Key Arguments

• Smith states the core principle explicitly: ‘As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market.’
• In a small market ‘no person can have any encouragement to dedicate himself entirely to one employment’ because he lacks ‘the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption’.
• Certain employments, ‘even of the lowest kind’, can only exist in great towns: a porter ‘can find employment and subsistence in no other place’, and even an ordinary market‑town ‘is scarce large enough to afford him constant occupation’, illustrating how some specializations are impossible without a large market.
• In ‘the lone houses and very small villages’ of the Scottish Highlands, ‘every farmer must be butcher, baker, and brewer, for his own family’, showing that minimal market size forces self‑sufficiency instead of specialization.
• In such sparse settings ‘we can scarce expect to find even a smith, a carpenter, or a mason, within less than twenty miles of another of the same trade’, so families ‘must learn to perform themselves a great number of little pieces of work’ that would elsewhere be outsourced.
• Smith notes that ‘Country workmen are almost everywhere obliged to apply themselves to all the different branches of industry that have so much affinity to one another as to be employed about the same sort of materials’ (e.g. a country carpenter doing all woodwork, a country smith all ironwork), demonstrating restrained specialization where markets are thin.
• He argues it is ‘impossible there should be such a trade as even that of a nailer in the remote and inland parts of the highlands of Scotland’ because though such a worker could make three hundred thousand nails a year, ‘it would be impossible to dispose of one thousand, that is, of one day’s work in the year’, showing that market demand, not productive capacity, constrains specialization.

Source Quotes

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. There are some sorts of industry, even of the lowest kind, which can be carried on nowhere but in a great town.

When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. There are some sorts of industry, even of the lowest kind, which can be carried on nowhere but in a great town. A porter, for example, can find employment and subsistence in no other place. A village is by much too narrow a sphere for him; even an ordinary market-town is scarce large enough to afford him constant occupation.

A village is by much too narrow a sphere for him; even an ordinary market-town is scarce large enough to afford him constant occupation. In the lone houses and very small villages which are scattered about in so desert a country as the highlands of Scotland, every farmer must be butcher, baker, and brewer, for his own family. In such situations we can scarce expect to find even a smith, a carpenter, or a mason, within less than twenty miles of another of the same trade.

The scattered families that live at eight or ten miles distance from the nearest of them, must learn to perform themselves a great number of little pieces of work, for which, in more populous countries, they would call in the assistance of those workmen. Country workmen are almost everywhere obliged to apply themselves to all the different branches of industry that have so much affinity to one another as to be employed about the same sort of materials. A country carpenter deals in every sort of work that is made of wood; a country smith in every sort of work that is made of iron.

The employments of the latter are still more various. It is impossible there should be such a trade as even that of a nailer in the remote and inland parts of the highlands of Scotland. Such a workman at the rate of a thousand nails a-day, and three hundred working days in the year, will make three hundred thousand nails in the year.

Such a workman at the rate of a thousand nails a-day, and three hundred working days in the year, will make three hundred thousand nails in the year. But in such a situation it would be impossible to dispose of one thousand, that is, of one day’s work in the year. As by means of water-carriage, a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not till a long time after that those improvements extend themselves to the inland parts of the country.

Key Concepts

• As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market.
• When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.
• There are some sorts of industry, even of the lowest kind, which can be carried on nowhere but in a great town. A porter, for example, can find employment and subsistence in no other place.
• In the lone houses and very small villages which are scattered about in so desert a country as the highlands of Scotland, every farmer must be butcher, baker, and brewer, for his own family.
• Country workmen are almost everywhere obliged to apply themselves to all the different branches of industry that have so much affinity to one another as to be employed about the same sort of materials.
• It is impossible there should be such a trade as even that of a nailer in the remote and inland parts of the highlands of Scotland.
• in such a situation it would be impossible to dispose of one thousand, that is, of one day’s work in the year.

Context

Opening of Chapter III, where Smith generalizes from his earlier account of the propensity to exchange and division of labour to argue that the scope of specialization in any place is determined by market size, illustrated with examples from Scottish Highlands villages and the impossibility of a specialized nailer there.