These domestic capitalists hire workers whom they must pay higher wages
than their southern counterparts. That is, they can pay higher wages due to
the greater productivity of agriculture, and they must do so because of the
level of living expected by their workers. Domestic investment is high due to
the aggregate of all their efforts, and domestic wages are strong whether they
like it or not. Thus the domestic market is also strong and growing. The
wealth of the nation is expanding. Adam Smith is at home, and all is right
with the world.
As the manufacturers expand their investments to keep up with growing
demand, their unit costs fall, as Smith would have predicted. The division of
labor develops with the growth of the market, and labor productivity improves
both because of the larger size of establishments and the invention of
ever more productive technology. The process of creative destruction sets
in. This process is made possible by the growth of the home market. The
lack of a growing home market bars the southern nations from benefiting.
The global division of labor favors manufacturing countries at the expense
of agricultural. Manufacturing fosters technical improvements that
can raise the productivity of labor in agriculture, which is a necessary condition
for economic development. Manufacturing favors urbanization, which
expands the market-dependent part of the population and therefore, at least
potentially, the scale of the home market. Manufacturing encourages technical
change and product development, thereby expanding opportunities
for market development and new investment. Manufacturing and urbanization
stimulate attitudes conducive to encouraging capitalist enterprise, attitudes
favorable to the pursuit of private gain, innovation, and capital
investment.
The higher wages in the north stimulate the growth of the domestic
market, which stagnates in the south. The world economy becomes a world
of rich and poor nations where international inequality stems from differences
in wages and in the organization of production. It has much to do with
the great divide between manufacturing and agriculture, urban and rural.
Profit seeking and private accumulation benefit some countries but not
others.