The Division of Labor Is Limited by Market Size

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.

The ability to exchange goods gives rise to the division of labor. The extent of that division must therefore always be limited by the extent of the ability to exchange, or, in other words, by the size of the market. When the market is very small, no one has an incentive to devote themselves entirely to one occupation. They cannot exchange all the goods they produce beyond their own needs for the goods they need from others.

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. 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 former is not only a carpenter, but a joiner, a cabinet-maker, and even a carver in wood, as well as a wheel-wright, a plough-wright, a cart and waggon-maker. 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. 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. A broad-wheeled waggon, attended by two men, and drawn by eight horses, in about six weeks time, carries and brings back between London and Edinburgh near four ton weight of goods. In about the same time a ship navigated by six or eight men, and sailing between the ports of London and Leith, frequently carries and brings back two hundred ton weight of goods. Six or eight men, therefore, by the help of water-carriage, can carry and bring back, in the same time, the same quantity of goods between London and Edinburgh as fifty broad-wheeled waggons, attended by a hundred men, and drawn by four hundred horses. Upon two hundred tons of goods, therefore, carried by the cheapest land-carriage from London to Edinburgh, there must be charged the maintenance of a hundred men for three weeks, and both the maintenance and what is nearly equal to maintenance the wear and tear of four hundred horses, as well as of fifty great waggons. Whereas, upon the same quantity of goods carried by water, there is to be charged only the maintenance of six or eight men, and the wear and tear of a ship of two hundred tons burthen, together with the value of the superior risk, or the difference of the insurance between land and water-carriage. Were there no other communication between those two places, therefore, but by land-carriage, as no goods could be transported from the one to the other, except such whose price was very considerable in proportion to their weight, they could carry on but a small part of that commerce which at present subsists between them, and consequently could give but a small part of that encouragement which they at present mutually afford to each other’s industry. There could be little or no commerce of any kind between the distant parts of the world. What goods could bear the expense of land-carriage between London and Calcutta? Or if there were any so precious as to be able to support this expense, with what safety could they be transported through the territories of so many barbarous nations? Those two cities, however, at present carry on a very considerable commerce with each other, and by mutually affording a market, give a good deal of encouragement to each other’s industry.

Some kinds of work, even the most humble, can be carried on only in a large town. A porter, for example, can find work and make a living nowhere else. A village offers him far too little work. Even an ordinary market town is hardly large enough to keep him constantly employed. In the isolated houses and tiny villages scattered across the sparsely populated highlands of Scotland, every farmer must serve as butcher, baker, and brewer for his own family. In such places, we can hardly expect to find two blacksmiths, carpenters, or masons of the same trade living within twenty miles of each other. Families scattered eight or ten miles from the nearest such worker must learn to do many small jobs themselves. In more populous countries, they would call on those workers for help. Country workers almost everywhere must take on all the related trades that use the same materials. A country carpenter does every kind of work made from wood, and a country blacksmith does every kind made from iron. The carpenter is not only a carpenter, but also a joiner, a cabinet-maker, and even a woodcarver. He also makes wheels, ploughs, carts, and wagons. The blacksmith's jobs are more varied still. In the remote inland parts of the highlands of Scotland, there cannot even be a separate trade for a nailmaker. A nailmaker who makes a thousand nails a day and works three hundred days a year will make three hundred thousand nails a year. But in such a place, he could not sell a thousand nails in a year. That is only one day's work. Transport by water opens a wider market to every kind of industry than transport by land alone can provide. So industry of every kind naturally begins to divide into specialized trades and improve along the coast and navigable rivers. Often, a long time passes before those improvements reach the inland parts of the country. A broad-wheeled wagon, operated by two men and drawn by eight horses, carries almost four tons of goods between London and Edinburgh and back in about six weeks. In roughly the same time, a ship with six or eight men sailing between the ports of London and Leith often carries two hundred tons of goods there and back. So, with water transport, six or eight men can carry the same quantity of goods between London and Edinburgh and back in the same time as fifty broad-wheeled wagons. Those wagons require a hundred men and four hundred horses. Therefore, the cost of carrying two hundred tons of goods from London to Edinburgh by the cheapest land transport must include three weeks' upkeep for a hundred men. It must also include upkeep for four hundred horses and wear and tear on the horses, which costs nearly as much as their upkeep. It must also include wear and tear on fifty large wagons. For the same quantity of goods carried by water, the cost includes only the upkeep of six or eight men and wear and tear on a ship with a capacity of two hundred tons. It also includes the cost of the greater risk, or the difference between insurance for land and water transport. Suppose the only way to carry goods between the two places were by land. Only goods with a very high price in proportion to their weight could then be transported between them. So London and Edinburgh could carry on only a small part of their present trade. As a result, they could give only a small part of the encouragement they now give to each other's industry. There could be little or no trade of any kind between distant parts of the world. What goods could bear the cost of land transport between London and Calcutta? And if any goods were valuable enough to bear that cost, how safely could they be carried through the territories of so many barbarous nations? Yet the two cities now carry on considerable trade with each other. By providing markets for each other, they give considerable encouragement to each other's industry.

