Universities usually prefer that the same person both teaches and does research. There are some purely teaching or purely research-focussed positions, but these are a minority. Both teaching and research achievements (and service as well) are required for tenure. This runs counter to Adam Smith’s argument that division of labour raises overall productivity. One possible cause is an economy of scope (synergy), meaning that teaching helps with research, or research helps to teach. In my experience, there is no such synergy, except maybe in high-level doctoral courses that focus exclusively on recent research. Revising old and basic knowledge by teaching it does not help generate novel insights about recent discoveries. Complex research does not help explain introductory ideas simply and clearly to beginners.
Another explanation is that universities try to hide their cross-subsidy going from teaching to research. The government gives money mainly for teaching, and if teachers and researchers were different people, then it would be easy for the government to check how much money was spent on each group. If, however, the same person is engaged in both activities, then the university can claim that most of the person’s time is spent teaching, or that their research is really designed to improve their teaching. In reality, teaching may be a minor side job and most of the salary may be paid for the research. This is suggested by the weight of research in hiring and tenuring.
The income of universities mostly comes from teaching, so they try to reduce competition from non-university teachers and institutions. One way is to differentiate their product by claiming that university teaching is special, complicated and research-based, so must be done by PhD holders or at least graduate students. Then schoolteachers for example would be excluded from providing this service. Actually the material up to and including first year doctorate courses is textbook-based and thus cannot consist of very recent discoveries. With the help of a textbook, many people could teach it – research is not required, only knowing the material thoroughly. For example, an undergraduate with good teaching skills who was top of the class in a course could teach that course next semester. Teaching skill is not highly correlated with research skill. The advantage someone who recently learned the material has in teaching it is that they remember which parts were difficult. A person who has known something for a long time probably does not recall how they would have preferred it taught when they first learned it.
Researchers forget the basics over time, because they rarely use these – there are more advanced methods. The foundations are learned to facilitate later learning of intermediate knowledge, which in turn helps with more complicated things and so on up to research level. Similarly in sports, musical performance, sewing, the initial exercises for learners can be quite different from the activity that is the end goal. A sports coach is rarely an Olympic athlete at the same time, so why should a teacher be a researcher simultaneously?