Patterico's Pontifications

8/26/2015

“Human Action” and Robert Murphy’s “Choice,” Part 5: The Division of Labor

Filed under: Economics,General,Human Action and Choice — Patterico @ 7:45 am

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.

32 Responses to ““Human Action” and Robert Murphy’s “Choice,” Part 5: The Division of Labor”

  1. Ding.

    Patterico (3cc0c1)

  2. Regarding comparative advantage. It must be assumed that the less productive trader is still productive. This may not always be the case. Consider the childcare or elementary education industry. Provided the assumption is true, a parent may consider handing off child-rearing to a paid baby-sitter or school teacher, even if the parent could do a “better job” or the same job “more efficiently” — provided as explicated that the baby-sitter/teacher is doing the best they can and can’t do anything else any better and that the parent CAN do another job (whether janitor or rocket scientist better than child-care. (“Those that can’t, teach.”)

    However, if a parent perceives (correctly or otherwise) that the baby-sitter or school teacher is DAMAGING the child, then the equation shifts. Maybe teaching whole language rather than phonics, inducing dyslexia. Maybe teaching fuzzy math… maybe the parent (perhaps irrationally) fears the schools system’s requirements about vaccination. Maybe the parent is concerned that age-grouping, and resulting peer-pressure, is intrinsically destructive compared to adult-role-modeling.

    Once a perception takes hold that the “experts” are collecting pay for counter-productive efforts, trading — in a free market — stops. But too often the market is NOT free. Perhaps the company town provides the factory workers a creche for daycare; perhaps the town provides the schoolhouse and teacher; perhaps the labor union negotiates on behalf of all employees, members or not; perhaps the lawyers required to file the class action suit each receive cash for their own efforts, and obtain only “discount-off on next services coupons” for the injured members of the class. Perhaps the medical insurance company picks the lab to test specimens on a price per test basis rather than on availability-of-service point basis. Any of the agent-principle problems start to introduce a trading party who, from at least one perspective, is counter-productive to the desired outcomes of the transactions.

    Pouncer (d90bef)

  3. Pouncer, the book is titled “Choice” for a reason. Everything you said about the problems with government schools is true, particularly in the large cities where the teachers union basically elects the school board, the city councilmen, and the state legislators. But over time, those who can make a choice. Their choice is to move or to send their kids to private schools. Which drives another nail into the coffin of the inner city schools. The progressive solution is to deny that choice to as many as possible. They rightly view vouchers as a mortal threat to their power.

    Too many rural and suburban Republicans are totally unaware of this problem, and they don’t support vouchers as they should.

    bobathome (4a2679)

  4. Any sufficiently complex organization will contain its share of incompetents, drones and outright frauds. You can call this “nk’s Law”, until you find out who said it before me.

    As a matter of fact I was going to warn you about Austrians. Mises is a very persuasive writer but don’t forget that he comes from a country which convinced the world that Beethoven was Austrian and Hitler was German. 😉

    nk (dbc370)

  5. I’m still following your posts, Patterico, but I decided to read Mises’ original (first edition) work. I am totally digging it. So far I have only a small quibble with Mises calling saying that animals and newborns are incapable of “action”. I understand he does so because they are assumed to be incapeable of conscience thought. Classifying their actions as “instinct.”

    felipe (b5e0f4)

  6. These are all excellent points, but not original to Mises.

    I’m reading Adam Smith right now and I am astounded at how current most of his exposition still is. It makes me despair that anyone will ever learn anything about economics.

    Gabriel Hanna (64d4e1)

  7. nk, I think Laurence Peter did you one better.

    The Peter principle is a concept in management theory formulated by Laurence J. Peter in which the selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and “managers rise to the level of their incompetence.”

    https://en.wikipedia.org/wiki/Peter_principle

    This suggests that all the malfeasants will be promoted until they exceed their incompetence in a noticeable fashion. Whereupon they will remain until retirement.

    bobathome (4a2679)

  8. If it is good economics, it must restate Adam Smith.

    Michael Keohane (b1b6f0)

  9. @Pouncer:Regarding comparative advantage. It must be assumed that the less productive trader is still productive. This may not always be the case.

