Arnold Kling - Specialization and Trade: A Re-introduction to Economics

Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation.

Adam Smith, The Wealth of Nations

In a primitive society, people are self-sufficient. Each family gathers its own food, makes its own clothing, and finds its own shelter. The largest unit of social cooperation would be an extended family or tribe.

In a modern economy, no one is self-sufficient. Instead, people are specialized. The work you do probably does not produce something you could consume. Even more striking is the fact that almost everything you consume is something you could not possibly produce. Your daily life depends on the cooperation of hundreds of millions of other people.

Just as it is inconceivable that human society would have evolved to its present state without language, it is inconceivable that we would have gotten to this point without specialization and trade. Moreover, in order for society to progress further, patterns of specialization and trade must continue to evolve.

However, specialization and trade are often misunderstood. Misconceptions about specialization and trade are held by economists as well as by noneconomists, by libertarians as well as by socialists. The purpose of this book is to expose and try to correct important misconceptions, especially the misconceptions about specialization and trade, that afflict leading economists and their textbooks.

Picture yourself watching news on cable television while eating a bowl of cereal. However, instead of giving you the news, the TV announcer asks you to consider what you would need to do to make your cereal completely from scratch.

You would need to grow the cereal grains yourself. If you use tools to harvest the grain, you would have to make those tools yourself. To make those tools would require that you yourself mine the metals, process them, combine them, and shape them. To mine the metals, you would have to be able to locate them. You would need machinery, which you would have to build yourself.

Instead of headlines, the crawl on the TV lists all of the tasks and people needed to produce your breakfast. Your cereal was manufactured in a factory that had a variety of workers and many machines. People had to manage the factory. Organization of the firm required many functions in finance and administration. First, however, people had to build the factory. The machines used in the factory in turn had to be manufactured. The machines were made out of materials that had to be mined and transported. That transportation required many other people and machines. The transportation equipment itself had to be manufactured, which required mining and shipping materials to the place where the transportation equipment was manufactured.

Look at the list of ingredients in the cereal. Those ingredients had to be refined and shipped to the cereal manufacturer. Again, those processes required many machines, which in turn had to be manufactured. The cereal grains and other ingredients had to be grown, harvested, and processed. Machines were involved in those processes, and those machines had to be manufactured.