately determined by economic factors, or whether it means that economic factors are always, or normally, amongst the determinants of social phenomena and hence ultimately have to be referred to in social explanations... The former view is untenable as an interpretation of Smith, and... the latter, while perhaps largely true, can only misleadingly be described as an economic or ‘materialist’ view of society and history.¹³

This will be answered in Chapter 6 but in anticipation of that treatment, the following can be said. The level of specialisation attained in society ‘determines’ the forms of social structure that are appropriate to that stage of development. Certainly there will be a range of possible alternatives, and human practical reason plays a role in interpreting both the limits of the range and the adequacy of the alternatives within it, but the choice is neverthe­less constrained by the material factors involved. (One could not, for example, continue for long without money in an advanced society.) Further, whilst Smith gives full recognition to the role of responses to chance events, and to exceptional personalities (strong queens or foolish kings), the range within which any action will be ‘appropriate’ to particular circumstances, is still governed by the level of the division of labour.

Smith ‘never mistakes taxonomy for explanation’, as Haakonssen rightly says, but he confines the limits of that explanation within a taxonomic framework.

For the above reasons, whilst being much closer to Haakonssen’s position than to that of, say, Meek, I would still wish to classify Smith’s model as ‘materialist’, leaving the ‘dialectical’ component of the label to pick up the wide range of qualification needed.

We are now in a position to complete the analysis of the division of labour concept as it functions at the level of the ‘special theory’ of commercial society. It has been suggested above that at this level the model is loaded with institutional content to a much greater extent, and undergoes a qualitative change to reflect the existence of specialisation in commercial society. Smith holds that in the fourth socio-economic stage the division of labour is manifested in the market exchange of social labour in the form of commodities. Commercial society is thus characterised by the interdependence of men:

Every man is rich or poor according to the degree in which he can afford to enjoy the necessities, conveniences and amusements of life. But after the division of labour has once thoroughly taken place, it is but a very small part of these which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. (WW, I.V.I.)

Exchange value has become central, being the ‘social cement’ which binds discrete, self-interested individuals into ‘civil- society’.¹⁴ It is indeed this emphasis on the link between specialisation and interdependence, as manifested in exchange value, that leads Smith to see labour as the measure of value, as well as its origin.

He says:

The real price of everything, what everything costs to the man who wants to acquire it, is the toil and trouble of acquiring it... What is bought with money or with goods is purchased by labour as much as what we acquire by the toil of our own body... They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. (WN, I.V.2.)

Smith works with the Aristotelian distinction between ‘value-in- use’ and ‘value-in-exchange’ (WW, I.IV. 13). At first sight Smith’s treatment of value-in-use seems unproblematical, it being simply the ability of an object to satisfy a human need. But once we penetrate beneath the surface, a complex set of problems presents itself, for it becomes clear that Smith in fact works with two scales of use-value. One of these is based, straightforwardly, upon the subjective estimation made by agents of the goods and services they seek to acquire; but the other appears to pre-suppose an objective hierarchy of needs which transcends the values not only of the individual, but also of any particular social grouping. A resolution of the complex problems implicit in this approach will be attempted in Chapter 7 and here it will only be noted that Smith’s treatment both of the ‘invisible hand’, and the ‘water­diamond paradox’ are two related tips of this particular iceberg.

It has been suggested, notably by Hollander, that in his treat­ment of use-values, Smith made some rudimentary anticipations of the modern utility theory of value.¹⁵ The approach here is to suggest that Smith’s treatment of the subjective estimation of use-value, taken together with the notion of increasing returns to scale which is implicit in his dynamics gives a crucial role to ‘tastes’ in his model. That is to say, to the extent that tastes are exogenous they have a long-run role in shaping the composition of national output. If demand pushes the division of labour further in a particular manufacture, increasing returns to scale will lower the price in the long run, so that the whole system of relative prices is, in part, a function of subjective use-value estimations.

This interpretation is somewhat weakened if we accept the position I have urged, for then ‘tastes’, like other social customs and institutions, are formed by the interaction between the individual and his macro-social reality and are thus not ‘exogenous’ in the normal sense of the word. Despite that, we could consider them as one side of a dialectical interaction and thus as one example of how (constrained) human consciousness helps shape the social world. However, the existence of an objective scale of values severely complicates the interpretation, and indeed, as we shall see when we return to the topic, renders it inadequate.

Returning to the present discussion, when he comes to deal with exchange value, Smith asks: ‘First, what is the real measure of this exchangeable value; or wherein consists the real price of all commodities?’ (WN, I.IV. 15). He goes on to enquire: ‘Secondly, what are the different parts of which this real price is composed or made up?’ (Ibid., I.IV. 16).

And ¹... lastly, what are the different circumstances which some­times raise some or all of these different parts above their natural or ordinary rate?’ (Ibid., I.IV.17).

