This is Part 5 of my ongoing series of posts summarizing Bob Murphy’s indispensable book Choice: Cooperation, Enterprise, and Human Action. Murphy’s book is itself is a summary of Ludwig von Mises’s classic treatise “Human Action” — so you’re reading a summary of a summary. Hey, it’s a blog. Short and concise is what we do.
The idea of this series of posts is to popularize and spread the word about Austrian economics and educate the public. Rather than list all the previous parts, I have created a category for all these posts, called “Human Action and Choice,” so that all these posts can be read (in reverse order) with a single click. Note well: any errors in these summaries are mine and not Murphy’s.
Chapter 5 is a meaty chapter, but an important one. It revolves around the critical concept of the division of labor, which Mises saw as the foundation of all human society, and the reason that we have achieved whatever prosperity we have achieved. The importance of the division of labor, then, cannot be overstated. Understanding the division of labor allows one to spot economic fallacies all over — whether the fallacy is the so-called benefits of buying “local,” or the notion that a nation benefits its citizens by imposing trade barriers, or by preventing jobs from being exported overseas.
If every household tried to be completely and utterly self-sufficient, civilization would collapse. One of the key reasons we have the standard of living we have is because people specialize in particular tasks. The advantages of doing so are numerous. People don’t waste time switching between tasks. Automation is promoted because it makes sense to invest in machines. This is turn gives rise to economies of scale, which leads to tremendous savings. Many tasks require a minimum threshold of workers to accomplish them. And of course the division of labor allows people to use their natural aptitude to its greatest extent, or to acquire a special aptitude through experience.
But the benefits of the division of labor apply regardless of differing aptitude, as economist David Ricardo showed in the early 1800s with his explication of the principle of comparative advantage. This is critical to understand, and destroys the argument for tariffs and other protectionist measures. The notion is this: even if you are better than me at both tasks A and B, together we are more productive if you specialize in one task, and I specialize in the other. Namely, one should specialize in the task in which their advantage is most pronounced.
Murphy gives an example to illustrate the point. Say a store owner (Marcia) is better than the hired help (John) at everything. Store owner Marcia can convince someone to buy an item in 15 minutes, while it takes hired help John two hours to accomplish the same result. Marcia can tidy up the store at closing time in half an hour, while the hapless John takes an hour to do the same. The store owner Marcia is better than the hired help John at both tasks, but Marcia has the greatest comparative advantage in selling, since she can sell eight times as fast as John, and can tidy up only twice as fast. So at closing time, Marcia should concentrate on selling and let John do all the tidying up. She will make far more money this way than she would if she and John did not specialize. You can run any similar experiment with actual numbers and you will see that the math always works out in favor of specialization.
The division of labor is (of course) of no use without the ability to trade and cooperate. This, to Mises, was central. Again: Mises goes so far as to describe as the very foundation of human civilization the fact that humans are more productive when they act in concert with each other — as long as they are able to recognize that fact. Thus Mises rejects the naively sunny view that altruism is the fundamental underpinning of society — but he also rejects social Darwinism, in which stronger people dominate weaker ones for the good of humanity.
Finally, Mises posits that the highest productivity can occur only in a free market. While a command economy can enjoy the benefits of the division of the labor, those benefits will pale in comparison to the fruits of a truly free market. Future chapters (and posts) will illustrate this further.