Adam Smith begins by stating that the greatest improvements in the productive power of labor lie in the division of labor. Even in the production of very simple products, division of labor always increases productivity exponentially. Smith offers three reasons for this increase in productivity. First, the division of labor creates specialized knowledge of a particular trade or task. This, in turn, makes the laborers engaged in this task more dexterous, and therefore more productive. Secondly, the division of labor saves the laborer time. In focusing on one task, rather than passing from one task to another, a process that requires him to use different tools and materials, he is able to maximize his time, thus increasing productivity. Finally, the amount of time spent by laborers on an isolated task leads to innovation in the methods and tools employed in the task, and therefore to technological innovation that ultimately makes that task easier. Therefore, increased division of the labor involved in the production of a particular product leads to increased productivity.
By increasing productivity, the division of labor also increases the opulence of a particular society, increasing the standard of living even of the most poor. Division of labor also means that many people are involved in the production of each and every manufactured product. This is a testament to the interconnectedness not only of the laborers employed in manufacturing, but of all the branches of commerce.
Of the principle which gives occasion to the division of labor
Chapter Two describes the manner in which material exchange spreads the benefits of the division of labor throughout society. At the beginnings of a particular society, it may have been talent that decided which member carried out which task. Division of labor by skill set would have allowed for modest efficiencies and surpluses. These surpluses would have allowed one member of society to trade the fruits of his labor for other objects that were needed. In this way, instead of each man struggling to produce some of the things he needed, each man would specialize, producing an excess of one thing, and exchange to gain all or most of required. This would increase the well-being of each member of society that was engaged in such production and trade.