Smith’s search for an objective measure of value is a further example of the dual status of many of his concepts. For, on the one hand it can be interpreted as being a necessary consequence of the logical structure of his division of labour model, but it can also be seen as a natural response to — or reflection of — the actual historical development of commercial society. In a primarily agricultural society, such as eighteenth-century France, the Physiocratic view of the produit net as being the result of the application of labour to land was adequate, and the surplus (over subsistence etc.) could be measured in physical terms, with corn as input (food and seed) and output. Smith, however, was en­deavouring to build concepts that would reflect what for him was a subsequent ‘stage’ of development — a commercial economy with a growing manufacturing sector. Here the application of labour in any sector needs to be regarded as productive, and input and output can no longer be treated as being homogeneous. Hence a more generalised standard than ‘corn’ is needed and Smith, seeing this, postulates labour as the measure of value, as well as its source.

Before the ‘accumulation of stock and the appropriation of land’ (WN, I.VI.1) the measure of value is unproblematical, being the quantity of labour embodied in the object:

It is natural that what is usually the produce of two days or two hours labour should be worth double of what is usually the produce of one days or one hours labour. (Ibid.)

It is when Smith moves on to consider a more advanced economy that he runs into severe difficulties. With the hindsight gained from Ricardo’s or Marx’s criticism of Smith, we can see that the perspective that views value as a social relationship, with labour as its source, can only be extended to make labour also the measure of value if the quantity of labour embodied is regarded as the determination of exchange value. Smith sees that in the ‘rude state of society’ preceding profit and rent, the quantity of labour is equal to the value of labour, but as both Ricardo and Marx were to point out, he failed to see that in a ‘capitalist’ society these are no longer equivalent. Smith’s attention is focused on the exchange of commodities since he sees this as a major social bond in an economy where the division of labour has been well developed, and it is thus natural that he should seek a measure of value based upon labour, but manifested in exchange. It is this that leads him into the ambivalence between ‘labour embodied’ and ‘labour commanded’, that has been the subject of a great debate.¹⁶

This debate leads on, of course, to what has become known as the ‘transformation problem’. This too is well-stamped ground and numerous interpretations of the problem and its possible solution have emerged.¹⁷ For the present purpose, however, any ‘defects’ in Smith’s treatment of the topic are of little significance, and in any case, as Marx was to point out, in practice, Smith almost always works with the ‘correct’ labour embodied standard, so that:

... this jumbling up of completely heterogeneous deter­minations of value [does] not affect Smith’s investigations into the nature and origin of surplus-value because in fact, without even being aware of it, whenever he examines this question he keeps firmly to the correct determination... the quantity of labour, or the labour time expended...¹⁸

Marx is, of course, assessing Smith’s work as an ‘anticipation’ of his own — as his use of ‘surplus-value’ makes clear — but that aside, this seems in substance, a fair summary of Smith’s practice.

This completes the initial presentation of the ‘materialist’ side of Smith’s dialectical model. The interpretation will be developed and defended by further argument as we proceed. The overall model as here reconstructed depicts a dialectical interplay of sympathetic interaction, guided in the long run by practical reason, within a materialist ‘context’, which is specified by the level of the division of labour attained. The degree of specialisation thus defines the context within which institutional structures function, and their relevance and fitness for their purpose is assessed within that ∞ntext. In the language of Chapter 3, the level of the division of labour supplies the nexus of interpretation within which social institutions take their meaning, and qualita­tive change occurs in the transition from one nexus to the next.

As the division of labour progresses, old structures become inappropriate — one might say they lose their universality and coherence — and through the process of reason guided sympa­thetic interaction are modified, or replaced by new ones. Human rationality has a long term influence on this process, in that the aggregation of individual contextual judgements (practical reasoning) is reflected in the generalisations which eventually become crystallised into social structures.

Smith’s model functions both as a general theory of historical development and as a special theory of change within commercial society.

The next three chapters will attempt to strengthen the argu­ments already presented by showing how the basic model, as here reconstructed, relates to specific areas of Smith’s work.

Chapter 6 will examine his views on the possibility of imperfec­tions in the dialectical interaction of individual and society, and on the role of human agency in this process. Chapter 7 will continue the theme by extending the analysis to look at ‘unintended consequences’, and Chapter 8 will apply the same perspective to re-interpret some of Smith’s ‘economic’ concepts.

Notes

1. A similar perspective is to be found in F. Hutcheson, who writes: ^,... tis well known that the produce of the labours of any given number... shall be much greater by assigning to one a certain sort of work of one kind, in which he will soon acquire skill and dexterity, and to assigning work of a different kind, than if each... were obliged to employ himself, by turns, in all of the different sorts of labour...’. A System of Moral Philosophy (1755), Book II, Chapter IV.

2. J. Schumpeter, History of Economic Analysis (Oxford University Press, Oxford, 1954), p. 187. He goes on to say: ‘Technological progress, “invention of all those machines” — and even investment — is induced by it and is in fact, just an incident of it.’

