Division of labour was common knowledge by the 1770s

[Cross posted from the History of Economics Playground – original here]

I always think of Adam Smith when I hear the term ‘division of labour’ – but I’m being cured of this by reading a bit more about Britains late 18th century in Jenny Uglow’s The Lunar Men. A very good read on industrialists and doctors, it remarks on Matthew Boulton’s (think steam engine / manufacturing) explanation to Lord Warwick (in 1773) that it is ithe seperation of processes which allow British manufacturers to compete with continental Europe. So Adam Smith’s comments were not so much brilliant discovery, but rather explanation of well established fact:

Lord Shelbourne had anticipated him [Boulton] when he reported on the Birmingham hardware trades seven years before [in 1766], putting its success down to three factors: the shaping of malleable metal by stamping machines, which replaced human labour, the division of labour between as many hands as possible, making tasks so simple that even a child could do it (and oftent did), and the ‘infinity of smaller improvements which each workman has and sedulously keeps secret from the rest’. (Uglow p. 212, citing Fitzmaurice)

Indeed it seems that the term and idea were discussed through the decade as the big manufacturers invented and built their factories, although such “specialization had been applied in different British trades for some time; the added efficiency of employing a workman for one particular operation was common knowledge” (ibid, citing Berg).

For me it goes to show that people will be credited for inventing things, when they are often re-stating common knowledge.

————SHORT REFERENCES————–

Uglow, Jenny, 2002, The Lunar Men, London: Faber & Faber

Fitzmaurice, Lord Edward, 1875-76, Life of William, Earl of Shelbourne, vol. I, London, p. 277

Berg, Maxine, 1985, The Age of Manufactures: Industry, innovation and work in Britain 1700-1820, Blackwell Publishing, p. 293

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UK Budget Appeals to Adam Smith’s Approach to Taxes… Sort of

[Cross posted from the History of Economics Playground – original here]

Yesterday the Chancellor of the Exchequer (or UK ‘finance minister’) gave his annual budget speech where UK fiscal policy is set for the coming years. In announcing his tax changes he name-dropped Adam Smith as the inspiration for his objectives on tax:

Two hundred years ago, Adam Smith set out the four principles of good taxation – and they remain good principles today. Taxes should be simple, predictable, support work, and they should be fair. The rich should pay the most, and the poor least.  George Osbourne, 21 March 2011

There has been a longer debate about whether Smith was in favour of progressive taxation or whether he simply intended a flat tax, where the rich by definition pay more than the poor. But putting that aside, I wanted to see if those four tax principles were Smith’s principles: Simple, predictable, support work and fair. Grabbing my trusty Wealth of Nations there is a whole section on taxes [Book V. ii. b] where Smith opens by saying that “it is necessary to premise the four following maxims with regard to taxes in general” [V.ii.b.2] – so far so good:

1. “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities” [V.ii.b.3]. Well… this sounds like fair, but recall the controversy about what this actually means. Admittedly it does sound a lot like  ‘from each according to his…’ – but let’s not go down that path.

2. “The tax which each individual is bound to pay ought to be certain, and not arbitrary” [V.ii.b.4] – this has partly to do with knowing how much you are expected to pay so you are not “in the power of the tax-gatherer” and partly to do with avoiding corruption and tax avoidance. So this is probably wherepredictable or at a stretch simple comes from.

3. “Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it” [V.ii.b.4]. A practical approach to taxation, but it doesn’t really fit into any of the above neatly, although there is a case for simple and perhaps  the UK system of charging income tax automatically on wages, supports work. But I think both are tangential. This is really a matter of making taxes convenient to pay.

4. “Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the publick treasury of the state” [V.ii.b.6]. Not sure where this fits in to the Chancellor’s overall scheme, as this is a long paragraph arguing that taxes should not be levied where it is too hard to collect or the incentive to smuggle is too high – so it should be administratively simple.

Given that, Adam Smith’s four principles could be summarised as fair, predictable, convenient to pay and administratively simple – not quite what Osbourne had, but perhaps closer to what he did?

How God, Adam Smith, and the invisible hand changes over time

[Cross-posted from the History of Economics Playground – original here]

So with a suitably provocative title I think we can declare 2012 open. And in starting the year I was struck by how words and sentences can change in meaning over time, particularly prompted by this quote:

“No people can be bound to acknowledge and adore the Invisible Hand which conducts the affairs of men more than those of the United States.”

It looks like an elegant statement of policy intent from a finely crafted presidential speech and we all know what it means. And it was exactly that, but the meaning may not be entirely clear when I tell you that the president was George Washington and the words were uttered in 1789. There is a lot of discussion of what the invisible hand means, or doesn’t mean (e.g. Kennedy 2009), but lets stick with Washington and his first inaugural speech to Congress.

“In tendering this homage to the Great Author of every public and private good, I assure myself that it expresses your sentiments not less than my own, nor those of my fellow-citizens at large less than either. No people can be bound to acknowledge and adore the Invisible Hand which conducts the affairs of men more than those of the United States. Every step by which they have advanced to the character of an independent nation seems to have been distinguished by some token of providential agency”

Out of context it could have been any current president. With a little bit of context – here the surrounding sentences – it starts to become a very 18th century statement. That ‘Great Author’ or ‘Providential Agency’ is quite definetly a deity of some form, and then it is left to the rest of us to work out how Washington – who had a copy of Smith’s work on the shelves – had read Adam Smith’s expression of an invisible hand (or some previous reference to it). I’m partial to the religious side, but may have been swayed by Andy Denis (2005) – what do you think?