The Division of Labor and Specialization

In direct exchange, people cannot afford to specialize on one task only. They have to do multiple task themselves: get food, water, clothes, build a shelter etc. This gets much better in indirect exchange with money involved. Since you don’t have to make specific trades (e.g. two chickens for a chair) and can use money to buy whatever you need, you are allowed to focus on one task. The same goes with everyone else, dividing labor among people. This is beneficial not only because they can work on what they enjoy doing and what they are good at, but they can also specialize on one task and get better. When they get better, the products get better and when the products get better, everything gets better. More problems get solved, more comfort is available, more efficiency can happen. Specialization allows us to waste less time on switching between tasks, automate our repetitive tasks, create more products, focus and work on what we are truly good at and develop our skills even further.

This doesn’t only apply to things we are good at. We may also focus on a comparative advantage. For example, if Lucy has a clothing store and needs to both convince her customer to buy clothes and tidy up the store, she can hire someone to help her. Let’s say John applies for the job. He takes 60 minutes to tidy up the store, while Lucy only takes 30 and he takes 120 minutes to convince someone to buy, while Lucy only takes 15. You might say that she shouldn’t hire him, because she can get the job done better. Even though that is true, she should still hire him. If she can make $10 dollars off of each sale she makes, she could potentially make $40 dollars an hour, if she focused on convincing customers to buy. If she instead focused on cleaning, she would make $0. This is where John comes in. He only requires $15 per hour. Lucy can hire him and while he cleans the store, she will make sales. This leaves her with a $25/hour profit instead of $0.

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