Since such, therefore, are the advantages of water-carriage, it is natural that the first improvements of art and industry should be made where this conveniency opens the whole world for a market to the produce of every sort of labour, and that they should always be much later in extending themselves into the inland parts of the country. The inland parts of the country can for a long time have no other market for the greater part of their goods, but the country which lies round about them, and separates them from the sea-coast, and the great navigable rivers. The extent of the market, therefore, must for a long time be in proportion to the riches and populousness of that country, and consequently their improvement must always be posterior to the improvement of that country. In our North American colonies, the plantations have constantly followed either the sea-coast or the banks of the navigable rivers, and have scarce anywhere extended themselves to any considerable distance from both.

Given the advantages of transport by water, it is natural that the first advances in skilled work and industry should occur where water transport opens the whole world as a market for the products of every kind of labor. It is also natural that these advances should spread much later to inland parts of the country. For a long time, most goods produced inland can be sold only in the surrounding country. This country lies between the inland areas and the seacoast and the great navigable rivers. The size of the market must therefore depend for a long time on the wealth and population of that surrounding country. As a result, inland areas must always develop later than the country around them. In our North American colonies, plantations have always followed either the seacoast or the banks of navigable rivers. They have hardly anywhere extended very far from both.

The nations that, according to the best authenticated history, appear to have been first civilized, were those that dwelt round the coast of the Mediterranean sea. That sea, by far the greatest inlet that is known in the world, having no tides, nor consequently any waves, except such as are caused by the wind only, was, by the smoothness of its surface, as well as by the multitude of its islands, and the proximity of its neighbouring shores, extremely favourable to the infant navigation of the world; when, from their ignorance of the compass, men were afraid to quit the view of the coast, and from the imperfection of the art of ship-building, to abandon themselves to the boisterous waves of the ocean. To pass beyond the pillars of Hercules, that is, to sail out of the straits of Gibraltar, was, in the ancient world, long considered as a most wonderful and dangerous exploit of navigation. It was late before even the Phoenicians and Carthaginians, the most skilful navigators and ship-builders of those old times, attempted it; and they were, for a long time, the only nations that did attempt it.

According to the most reliable history, the first nations to become civilized lived along the coast of the Mediterranean Sea. The Mediterranean is by far the largest known inlet in the world. It has no tides, and therefore no waves except those caused by the wind. Its smooth surface, many islands, and nearby shores made it extremely favorable to the world's early sailors. At the time, sailors did not know about the compass and were afraid to lose sight of the coast. Shipbuilding was also imperfect, so they feared exposing themselves to the rough waves of the ocean. In the ancient world, sailing beyond the pillars of Hercules, or out of the straits of Gibraltar, was long regarded as an extraordinary and dangerous feat. Even the Phoenicians and Carthaginians did not attempt it until late in that period. They were the most skilled sailors and shipbuilders of those times. For a long time, they were the only nations that attempted it.

Of all the countries on the coast of the Mediterranean sea, Egypt seems to have been the first in which either agriculture or manufactures were cultivated and improved to any considerable degree. Upper Egypt extends itself nowhere above a few miles from the Nile; and in Lower Egypt, that great river breaks itself into many different canals, which, with the assistance of a little art, seem to have afforded a communication by water-carriage, not only between all the great towns, but between all the considerable villages, and even to many farm-houses in the country, nearly in the same manner as the Rhine and the Maese do in Holland at present. The extent and easiness of this inland navigation was probably one of the principal causes of the early improvement of Egypt.

