Adam Smith is known as the ‘Father of Economics’. In 1776, he wrote An Inquiry into the Nature and Causes of the Wealth of Nations, which is thought to be the first major text on economics. One of his key insights laid out in Chapter One was ‘the greatest improvements in the productive powers of labour…seem to have been the effects of the division of labour’. And he gave this famous example:
‘ To take an example…the trade of a pin-maker: it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire; another straights it; a third cuts it; a fourth points it; a fifth grinds it at the top for receiving the head; …in this manner, divided into about eighteen distinct operations, …I have seen a small manufactory of this kind, where ten men only were employed… could make among them upwards of forty-eight thousand pins in a day’
Smith believed the division of labour was at the heart of what could generate the wealth of nations. But he wasn’t the first to make this insight.
Enter Al-Ghazali and Pins
The Persian polymath, Al-Ghazali, was born in the year 1058 and so almost 700 years before Smith. He wrote on theology, law, philosophy and even economics. In his most famous work, The Revival of the Religious Sciences, he touches on all of these topics. But crucially, he writes about the division of labour with the following example, which is startingly similar to the example Smith gave hundreds of years later:
’even the small needle would have become useful only after passing through the hands of needle-makers about 25 times, each time going through a different process’
And he elaborated with another example:
‘…For a bread, for example, first the farmer prepares and cultivates the land, then the bullock and tools are needed to plough the land. …then the crop is harvested and grains are cleaned and separated. Then, there is milling into flour before baking takes place. Just imagine – how many tasks are involved; and we here mention only some. And, imagine the number of people performing these various tasks…one will find that perhaps a single loaf of bread takes its final shape with the help of perhaps more than a thousand workers ‘
Conditions for Free Markets
Elsewhere, Al-Ghazali talked about the need to create marketplaces and role of demand and supply in setting prices:
‘…But, it is also possible that when the carpenter wants food in exchange for some tools, the farmer does not need the tools. Or, when the farmer needs the tools from the carpenter, the carpenter does not need food. …Therefore, there emerge forces leading to the creation of trading places…Farmers bring their produce to the markets and if they can’t readily sell or exchange what they possess, they sell them at a lower rate to the traders who in turn store the produce and try to sell to the buyers at a profit. This is true for all kinds of goods and services.’
He discussed the importance of fair practises in the market.
‘they should not give false information about the weight, quantity, or the price. Engaging in such a practice is a fraud, which is to be strictly prohibited..’
The utility maximising nature of people:
‘Man loves to accumulate wealth and increase his possessions of all kinds of property. If he has two valleys of gold, he would want to have a third…Man has high aspirations. He always thinks that the wealth which is sufficient presently may not last, or it may become destroyed and then he may need more. He tries to overcome these fears by further accumulation. But such fears do not end, regardless of the accumulations – even if he has all the possessions of the world.’
It becomes clear then that key concepts Adam Smith elaborated on the Wealth of Nations were well known and discussed for hundreds of years before. There are even stories that Smith had Persian texts in his library…