Both Marx and Adam Smith were fascinated by the division of labor. You will remember that Adam Smith begins The Wealth of Nations discussing what it takes to produce a simple pin: somebody to buy the wire, somebody to stretch it, somebody to cut it into different pieces, another person to put a point at one end, another person to round it off on the other end and put the head on.

And all of that, at the end, started raising productivity: As he said, by dividing labor among its 10 workers, one small fac­tory produced 48,000 pins a day versus only as many as 20 if each worker individually manufac­tured an entire pin.

About 80 years later in the 19th century, Marx was also fascinated by what Adam Smith had talked about and said, yes, this is what explains prosperity: the division of labor, which allows you through spe­cialization to raise productivity.

Marx explained how a locomotive is really composed of over 5,000 differ­ent parts. He concluded from this the importance of world trade, because it is trade that allows you to assemble inputs from different parts of the world to create something else that has a surplus value, and that surplus value is what wealth is all about.

What bothered Marx, of course, was that that surplus value should be only captured by a certain group of people, which he argued would lead to the concentration of wealth among a few, which would, in turn, necessarily lead eventually to the demise of capitalism.

That very kind of concentration of wealth is exactly what we get in Latin America, together with China: Too few people are rich, too many people are poor and on the other side look­ing in—and thus, as Marx predicted, comes alien­ation, resentment, and the downfall of the system.

What Marx and Smith, as far as I’ve been able to see, didn’t really get into was what you started doing about those organizations which, like living entities that were being studied by Darwin, were going to put all of these external factors into place.

That in itself was a huge revolution: the creation of the firm as a “legal person.” Up until the 19th cen­tury, if you were about to form a company, you could only do it through political authorization. In the United Kingdom, you needed a charter of the king; you needed government officials to authorize the specific activity you were in.

That’s why you have in many stores in England, for example, prod­ucts that say “By appointment to Her Majesty the Queen.” Those are the old business organizations that you should look into and not others.

Excerpts from my lecture is Economic Freedom for Everyone? [0]