That the Division of Labour is Limited by the Extent of the Market: Wealth of Nations Chapter 3
Claim
Division of Labour is directly correlated to the size of the market.
In case you missed it, Chapter 2 is here.
Small Towns
Imagine making nails for a town of 50 people. You might become great at making nails. Even making thousands per day. But who wants that many nails.
When a market is small, a person can’t dedicate himself to one thing there. A low population forces a person to learn a greater number of skills. A carpenter also needs to be the joiner, the cabinet maker and the cart and wagon maker.
There are even some occupations which can only exist in a big city. A porter, someone who opens and closes the gate to a city, can’t exist in the countryside.
The power of being able to exchange allows for the division of labour. Therefore, the larger the market is allows labour to divide further.
Waterways
The most advanced countries in early civilization were along water ways. Waterways made the market bigger, so countries were able to advance quicker. In previous chapters, here is Chapter 1 and Chapter 2, we established the more division of labour leads to a more advanced civilization.
In the 18th century, a wagon could take four tons of goods. They needed a crew of two men and eight horses. In comparison, a ship used six to eight men to bring 200 tons of goods. To match that volume by land, it would take 100 men with 400 horses and 50 wagons.
The extra men and wear and tear of wagons meant land travel was much more expensive. If it takes more expense to travel, the value of goods per pound needed to be much greater. For this reason, you would only see high value and light goods being traded by land.
Eventually, if the price per pound is high enough the risk of robbery makes it prohibitive to travel by land long distances. Adam Smith only saw London and Calcutta start to be able to trade because of waterways.
Examples of Extensive Markets
The first advanced civilizations wer along the Mediterranean. Even rudimentary ship technology could navigate the calm waters and close islands. For this reason, you saw wealth in countries like Greece, Italy or Egypt.
Egypt had an extra advantage due to the Nile River. The nile has a series of canals going through the inland. This allowed cities to not only congregate along the Mediterranean but also inland.
Other examples of this natural waterway leading to advanced societies can be seen in Bengal or Eastern China.
Not Just Water
I could imagine an argument being the water itself and not the market size led to this success for countries.
However, Africa has many other great rivers other than the Nile. The other rivers don’t offer the same inland navigation to allow trade like the Nile did to the Mediterranean. Even though African countries had plenty of water, it did not have the trade power of the Nile by connecting cities and countries. These African countries did not see the same financial success as Egypt.
Also, Northern china has a lot of waterways but they are frozen. They are also too far a distance to connect. They also did not see the same success as Eastern China.
Inland Countries
A land-bound country must always lag behind its neighbors. The only people they can trade with are their neighbors. The wealth of the sea bordering countries can transfer wealth inland. But not vis-versa.
If a great inland navigation reaches another country before it hits the sea or ocean it does not help the inland country. The country it runs through can easily obstruct communication and travel.
For the podcast summary of this chapter, listen to The Nerd Assassin Financial Friday. Or continue reading Chapter 4.
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