Adam Smith and David Ricardo Had More Similarities Than Differences in Their Ideas

623 Words Oct 24th, 2012 3 Pages
Which policy is better between protectionism and free trade policies? This debate is long-running but still some of the most pressing economic question of today. The history of this row stretches back 18th century. At that time, there were two brilliant protagonists in the free trade camp, Adam Smith and David Ricardo. Adam Smith established cornerstone of free trade and David Ricardo put a stepping stone on it. Since Ricardo read the wealth of nations, Smith’s masterpiece, and developed his theory, most of his thinking has a lot of similarities with that of Smith. 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 …show more content…
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
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