    This would only be true if the negative producer is negative at every possible production–and even still, that producer will do the least damage to the economy if he concentrates on his least damaging thing. If the producer is good at anything, that is what that producer ought to be doing.

    Further, there is rarely only one producer, and probably no industry exists that consists entirely of negative production. As bad as the public school system can be, they have not been shown to be worse than no public school system at all, and nearly all students learn something.

    It’s not that the public schools make people less educated at everything than when they went in, it’s that we’re not getting nearly as much out of them as we used to for the money. Which as bad as it is, is not at all the same as actual negative education.

    Gabriel Hanna (64d4e1)

  10. @bobathome:This suggests that all the malfeasants will be promoted

    Not quite. The tragedy of the Peter Principle is that it happens to all the good employees too.

    If I have an excellent maker of widgets who is conscientious and skilled head and shoulders above the rest, it is natural to promote him to widget-maker supervisor. But that is a different job, and he may be terrible at it. If he’s good at it, he might be promoted again to widget plant manager, which is again a different skill set and he may be terrible at it, and so forth.

    There are only two ways to avoid the Peter Principle: elude promotion, or be universally good at everything.

    Gabriel Hanna (64d4e1)

  11. I know what you mean nk. There is an undercurrent in Mises’ thinking that raises an occassional red flag in my soul.

    felipe (b5e0f4)

  12. nk, the Peter principle is particularly applicable to government bureaucracies since failure is an option. Indeed, it proof that more money needs to be spent. A private business operating in a competitive environment may promote along the same lines, but upper management must correct these mistakes or the whole thing collapses.

    bobathome (4a2679)

  13. Perhaps contentment and humility are the answers.
    Happily being productive at a job with less prestige and less monetary reward,
    and a boss willing to admit the obvious as well.

    I think all of the repub candidates who profess Christian faith should get together for some prayer meetings and make decisions on the future of their candidacies after that.

    That is serious, not just an off-the cuff.

    MD in Philly (f9371b)

  14. Gabriel, your glowing endorsement of public schools did not include an alternative. We are talking about choices here, and to support the public schools in a situation where you presume that nothing would exist as an option, is a fallacy. About 60% of our inner city school attendees are functionally illiterate after 12 years. And they have nothing but contempt for their keepers. It’s a lot like the Soviet Union where the state pretended to pay the workers, and the workers pretended to work. The real question is what could be done to improve this, and the answer should involve a choice so the actor will bear some responsibility.

    bobathome (4a2679)

  15. I agree, bobathome. Someone here a while back called that the justification for the Golden Parachute. Better to pay somebody to get out than to keep him in a position where he’s hurting the organization.

    nk (dbc370)

  16. …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.

    True. True.

    Feminists, on the other hand, think the idea of the division of labor is some heteronormative concept the patriarchy came up with just so they could divide the world into men’s work and women’s work. And then devalue women’s work.

    Feminists put a lot of effort into developing the concept. I wish I could explain it better, but how do two sane people discuss insanity?

    It was of course an idea they were fed by Marxists. I’ll always consider the term “Marxist economics” to be an oxymoron. We know what causes prosperity, and Marxists/feminists argue against it like they have a point we should remotely consider.

    Why do we put up with them?

    Steve57 (3b2e7d)

  17. Gabriel says “This would only be true if the negative producer is negative at every possible production–and even still, that producer will do the least damage to the economy if he concentrates on his least damaging thing. If the producer is good at anything, that is what that producer ought to be doing.”

    I don’t follow this claim. Consider the stereotype of a productive football coach who is also an ineffective history teacher in a system that requires he must attempt both tasks. It’s stupid that the system imposes such a requirement, true. But the earlier question is whether the transaction between the parent and the school system should go forward — given that the parent is better at anything else than coaching football, teaching history, or both. Seems to me the more likely response is to sacrifice football, homeschool history, and let the stupid system fail under the burden of its own stupid requirements. (At which point the coach would best be employed under a new system that allows him to focus on coaching without the distractions of teaching.)

    Pouncer (d90bef)

  18. Also Gabriel: “There are only two ways to avoid the Peter Principle: elude promotion, or be universally good at everything.”

