Book I, Chapter III

That the Division of Labor Is Limited by the Extent of the Market.

Since the power to exchange gives rise to the division of labor, the extent of that division must always be limited by the extent of the power to exchange—or, in other words, by the extent of the market. Where the market is very small, no one has an incentive to devote himself entirely to one occupation: he cannot exchange all the surplus produce of his own labor, beyond what he himself consumes, for the portions of other people’s produce that he needs.

Some kinds of work, even of the humblest sort, can be carried on only in a large town. A porter, for example, can find employment and a livelihood nowhere else. A village offers far too narrow a field for him; even an ordinary market town is scarcely large enough to provide him steady work. Among the isolated houses and very small villages scattered through a country as sparsely settled as the 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 even a smith, carpenter, or mason living within less than twenty miles of another in the same trade. Families scattered eight or ten miles from the nearest such worker must learn to perform for themselves many small jobs for which, in more populous countries, they would call on these craftsmen. Rural craftsmen are almost everywhere obliged to work in all the different branches of industry sufficiently related to use the same kinds of materials. A country carpenter undertakes every sort of work made of wood; a country smith, every sort of work made of iron. The former is not only a carpenter but a joiner, cabinetmaker, and even woodcarver, as well as a wheelwright, plowwright, and maker of carts and wagons. The latter’s occupations are more varied still. In the remote inland parts of the highlands of Scotland, it is impossible for even a nail-maker’s trade to exist. Such a worker, at the rate of a thousand nails a day and three hundred working days in the year, would make three hundred thousand nails in the year. But there he could not sell even one thousand—that is, a single day’s work—in the course of a year. Because water transport opens to every kind of industry a wider market than transport by land alone can offer, it is along the seacoast and the banks of navigable rivers that industry of every kind naturally first begins to subdivide and improve; often much time passes before these improvements reach the interior of the country. A broad-wheeled wagon accompanied by two men and drawn by eight horses carries goods between London and Edinburgh and returns in about six weeks, carrying nearly four ton weight of goods. In about the same time a ship sailed by six or eight men between the ports of London and Leith frequently carries and brings back two hundred ton weight of goods. Thus six or eight men using water transport can carry the same quantity of goods between London and Edinburgh and bring the same quantity back in the same time as fifty broad-wheeled wagons accompanied by a hundred men and drawn by four hundred horses. On two hundred tons of goods carried from London to Edinburgh by the cheapest land transport, then, one must charge the maintenance of a hundred men for three weeks, as well as the maintenance and the nearly equal cost of wear and tear of four hundred horses and fifty large wagons. On the same quantity carried by water, one must charge only the maintenance of six or eight men and the wear and tear of a ship with a carrying capacity of two hundred tons, together with the cost of the greater risk, or the difference in insurance between land and water transport. If land transport were the only connection between the two places, no goods could be transported between them except those of very considerable value in proportion to their weight. They could then carry on only a small part of their present commerce, and consequently offer each other’s industry only a small part of its present encouragement. 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 transport between London and Calcutta? And if any were precious enough to bear it, how safely could they be transported through the territories of so many barbarous nations? Yet these two cities at present conduct very considerable commerce with one another and, by offering each other a market, provide considerable encouragement to each other’s industry.

Given these advantages of water transport, it is natural for the earliest improvements in arts and industry to occur where that convenience opens the whole world as a market for the produce of every kind of labor, and for them to reach inland regions only much later. For a long time, the inland parts of a country can have no market for most of their goods except the territory around them that separates them from the seacoast and the great navigable rivers. The size of their market must therefore long depend on the wealth and population of that surrounding territory, and their own improvement must accordingly always come after its improvement. In our North American colonies, plantations have consistently followed either the seacoast or the banks of navigable rivers, and have hardly anywhere extended any considerable distance from both.

The nations that, according to the most trustworthy history, appear to have first become civilized lived around the coast of the Mediterranean sea. That sea, by far the greatest inlet known in the world, has no tides and therefore no waves except those caused by wind. Its smooth surface, its many islands, and its nearby shores made it exceptionally favorable to navigation in the world’s infancy, when ignorance of the compass made people afraid to lose sight of land, and imperfect shipbuilding made them afraid to venture onto the rough waves of the ocean. To pass beyond the pillars of Hercules—that is, to sail out of the straits of Gibraltar—was long considered in the ancient world an astonishing and dangerous feat of navigation. Even the Phoenicians and Carthaginians, the most skilled navigators and shipbuilders of those ancient times, were late in attempting it; for a long time they were the only nations to do so.