Of all the countries along the Mediterranean coast, Egypt seems to have been the first to develop agriculture or manufacturing to any considerable degree. Upper Egypt extends only a few miles from the Nile at its widest point. In Lower Egypt, the great river divides into many channels. With a little human engineering, these channels seem to have provided water transport between all the major towns and villages. They even connected many farmhouses in the countryside, much as the Rhine and the Maese do in Holland today. The reach and ease of this inland navigation probably helped bring about Egypt’s early development.

The improvements in agriculture and manufactures seem likewise to have been of very great antiquity in the provinces of Bengal, in the East Indies, and in some of the eastern provinces of China, though the great extent of this antiquity is not authenticated by any histories of whose authority we, in this part of the world, are well assured. In Bengal, the Ganges, and several other great rivers, form a great number of navigable canals, in the same manner as the Nile does in Egypt. In the eastern provinces of China, too, several great rivers form, by their different branches, a multitude of canals, and, by communicating with one another, afford an inland navigation much more extensive than that either of the Nile or the Ganges, or, perhaps, than both of them put together. It is remarkable, that neither the ancient Egyptians, nor the Indians, nor the Chinese, encouraged foreign commerce, but seem all to have derived their great opulence from this inland navigation.

Agriculture and manufacturing also seem to have improved very early in Bengal, in the East Indies, and in some eastern provinces of China. But no histories whose authority we in this part of the world know to be reliable confirm just how long ago these improvements began. In Bengal, the Ganges and several other great rivers form many navigable canals, just as the Nile does in Egypt. In the eastern provinces of China, several great rivers also form many canals through their branches. These canals connect with one another, providing a much more extensive inland waterway network than either the Nile or the Ganges. The network is perhaps more extensive than both of them combined. It is remarkable that neither the ancient Egyptians, nor the Indians, nor the Chinese encouraged foreign trade. Instead, all seem to have gained their great wealth from these inland waterways.

All the inland parts of Africa, and all that part of Asia which lies any considerable way north of the Euxine and Caspian seas, the ancient Scythia, the modern Tartary and Siberia, seem, in all ages of the world, to have been in the same barbarous and uncivilized state in which we find them at present. The sea of Tartary is the frozen ocean, which admits of no navigation; and though some of the greatest rivers in the world run through that country, they are at too great a distance from one another to carry commerce and communication through the greater part of it. There are in Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and the gulfs of Arabia, Persia, India, Bengal, and Siam, in Asia, to carry maritime commerce into the interior parts of that great continent; and the great rivers of Africa are at too great a distance from one another to give occasion to any considerable inland navigation. The commerce, besides, which any nation can carry on by means of a river which does not break itself into any great number of branches or canals, and which runs into another territory before it reaches the sea, can never be very considerable, because it is always in the power of the nations who possess that other territory to obstruct the communication between the upper country and the sea. The navigation of the Danube is of very little use to the different states of Bavaria, Austria, and Hungary, in comparison of what it would be, if any of them possessed the whole of its course, till it falls into the Black sea.

All the inland parts of Africa seem to have remained barbarous and uncivilized throughout history, as we find them today. The same seems true of all the parts of Asia far north of the Euxine and Caspian seas. These are ancient Scythia and modern Tartary and Siberia. The sea of Tartary is the frozen ocean, where no ships can sail. Although some of the world's greatest rivers run through Tartary, they are too far apart to support trade and communication across most of the country. Africa has no great inlets to carry maritime trade into the continent's interior. Europe has the Baltic and Adriatic seas. Europe and Asia share the Mediterranean and Euxine seas. Asia has the gulfs of Arabia, Persia, India, Bengal, and Siam. Africa's great rivers are also too far apart to allow much inland navigation. Moreover, a nation can never carry on very extensive trade by means of a river under certain conditions. The river must have few major branches or canals, and it must cross another territory before reaching the sea. The nations that control that territory can always obstruct communication between the upper country and the sea. Navigation on the Danube is of very little use to the different states of Bavaria, Austria, and Hungary. It would be much more useful if any one of them controlled its entire course to the Black sea.