The Concept of Abstract Labour in Adam Smith's System of Thought

Rahim, Eric (2007) The Concept of Abstract Labour in Adam Smith's System of Thought. Discussion paper. University of Strathclyde, Glasgow.

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Abstract

The starting point of this paper is Kenneth Arrow’s recognition that Adam Smith did not suppose the phenomenon of division of labour to derive from innate individual differences among people (an idea that underpins neoclassical economics); Smith, on the contrary (as indeed dictated by his purpose of elucidating the process of growth) envisaged labour as essentially homogeneous or ‘abstract’ (Marx’s term). The paper goes on to argue that Smith, rather than attributing productivity gains from specialisation to the exploitation of differing individual capabilities, understands such gains to result from economies of scale as growing markets permit increasing degrees of specialisation, thus yielding lower unit costs in production. Furthermore, Smith recognises that to maintain the ‘natural balance’ of industries in a growing economy – which is essential to ensure the continuance of growth - two things are necessary: (1) that the price mechanism, working through the profit motive, guides the allocation of resources, and (2) that productive resources are fully flexible – adaptable to the changing requirements of an evolving industrial economy, or, in other words, that resources (essentially labour) are potentially homogeneous or abstract. Finally, this discussion leads on to an unconventional reading of Smith’s famous statement about the ‘invisible hand’, interpreting the virtue of the invisible hand not in the usual subjectivist terms of consumer satisfaction, but in terms of its making possible a process of on-going growth by ensuring the maintenance of the proper (‘natural’) balance of industries.

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