    Oh, I dunno. There are blatantly obvious requirements for management/supervisory roles for which an employee may deliberately demonstrate incompetence at the current, non-supervisory, level. Consider the fictional TV physicist Sheldon Cooper — often called into HR for his insensitive (autistic, Aspergian, narcisstic) remarks. Dr Cooper is NEVER going to be dean. But he may be “promoted” to various higher paid positions in the research hierarchy, perhaps especially created for him, depending on the productive results of his research.

    Pouncer (d90bef)

  19. And that can also work in government. The position of Comptroller in the State of Illinois is a sinecure for political powerhouses — serving no indispensable function but simply countersigning the checks issued by the Treasurer.

    nk (dbc370)

  20. http://www.freetheworld.com/

    The web site of the economic freedom network.

    Economic Freedom

    Economic freedom has been shown in numerous peer-reviewed studies to promote prosperity and other positive outcomes. It is a necessary condition for democratic development. It liberates people from dependence on government in a planned economy, and allows them to make their own economic and political choices…

    The blurb mentions peer reviewed studies. I wish I could find the one I’m thinking of again, but the debate if their ever was one is settled. Austrian school economics works. Since 1970 the number of people around the world living on one dollar a day or less has been reduced by economic liberalization.

    I wish I could provide a more thoughtful comment, but when you talk Mises to me it’s like water and air. My reaction is, “Of course.”

    Steve57 (3b2e7d)

  21. I suspect it will be difficult to put up a more seminal post.

    DNF (755a85)

  22. I am still following this. Unexpectedly. Thank you.

    DRJ (1dff03)

  23. @bobathome:Gabriel, your glowing endorsement of public schools did not include an alternative.

    Not sure how you got “glowing endorsement” out of what I said, that our schools have not yet been shown to be worse than nothing.

    About 60% of our inner city school attendees are functionally illiterate after 12 years. And they have nothing but contempt for their keepers.

    This has been more or less true for a very long time, and will continue to be so under any sort of educational reform you can think of.

    There have only ever been two methods that have ever improved educational outcomes:

    1) Kick out people who don’t want to learn.
    2) Lower expectations to the point that no one has to learn anything.

    Each of these is mostly cosmetic. We want almost all children to reach 18 not being illiterate and uneducated. This has never been done with our population. If we kick out the ones who don’t want to learn, we’ll do much better with the percentage we chose to keep, but those we kicked out won’t be any better off. It is, however, cheaper. Regardless, it’s politically impossible because of disparate impact.

    Instead, our system goes with lowering expectations. Which is every more money and effort spent doing less. If the expectations are lowered the disparate impact goes away, but again the true outcomes are not really different.

    There is no one who knows how to set up a system that will educate everyone, whether they want to be educated or not, whether they’re capable of education or not; but this impossible goal is what we as a nation have decided we must have. Tracked systems a la Germany are unpalatable to us, and competitive examination a la China is so too, and again, disparate impact makes it politically impossible.

    But when you break down the education stats demographically, the US is actually near the top. We educate our African-descended population far better than Africa does and we educate our Asian- and European-descended populations at least as well as Asia and Europe do. But our demographic mix is very different, so our average comes out lower.

    Left to me I would do away with public education altogether; at most provide a voucher for parents to choose a private school. They’d have to carefully evaluate quality and try to get the most for their money, and some parents would choose poorly and their children’s education would suffer. But we have children hard done by the current system too. I don’t have easy answers. No one does.

    Gabriel Hanna (64d4e1)

  24. @Pouncer:I don’t follow this claim. Consider the stereotype of a productive football coach who is also an ineffective history teacher in a system that requires he must attempt both tasks. It’s stupid that the system imposes such a requirement, true. But the earlier question is whether the transaction between the parent and the school system should go forward — given that the parent is better at anything else than coaching football, teaching history, or both.

    1) The principle of comparative advantage says that the football coach should concentrate only on football since that is what he is best at. When a school requires a coach to do both, they are ignoring the principle of comparative advantage to the detriment of academics and football.

