A crude understanding of today’s American middle (non-manufacturing) class is as follows (this assumes that services are peripheral/secondary to consumer goods):
The class designs goods (engineers, sketches, etc) à the class is paid for its labor à the designs are manufactured abroad à the manufacturing labor is paid à the goods are returned to the US and sold back to the non-manufacturing class.
The great assumption that Smith makes is that the manufacturing labor is a politically empowered class. That is clearly not the case. Those with the political power are the owners of mass capital, and they are free to find their manufacturing labor in countries which have a very low standard of living and low standard of worker rights. Therefore, the productivity of the manufacturing class, it seems, is greatly disconnected from the increase in profit which that productivity creates. Though it doesn’t directly follow from this, I would argue that in fact the increase in the division of labor has led to a decrease in labor opulence! The curve may be U-shaped: initially it may have held true, however the division of labor is now so great that the laborer is almost completely removed from the final good (and its profits), and therefore cannot realize that an increase in her/his productivity leads to greater production (and greater profit).
I would suggest that parts of Smith are still true today, even though you do point out a strong exception.
ReplyDeleteAnd to further prove that this assumption of Smith is true today, I would look at strikes and to a certain extent, they/the unions are very powerful. Strikes can shut down cities - look at San Francisco and the hotel workers' strike.
Interesting connection between Smith's DL and our current experience of this concept esp. in your understanding of a u-shaped curve to describe what is happening, definitely a start
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