24. Adam Smith, Chapters One, Two, Three!

VOICE NARRATOR: One person needs many different inputs. All people do. But if they specialize -- each does one thing -- then they can improve work. They trade, and everyone can have more.

We are building with a flow-chart language to illustrate general principles.

So let's start by saying that this stands for you. And we will show work as your energy, flowing through any work process. It is finally lost, as heat and waste, but you get something in return: You have gathered a green plant.

In a primitive world, you would do lots of kinds of work, to get plant and animal food and materials, and water of course, and stone to make tools, and so on.

We don't have to show the work symbol, but we know that everyone is doing everything. Let's say they live in a wild ecosystem with scattered plants and animals, and a big lake up at the top, and a stone quarry, down at the corner, to make their tools.

But: if they get together, and each does one thing, or specializes, then they will make surpluses. They trade, and everybody has more.

This will cover the first three chapters of The Wealth of Nations by Adam Smith, the book that started modern economics.

Because once you specialize, you can make gains beyond your comparative advantage: You can improve DEXTERITY, using less personal energy and becoming more accurate;

you also save time by PROXIMITY, because you don't have to go to different jobs and you can bring the inputs closer;

and perhaps you may invent TECHNOLOGY, such as the bow-and-arrow, so you can hunt more wild animals. That is chapter one.

You are encouraged to do this by the certainty of being able to exchange the surplus in mutual self-interest -- because we both gain. Chapter two.

And obviously, the division of labor is limited by the extent of the market, meaning the extent to which they have the ability to trade.

Adam Smith mentions that this is extended by living closer together in a city or town, or being connected by rivers for easier transportation.

This is really about reducing trade costs -- a different kind of work that we all share.

Going beyond chapter three, we may say that some of these are reduced by common ideas, such as simple trust, and expectations, and the normal rules of behavior. And today, one branch of economics studies institutions, such as the legal system, which reduce transaction costs.

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• specialization
• trade
• Adam
• Smith
• Wealth
• of
• Nations
• work
• technology
• comparative
• advantage
• ideas
• organizations
• institutions
• ecolanguage