The division of labor is another form of social interaction that allows individuals to do what the isolated person cannot. In the division of labor, the production of a good is broken down into individual steps. One person then performs one step in the process. No single person produces the good alone. The actions of each individual in the production process must be coordinated. In modern industrial societies, production often takes place in a business firm. “Management” is regarded as the process of coordinating the activities of the individuals within the production process. A specific application of microeconomics to the process of production within a firm is called “managerial economics.” Adam Smith [1723-1790] in the Wealth of Nations proposes that the division of labor is one of the major elements that contribute to economic growth (the increased ability to produce goods and services) [ The Wealth o f Nations, page 1]. The division of labor is the process of dividing a task (work) into its component parts. Smith argues that the division of labor increases production through improved dexterity, saving time in moving from one task
to another and improvements in tools. Smith cautions about the effects of unrestrained use of the division of labor, “In the progress of the division of labor, the employment of the far greater part of those who live by labor, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become….But in every improved and civilized society this is the state into which the laboring poor, that is the great body of the people must necessarily fall, unless government takes some pains to prevent it. [Smith, Wealth of Nations , p 734-735] Smith, a professor of moral philosophy, constructed a system to explain a set of forces that would guide social and economic behavior. In The Theory of Moral Sentiments [1759] he showed the need for justice and a system of morality. In An Inquiry into the Nature and Causes of the Wealth of Nations [1776] he describes the role of self-interest and markets. In a third book that was destroyed at his request at the time of his death, he describes the need for a system of jurisprudence. Two sets of students’ notes have been used to show these basic arguments in Lectures on Jurisprudence [1762-63 and 1766 published in 1978]. Smith describes a social system that requires morality, markets and jurisprudence to guide and constrain individual action in a social context.