Of all the countries on the Mediterranean coast, Egypt appears to have been the first in which either agriculture or manufactures were developed and improved to any considerable degree. Upper Egypt nowhere extends more than a few miles from the Nile. In Lower Egypt that great river divides into many canals, which with a little human ingenuity seem to have allowed transport by water not only between all the large towns but between all the substantial villages and even many farmhouses in the countryside, much as the Rhine and the Maese do in Holland today. The extent and ease of this inland navigation was probably one of the chief causes of Egypt’s early improvement.

Improvements in agriculture and manufactures also seem very ancient in the provinces of Bengal, in the East Indies, and in some eastern provinces of China, though the full extent of that antiquity is not established by any histories whose authority we in this part of the world can confidently accept. In Bengal, the Ganges and several other great rivers form numerous navigable canals, much as the Nile does in Egypt. In the eastern provinces of China, too, several great rivers form a multitude of canals through their various branches and, by communicating with one another, provide a system of inland navigation far more extensive than that of the Nile or the Ganges, or perhaps both together. It is remarkable that neither the ancient Egyptians nor the Indians nor the Chinese encouraged foreign commerce; all seem instead to have derived their great wealth from inland navigation.

All the inland regions of Africa, and the part of Asia lying any considerable distance north of the Euxine and Caspian seas—ancient Scythia, modern Tartary and Siberia—seem in every age to have remained in the same barbarous and uncivilized state in which we find them now. The sea of Tartary is the frozen ocean, which permits no navigation. Although some of the world’s greatest rivers run through that country, they are too far apart to carry trade and communication through most of it. Africa has none of the great inlets that can carry maritime commerce into the interior of that great continent: none such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, or the gulfs of Arabia, Persia, India, Bengal, and Siam in Asia. Africa’s great rivers, moreover, are too far apart to make any considerable inland navigation possible. Further, a nation can never conduct very considerable commerce by a river that neither divides into many branches or canals nor reaches the sea before passing through another territory. The nations possessing that other territory always have the power to 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 compared with what it would be if any one of them possessed its entire course until it falls into the Black sea.

How the Size of the Market Limits the Division of Labor.

The ability to exchange gives rise to the division of labor. So the division can only grow as far as that ability extends—in other words, as far as the market extends. If the market is very small, no one has a reason to devote themselves entirely to one occupation. They could not exchange all the products of their work beyond what they use themselves for the products of other people's work that they need.

Some jobs, even very ordinary ones, can be carried on only in a large town. A porter, for example, cannot find steady work and a living anywhere else. A village provides far too little business; even an ordinary market town can barely keep him busy. Among the isolated houses and tiny villages scattered through the sparsely settled highlands of Scotland, every farmer must be his own family's butcher, baker, and brewer. In such places we can hardly expect to find a smith, carpenter, or mason within less than twenty miles of another worker in the same trade. Families living eight or ten miles from the nearest such worker have to learn to do many small jobs themselves. In more populated places, they would ask those tradespeople for help. Country workers nearly everywhere must handle many different branches of work involving the same kinds of materials. A country carpenter does every kind of wooden work, and a country smith every kind of ironwork. The carpenter works not only as a carpenter but also as a joiner, a cabinetmaker, a woodcarver, a wheelwright, a plow maker, and a maker of carts and wagons. The smith has an even wider variety of jobs. Even a nail maker could not earn a living as a specialist in remote inland parts of the highlands of Scotland. A worker making a thousand nails a day over three hundred working days would make three hundred thousand nails in a year. But there he could not sell even one thousand nails in a year, the output of one day. Transport by water opens a larger market to every kind of work than transport by land alone. So industries of every kind naturally first become more specialized and productive on coasts and along navigable rivers. Often those advances reach inland areas only much later. In about six weeks, a wide-wheeled wagon with two men and eight horses can carry goods from London to Edinburgh and return with a load, moving near four ton weight of goods. In about the same time, a ship sailed by six or eight men between the ports of London and Leith can often take goods out and return with two hundred ton weight of goods. Six or eight men using water transport can thus move as many goods between London and Edinburgh in that time as fifty wide-wheeled wagons with a hundred men and four hundred horses. For two hundred tons of goods carried from London to Edinburgh by the cheapest land route, the price must cover a hundred men's upkeep for three weeks. It must also cover four hundred horses' upkeep and wear and tear, which costs almost as much as their upkeep, along with wear and tear on fifty large wagons. For the same goods moved by water, it need cover only six or eight men's upkeep, wear and tear on a ship of two hundred tons capacity, and the additional risk—or the difference between the cost of insurance for land and water transport. If land transport were the only link between these places, only goods of great value relative to their weight could travel between them. They could do only a small part of the trade they now do and give each other's industries only a small part of the support they now give. There could be little or no trade between distant parts of the world. What goods could bear the cost of land transport from London to Calcutta? And if goods were valuable enough to bear that cost, could they be moved safely through the lands of so many peoples regarded as barbarous? Yet those cities now do a great deal of trade with each other. By providing markets for each other, they substantially support each other's industries.

