Principles of Political Economy and Taxation, David Ricardo took the argument further with his theory of comparative advantage, asserting that because it is more efficient for Portuguese workers to make wine and English workers to make cloth, each group would be better off focusing on its area of advantage and trading with the other.
These insights both reflected and drove the Industrial Revolution, which was as much about process innovations that reduced waste and increased productivity as it was about the application of new technologies. The notions that the way we organize work can influence productivity more than individual effort can and that specialization creates commercial advantage underlie the study of management to this day. In that sense Smith and Ricardo were the precursors of Frederick Winslow Taylor, who introduced the idea that management could be treated as a science—thus starting a movement that reached its apogee with W. Edwards Deming, whose Total Quality Management system was designed to eliminate all waste in the production process.
Outcomes Aren’t Really Random
When predicting economic outcomes—incomes, profits, and so forth—we often assume that any payoffs at the individual level are random: dictated by chance. Of course, this is not actually so; payoffs are determined by a host of factors, including the choices we make. But those factors are so complex that as far as we can tell, economic outcomes might as well be determined by chance. Randomness is a simplifying assumption that fits what we observe.
If economic outcomes are random, statistics tells us that they will follow a Gaussian distribution: When plotted on a graph, the vast majority of payoffs will be close to the average, with fewer and fewer occurring the further we move in either direction. This is sometimes known as a normal distribution, because many things in our world follow the pattern, including human traits such as height, weight, and intelligence. It is also called a bell curve, for its shape. As data points are added, the whole becomes ever more normally distributed.
