Division of labor and free trade took deep root in their mind. When it comes to object of nation’s free trade, however, their opinion showed dissentience with absolute advantage and comparative advantage. Division of labor is the most basic building-block in their law. Smith argued that specializing and dividing tasks increased output dramatically. Furthermore, division of labor can take place among towns, not just among worker in a factory. In this manner, some countries or towns come to develop their strengths.
When they trade their own advantage with others, the general good grow in both parties. In other words, the benefit of free trade fundamentally bases on specialized strengths in countries or towns caused form division of labor. As Ricardo also supports free trade, it is suffice to say that he also sit in same position at division of labor with Smith. The difference between ideas of the two economists indicates in choosing of the target of free trade. According to Smith, nations should import only those products in which another country has an absolute advantage.
On the other hand, the point of Ricardo’s analysis is that free trade makes it possible for households to consume more goods regardless of whether trading partners are more or less economically advanced. The reason why their principles are distinct is that Smith focuses on using the amount of resources but Ricardo concentrates on opportunity cost. To illustrate, bring trade between Korea and Japan as an example. Imagine that Korea can produce computers and cell phones at six per hour, and Japan can produce either two computers or four cell phones in an hour.
The Essay on Compare The Trade Approach Of Adam Smith To William McKinley
Adam Smith, a great social scientist was referred as father of the liberal capitalism. Adam always had unique principles and beliefs on the politics and has a great manifesto of a trade approach that has greater impact on manufacturing. There were many critiques made on Adam Smith’s trade theories that they are totally applicable to the consumers but not to the companies or dealers.. Magarac an ...
Productivity of Korea is higher in both computer and cell phone, which means that Korea has the absolute advantage over Japan in producing not only computer but also cell phone. In this case, Smith claims that Korea does not need to transact with Japan. Since he focuses on efficient using of resource, manufacturing in less-efficient country, Japan, is waste of materials and this should be blocked by invisible hand which means Korea should stop to trade with Japan.
However, Ricardo argues that even though Korea has better prowess in both, trading with japan is more beneficial to either Korea or Japan. In above table, while Japan makes one computer, it loses time of making two cell phones. In this case, the two cell phones are the opportunity cost of making one computer to Japan. Ricardo showed that people and countries should specialize in whatever leads them to give up the least. This is their “comparative advantage”. Thus, Japan has comparative advantage in producing of cell phone and comparative advantage of Korea is making computer.
According to Ricardo, focusing on making only their comparative advantage and trade each other is mutually beneficial to both than self-sufficiency. To put it succinctly, Smith and Ricardo argue that free trade based on division of labor bring wealth in countries. However, Smith insists that trading with those country which has absolute advantage is beneficial whereas Ricardo argues that free trade takes advantage under any circumstances. This is difference between the two economists.
