Principles of Economics by Carl Menger Chapter 1.5 - Causes of Human Prosperity

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Is the division of labor really the main reason societies become wealthy? Or is there a deeper cause behind human prosperity?
In this video, we explore Carl Menger’s critique of Adam Smith and his powerful insight into the true roots of economic progress. While Smith emphasized the division of labor as the driver of productivity, Menger agrees only partly. He argues that while labor division is important, the real engine of prosperity is humanity’s growing ability to understand and control production through the use of higher-order goods.
Menger illustrates this with a clear contrast: a tribe may divide tasks well, but if all they do is gather what nature provides, their wealth remains limited. True prosperity begins when people stop passively collecting and start actively producing—using tools, machines, and knowledge to transform raw inputs into finished goods.
As societies climb the chain of production—from clubs to bows, from hunting to farming, from manual tools to industrial systems—they create new goods, new jobs, and new wealth. Labor division follows this growth, not the other way around.
The key insight: Prosperity is caused by knowledge—by understanding the causes of production and learning to control them. Labor division supports this, but it is not the root.

❓ Questions This Video Answers:
-What did Adam Smith get right—and miss—about prosperity?
-Why is division of labor not enough to explain wealth creation?
-How do higher-order goods increase human control over nature?
-What role does knowledge play in economic development?
-How does production evolve as societies grow?

00:00 - Introduction to Causes of Human Prosperity
00:12 - Adam Smith and the Division of Labor
00:45 - Division of Labor in Indigenous Tribe Example
01:14 - Society Using Higher-Order Goods
01:41 - Progression of Tools and Techniques
02:00 - Abundance of Goods and Labor Division
02:24 - Basic Economies vs. Understanding Cause and Effect
02:51 - Human Will and Natural Law
03:09 - How Civilization and Human Progress happens
03:34 - Outro

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