I/O, continued. Division of labour. The influence of machinery.

Book 4, Chapter 9

§1. Marshall promises to look into labor, its division and relation to capital and management over several chapters. He begins by supporting “practice makes perfect,” i.e., that:

The mind of the merchant, the lawyer, the physician, and the man of science, becomes gradually equipped with a store of knowledge and a faculty of intuition, which can be obtained in no other way than by the continual application of the best efforts of a powerful thinker for many years together to one more or less narrow class of questions.

While I agree with this formulation, I call attention to the use of “intuition,” which most people define as something you’re born with, but Marshall defines as something acquired. Websters defines it as:

1a: the power or faculty of attaining to direct knowledge or cognition without evident rational thought and inference
2: quick and ready insight

…so Marshall (and many academics) misuse the word, to the detriment of students who seem to “lack intuition” towards non-obvious ideas — a topic I’ve written about [pdf].

§2. The division of labor allows a worker to become more productive, but an efficient worker’s methods of breaking down tasks into simple, repeated steps makes it easier to replace that skilled worker with a machine or “guided” unskilled worker.

§3. Workers are not replaced by machines due to the division of labor as much as the need to produce large volumes of identical parts at scale. It is thus the size of the market that drives mechanization. Put differently, a business will pay fixed costs (FC) if that’s less than the cost savings (Δc) times volume (q), i.e., FC ≤ Δcq.

Mechanization is also a learning process, so each generation of machines, unlike each generation of skilled workers, is likely to be even more efficient.

§4. Since machines are good at producing identical parts, they allow for interchangeable parts, which aid in repairs (no special modifications needed), lower costs, and make remaining workers (with better general skills) more productive.

Marshall gives the example of American watch-manufacturers using standard parts as a means of taking market share from the Swiss watchmakers selling more expensive, less-reliable watches. That’s one reason I was happy to buy this 1921 Hamilton:

§5. Marshall turns to printing, which has also gone through several technological revolutions (from hand-cut plates, to hand-placed letters, to hot-lead type, to digital layouts). These steps, he emphasizes, can be broken into smaller and more specialized niches (somewhat weakening the power of craft), but their output facilitates new trades requiring more skills (journalist, photographer, artist, et al).

§6. Marshall pushes back against claims that automation has left workers with nothing to think about, without craft. Instead, he emphasizes how a woman can run four weaving machines to produce far more cloth than she could make after a day’s drudgery at the hand-loom. The children of poor farmers, likewise, can earn more and use more education, than they could growing potatoes. Also interesting is his point on how machine labor saves a man’s muscles, so he can relax rather than collapse at the end of a working day. (The traditional critique of the Agricultural and Industrial Revolutions is that they resulted in more work — and less satisfaction? — than hunter-gatherer lifestyles, but those lifestyles are neither possible for nearly 8 billion people, nor attractive to most.)

§7. Marshall ends by clarifying how improvements within a factory or business are called “internal economies” (of efficiency) whereas “external economies” arise from what would today be called a “cluster” of related businesses, suppliers and buyers. External economies are next.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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