Given these advantages of water transport, we should expect the first advances in skills and industries to occur where it opens the entire world as a market for every kind of product. We should expect those advances to reach inland areas much later. For a long time, inland areas can sell most of their goods only in the surrounding country between them and the coast or major navigable rivers. Their market's size therefore depends for a long time on the wealth and population of that surrounding country, and they can only develop after it does. In our North American colonies, settlements have consistently spread along the coast or navigable riverbanks. They have hardly ever reached any great distance from both.

According to the most reliable histories, the first civilized nations seem to have lived around the Mediterranean sea. It is by far the largest known inlet. It has no tides, and therefore no waves except those caused by wind. Its relatively smooth waters, its many islands, and the closeness of its shores made it exceptionally well suited to navigation in its early days. Without compasses, sailors feared losing sight of land. With imperfect shipbuilding skills, they feared venturing into the ocean's rough waves. For a long time in the ancient world, passing beyond the pillars of Hercules—that is, sailing out through the straits of Gibraltar—was considered an extraordinary and dangerous feat. Even the Phoenicians and Carthaginians, the most skilled sailors and shipbuilders of those times, were late to try it. For a long time they were the only peoples who did.

Of all the countries along the Mediterranean sea, Egypt seems to have been the first where farming or manufacturing developed substantially. No place in Upper Egypt is more than a few miles from the Nile. In Lower Egypt the river splits into many channels. With a little human work, these seem to have enabled water transport between all the large towns, all the substantial villages, and even many farmhouses. The Rhine and the Maese serve Holland in much the same way today. The reach and ease of travel on these inland waterways probably helped Egypt develop early.

Farming and manufacturing also seem to have developed very long ago in Bengal in the East Indies and in some eastern provinces of China. But no historical accounts whose reliability is well established for us in this part of the world confirm just how long ago. In Bengal the Ganges and several other large rivers form many navigable channels, as the Nile does in Egypt. In China's eastern provinces, several large rivers branch into many channels. These channels connect with each other and provide inland waterways far more extensive than those of either the Nile or the Ganges, and perhaps more extensive than both together. Notably, the ancient Egyptians, Indians, and Chinese did not encourage foreign trade. They all seem to have gained their great wealth from these inland waterways instead.

Africa's inland regions, and the part of Asia a considerable distance north of the Euxine and Caspian seas—ancient Scythia and modern Tartary and Siberia—seem to have remained in every age in the same undeveloped and uncivilized condition in which we now find them. The sea of Tartary is the frozen ocean and cannot be sailed. Some of the world's largest rivers do cross that country, but they are too far apart to carry trade and communication through most of it. Africa has no great inlets like Europe's Baltic and Adriatic seas, the Mediterranean and Euxine seas shared by Europe and Asia, or Asia's gulfs of Arabia, Persia, India, Bengal, and Siam. Such inlets could carry sea trade far into the continent. Africa's major rivers are also too far apart to permit much inland travel by water. Furthermore, a nation cannot conduct much trade along a river that neither branches into many channels nor reaches the sea without passing through another nation's land. The nation controlling the land downstream can always block access between upstream regions and the sea. Navigation on the Danube is therefore of little use to Bavaria, Austria, and Hungary compared with what it would offer if any one of them controlled its entire course to the Black sea.