Introduction
In these passages and lecture videos, the concept of labor division and comparative advantage are explained and show how the economy benefits from these practices. This particularly helps the economic markets when it comes to producing and trading goods between people or nations. While these practices have been around for thousands of years, they have been documented and improved throughout history due to modernization. Bylund goes back as far as the stone age to give examples of how prevalent labor division has been to mankind. In my opinion, labor division is a much simpler idea compared to comparative advantage when it comes to trading goods between two parties. The lecture videos really helped vocalize and visualize this concept and helped me to understand and showed how beneficial it can be in the economic market. The articles and recordings really helped me grasp the concept of labor division and comparative advantage as opposed to absolute advantage.
The Effect of Labor Division
Chapter four of Bylund’s work starts out with a focus on production and the means needed to do so in the most effective way using the division of labor. Rather than everyone doing all the jobs collectively, you divide the workers into sections and have each group work on a different category. Bylund references the Stone Age for his example of labor division saying groups would separate to pick berries, hunt, catch fish, and build shelters. A more modern interpretation of this practice is production lines, seen most commonly in automobile industries. With new technology, companies have started using artificial intelligence instead of humans in these lines. The public does not like these changes as they claim it allows for less jobs in the industry, but using artificial intelligence instead of humans means that businesses have less wages to pay workers which makes production costs less expensive so they can sell the products for cheaper. Bylund states that having each person devote time to one specific task
makes it possible to invest one’s time and effort where it is most useful or produces the most output rather than where one has wants that need to be satisfied.(Bylund, 2016, p. 49)
Most people want to be able to effectively multi task and be able to have many skills, but if each person focuses on their given objective, all the parts can come together to be able to make products more efficiently. I learned a lot of new information on labor division and how it can be a useful tool to maximize the quantity of goods made. It was interesting to see how much more proficient work can be when you properly execute labor division within the economic markets.
Economic Trading with Comparative Advantage
When people or nations trade with each other, both parties seek to reach a mutual benefit, trading with comparative advantage allows for that to happen. This helps to ensure that both economies can flourish by utilizing their time to produce a singular good. A country can have an absolute advantage over another in multiple areas but if their opportunity costs to produce an item is greater than the others than it would be more valuable to focus all of their efforts on producing one good and trading for the other. This idea is similar to labor division in which workers focus on a singular task and once its all together they can produce more items. Comparative advantage is a larger scale in which each country produces more of a single item that has the lowest opportunity cost to trade with rather than producing less of each good themselves. The lecture recordings helped me get a grasp on this idea as it can still get confusing at times. The more total goods that can be produced, the more demand there will be for the goods, this ultimately helps both economic markets grow.
The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production of transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.(Schumpeter, p. 83)
Using comparative advantage creates new markets and production capabilities that Schumpeter believes helps the economic and capitalistic markets grow. This quote stood out to me because I noticed the use of the word "new" repeated within it. This is a key indicator that innovation is a huge factor in improving the economic status of societies. There are always new advancements, especially technological, in the world that help utilize a countries ability to produce a good to benefit themselves and offer a mutual benefit in free trade. When applying comparative advantage in trading, you may not be able to produce all of what you want but the opportunity cost of trading for the goods you desire will be less than if you tried producing them all by yourself. This system will help the economic market grow and maximize the value of goods being bought and sold. The videos and Schumpeter's passage were both very informative and helped me gain a better understanding of the ever evolving market.
Resources
https://canvas.okstate.edu/courses/152057/pages/06-required-readings?module_item_id=4812966