    2) The principle of comparative advantage says that even if you are a better educator than your child’s teacher, you should focus on what you do best, which is feeding and clothing your family by following your chosen profession. If the school sucks because they ignore comparative advantage by having the football coaches teach, then you should find a better school, rather than give up the comparative advantage you have by not educating your child yourself.

    3) So your examples do not indict comparative advantage, they support it.

    4) There may be other valid reasons to educate your child yourself; all comparative advantage says is that this will be less productive in some way if you do so. Our family is trying to place ourselves in a position to do it, but it is because we are not concerned with maximizing our economic output.

    Gabriel Hanna (64d4e1)

  25. Gabriel, your second point depends upon your measure of “productivity”. If you value your children, as your #4 suggests, then you are investing in them, and the pay off will be deferred a decade or two. But, assuming your are still alive, there will be a pay off, plus or minus, that you will deal with. This gets down to the subjective part of everyone’s choices. There are no guarantees with kids (or anything else, really,) but deferring something today for something else tomorrow must be a part of Mises’ economics.

    bobathome (4a2679)

  26. 24. Public educators may mean well but they are mostly glorified sitters.

    While semi-retired I have a second grader with an IQ in the mid-140s. When I have her I will not be working but overseeing and tutoring and likely include other kids her age from my Crossfit community.

    In turn, my daughter will help me with my specialty, talking with the ladies in that community, all of them younger and stronger.

    My daughter will not be bored to tears fed and dumped on my iPhone.

    DNF (ffe548)

  27. Free trade may be optimal for wealth generation in good times, but you have to think about the bad times too, when trade may become impractical or impossible due to war or disaster. It really sucks when you go to war with the country that makes all your steel so you don’t have your own steel industry.

    Cugel (e574ce)

  28. The Nation That Lost Its Jobs, But Got Them Back

    IGotBupkis, "Si tacuisses, philosophus mansisses." (225d0d)

  29. Free trade may be optimal for wealth generation in good times, but you have to think about the bad times too, when trade may become impractical or impossible due to war or disaster. It really sucks when you go to war with the country that makes all your steel so you don’t have your own steel industry.

    Actually, that’s easy — stockpile steel when it appears you may go to war. Then rebuild your production industry using modern robotic techniques before the stockpile runs out. You will kick some ass since your plants will use state of the art tech (which you’re already masters of) and produce much higher grade steel at a fraction of the cost of your enemy’s outdated, labor-intensive plants that depended on their moderately cheap labor.

    Of course, you’ll have no trouble building the robotically controlled manufacturing plants which can produce all your needs using 3-5% of your population, which you were already holding off on, because it made more sense to help the other nations of the world bootstrap themselves up to a semblance of a modern economy before doing so.

    Oh, wait, were we not talking in the hypothetical?

    Suggest you look into the concept of “Reshoring”.

    As China’s wages rise, the benefit of NOT building a robotic plant to make things is going away.

    IGotBupkis, "Si tacuisses, philosophus mansisses." (225d0d)

  30. Also recommend this one:

    http://mruniversity.com/

    IGotBupkis, "Si tacuisses, philosophus mansisses." (225d0d)

  31. Specialization generates one kind of efficiency, but so does flexibility. Do we not admire the maintenance guy who can unclog a drain, rewire a doorbell, spackle and repaint a plaster wall, trim the bushes, adjust the furnace, patch a screen, mow the lawn?

    If one had to wait for different specialists to perform each of these tasks, how long would it take to get them all done? And one of the most destructive impositions made by labor unions is “work rules”, which require particular tasks to be done only by particular specialists.

    The most efficient labor is to do one instance of one particular function continually. But that rarely happens, except in specially organized large workspaces. Anywhere else, sticking to one function means switching instances, which has its own overhead costs. (That’s why a plumber charges $90 or $125 just to show up.)

    And do we not have a certain contempt for people who are helpless at any task beyond one specialization? Are there not articles with titles like “50 things every guy should be able to do”?

    Rich Rostrom (d2c6fd)

  32. Are there not articles with titles like “50 things every guy should be able to do”?

    Interestingly, there are very rarely articles with titles like, “50 things every woman should be able to do”…

    IGotBupkis, "Si tacuisses, philosophus mansisses." (225d0d)


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