. . . The gains of both are mutual and reciprocal, and the division of labour is in this, as in all other cases, advantageous to all the different persons employed in the various occupations into which it is subdivided."
Therefore, the division of labor and human nature combine to produce a natural growth of the market, and the more people that are involved, the more opportunities for growth there will be as a result. In this regard, Smith adds that, "The greater the number and revenue of the inhabitants of the town, the more extensive is the market which it affords to those of the country; and the more extensive that market, it is always the more advantageous to a great number" (Book III, chapter 1).
This point is also made by McLean (2006) who reports, "After discussing the division of labour, Smith moves on to point out that it is 'limited by the Extent of the Market.' This immediately leads to the deduction that the greater the extent of the market, the greater the productivity and income improvement permitted by extending the division of labour" (69). It is important to note, though, that Smith also emphasized that danger that the love of wealth can have on the public's morals (Clark 417).
Marx's Response to Smith's Analysis
As "the father of communism," it is not surprising that Marx was at loggerheads with Smith, "the father of capitalism," concerning some fundamental issues (Manton & English 468). Despite their differences, Marx would likely agree with Smith's attitude about religion that it was "an artefact of the human imagination" (McLean 12); however, Marx would be less likely to agree with Smith's analysis concerning the how the division of labor contributes to the creation of wealth and how the invisible hand operates compared to centralized planning. In this regard, Scaliger (2008) notes that, "The labor theory of value was used by Karl Marx to justify central planning since, if value was a strict consequence of labor invested, then 'correct' valuations could be determined by enlightened central planners" (33).
In addition, in sharp contrast to Smith's views concerning the ascendancy of the free market, Marx warned against the collapse of capitalism and its tendency to exacerbate economic periods of boom and bust (Boskin 8). Likewise, Smith's maintained that the invisible hand of the market produces the greatest good for the greatest number while Marx is credited with observation that economic crises are "part and parcel of capitalism" (Selgin 44). According to Foster (2002), "Adam Smith described capitalism in the late eighteenth century as a system that eliminated all need for a sovereign power in the economic realm, replacing the visible hand of the absolutist or mercantilist state with the invisible hand of the market" (2). Conversely, Marx did not provide a theory of monopoly capitalism along the lines of Smith, but he did "point to the concentration and centralization of capital as a fundamental tendency of accumulation under capitalism" (Foster 2).
The research showed that the first three chapters of Adam Smith's Wealth of Nations set forth his determinants of wealth creation, the interaction of the division of labor, human nature, and the growth of the market. The division of labor, from Smith's perspective, allowed greater specialization of labor in ways that generated surpluses. Human nature and self-interests functioning as the invisible hand then operate in mutually reinforcing ways to promote the growth of the market. The research also showed that this straightforward analysis of wealth creation would be rejected, at least in part, by Karl Marx who would argue for the need for centralized planning rather than the invisible hand to optimize the division of labor.
Clark, Charles M. (2002, June). "Wealth and Poverty: On the Social Creation of Scarcity."
Journal of Economic Issues 36(2): 415-421.
Foster, John B. (2002, January). "Monopoly Capital and the New Globalization." Monthly
Review 53(8): 1-5.
Manton, Edgar and English, Donald. (2000, September). "The Ability of College Freshmen to Identify Adam Smith and Karl Marx." College Student Journal 34(3): 468-471.
McLean, Iain. Adam Smith: Radical and Egalitarian: An Interpretation for the 21st Century.
Edinburgh: Edinburgh University Press, 2006.
Selgin, George. (2011, December). "Crisis Economics: A Crash Course in the Future of Finance." Freeman 61(10): 43-49.