3. R.H. Campbell, A.S. Skinner and W.B. Todd, Introduction to the Wealth of Nations (Clarendon Press, Oxford, 1976), p. 43.

4. For a discussion of this issue, cf. R.L. Meek, ‘Smith, Turgot and the four stages theory’, History of Political Economy (1971). Cf. also L.L. Price, Adam Smith: The Division of Labour (Methuen, London, 1891) and D. Forbes, ‘Scientific Whiggism: Adam Smith and John Millar’, Cambridge Journal (1954). For a recent critique of Meek’s position see A.S. Skinner, ‘A Scottish Contribution to Marxist Sociology’ in I. Bradley and M. Howard (eds), Classical and Marxian Political Economy (Macmillan, London, 1982).

5. R.L. Meek points out that for Quesnay and Mirabeau, the commercial stages of society ^,... are assumed to develop alongside agricultural societies’... but with Smith... ‘agricultural societies are assumed to develop into commercial societies’. R.L. Meek, Precursors of Adam Smith (Dent, London, 1973), p. 104.

6. Not to be identified with ‘capitalism’ in the modern usage of the term. As Donald Winch has pointed out: ‘The adoption of the liberal capitalist perspective by most economists and historians of economic thought has taken the form of supplying nineteenth-century meanings to the far less familiar eighteenth-century concepts which comprise Smith’s system.’ D. Winch, Adam Smith’s Politics (Cambridge University Press, Cambridge, 1978), pp. 141—2.

7. R.L. Meek and A.S. Skinner, ‘The development of Adam Smith’s ideas on the division of labour’, Economic Journal (1973).

8. On this point see M. Myers, ‘Division of labour as a principle of social cohesion’, Canadian Journal of Economic and Political Science (1967).

9. A.S. Skinner, ‘Adam Smith: An economic interpretation of history’, in A.S. Skinner and T. Wilson (eds), Essays on Adam Smith (Clarendon Press, Oxford, 1976). Cf. also R.H. Campbell, A.S. Skinner and W.B. Todd in their introduction to the Glasgow edition of the Wealth of Nations (op. cit.) who say: ‘The historical analysis is a way of showing that the commercial stage, or exchange economy, may be regarded as the product of certain historical processes, and of demonstrating that where such a form of economy prevails, a particular social structure, or set of relations between classes is necessarily presupposed.’ (p. 17)

10. This indeed has tended to become a standard textbook interpreta­tion. See for example J. Oser and W.D. Blanchfield, The Evolution of Economic Thought (Harcourt Brace Jovanovich, New York, N.Y., 1975), p. 47. They say that the classical economists (including Smith):... viewed economic laws as immutable, not to be tampered with or thwarted. They and their followers could not understand that economic laws, which are generalisations about tendencies, can be curbed, overcome, or redirected — that people can control economic life.’

U.K. Marx, The Poverty of Philosophy (Collected Works, Lawrence & Wishart, London, 1976), Vol. 6, p. 176.

12. J. Schumpeter, History of Economic Analysis (Allen & Unwin, London, 1954), p. 188.

13. K. Haakonssen, The Science of a Legislator (Cambridge University Press, Cambridge, 1981), p. 182. The literature on this topic is considerable, but for example, cf. A.F. Skinner, ‘An economic interpretation of history’ in A.S. Skinner and T. Wilson (eds), Essays on Adam Smith (Clarendon Press, Oxford, 1976) and S. Hollander, ‘Historical dimension of the Wealth of Nations’ in G.P. O’Driscoll, Jr (ed.), Bicentennial Essays on the Wealth of Nations (State University Press, Iowa, 1979).

14. Cf. for a discussion of social stratification in the commercial stage of society, H. Mizuta, ‘Moral philosophy and civil society’ in A.S. Skinner and T. Wilson (eds), Essays on Adam Smith (Clarendon Press, Oxford, 1976).

15. Cf. S. Hollander, ‘The role of utility and demand in the Wealth of Nations’ in Skinner and Wilson, op. cit.

16. Cf. for example, M. Dobb, Theories of Value and Distribution since Adam Smith (Cambridge University Press, Cambridge, 1973) and R.L. Meek, Studies in the Labour Theory of Value (Lawrence & Wishart, London, 1973).

17. Cf. P. Sraffa, Production of Commodities by Means of Commodities (Cambridge University Press, London, 1960) and A. Medio, ‘Profits and surplus value’ inE.K. Hunt and J.G. Schwartz (eds),A Critique of Economic Theory (Penguin, Harmondsworth, 1972). For a good summary of this whole issue (which includes a treatment of Bortkiewicz’s solution) see M. Desai, Marxian Economics (Blackwell, Oxford, 1979).

18. K. Marx, Theories of Surplus Value (Lawrence & Wishart, London, 1971), p. 71.