notes on “Economic Action Beyond the Extent of the Market”, Per Bylund


Markets work by dividing labour, but that’s not as easy as it seems in the Adam Smith’s example of a pin factory, because

  1. a pin factory is not a market, so there is some guidance and orientation, some sort of central planning, inside there that a market doesn’t have;
  2. it is not clear how exactly the production process will be divided, it is not obvious as in “you cut the thread, I plug the head”.

Dividing the labour may produce efficiency, but it also makes each independent worker in the process more fragile, as they become dependent on the others.

This is partially solved by having a lot of different workers, so you do not depend on only one.

If you have many, however, they must agree on where one part of the production process starts and where it ends, otherwise one’s outputs will not necessarily coincide with other’s inputs, and everything is more-or-less broken.

That means some level of standardization is needed. And indeed the market has constant incentives to standardization.

The statist economist discourse about standardization is that only when the government comes with a law that creates some sort of standardization then economic development can flourish, but in fact the market creates standardization all the time. Some examples of standardization include:

  • programming languages, operating systems, internet protocols, CPU architectures;
  • plates, forks, knifes, glasses, tables, chairs, beds, mattresses, bathrooms;
  • building with concrete, brick and mortar;
  • money;
  • musical instruments;
  • light bulbs;
  • CD, DVD, VHS formats and others alike;
  • services that go into every production process, like lunch services, restaurants, bakeries, cleaning services, security services, secretaries, attendants, porters;
  • multipurpose steel bars;
  • practically any tool that normal people use and require a little experience to get going, like a drilling machine or a sanding machine; etc.

Of course it is not that you find standardization in all places. Specially when the market is smaller or new, standardization may have not arrived.

There remains the truth, however, that division of labour has the potential of doing good.

More than that: every time there are more than one worker doing the same job in the same place of a division of labour chain, there’s incentive to create a new subdivision of labour.

From the fact that there are at least more than one person doing the same job as another in our society we must conclude that someone must come up with an insight about an efficient way to divide the labour between these workers (and probably actually implement it), that hasn’t happened for all kinds of jobs.

But to come up with division of labour outside of a factory, some market actors must come up with a way of dividing the labour, actually, determining where will one labour stop and other start (and that almost always needs some adjustments and in fact extra labour to hit the tips), and also these actors must bear the uncertainty and fragility that division of labour brings when there are not a lot of different workers and standardization and all that.

In fact, when an entrepreneur comes with a radical new service to the market, a service that does not fit in the current standard of division of labour, he must explain to his potential buyers what is the service and how the buyer can benefit from it and what he will have to do to adapt its current production process to bear with that new service. That’s has happened not long ago with

  • services that take food orders from the internet and relay these to the restaurants;
  • hostels for cheap accommodation for young travellers;
  • Uber, Airbnb, services that take orders and bring homemade food from homes to consumers and similars;
  • all kinds of software-as-a-service;
  • electronic monitoring service for power generators;
  • mining planning and mining planning software; and many other industry-specific services.

See also