/ Smith Theory of Absolute Benefits

The theory of absolute advantages of Smith

The founder of the classical economic schoolwas Adam Smith. He critically opposed the mercantilists, who asserted that the wealth of the state directly depended on the availability of treasures in the form of jewels and gold, coming in as a result of the excess of exports over imports.

Smith proclaimed the main wealthpeoples and nations, the international division of labor and the corresponding specialization of different countries in the production of those products in relation to which they have absolute advantages.

Такая модель международной торговли проще всего is achieved in economically free conditions under which manufacturers will be able to choose independently the type of their activity within the framework of the current legislation. This policy, proposed by Smith, provided for government non-interference in the economy and free competition. Due to such a direction, the resources of each state should turn into profitable industries due to the fact that countries cannot compete with each other in non-profitable industries.

To establish the type of product on which the state should specialize, Smith proposed taking into account the law of comparative advantage - natural and acquired.

The first can be attributed climatic featuresor possession of certain natural resources. For example, in accordance with the climate, it is possible to determine the type of agricultural products, the output of which will be most beneficial to the state. The presence of reserves of oil, ore and other raw materials will determine the specifics of industrial production.

The benefits acquired by the state mayto possess as a result of a high qualification level of labor and advanced production technology. Technological advantages are associated with the ability to primarily produce complex and diverse products with the lowest cost and more efficiently produce homogeneous goods.

Различия между приобретенными и природными The advantages of various states, as a rule, have a very stable and long-term character. This is mainly due to reduced mobility of production factors. In this regard, the costs in different states for the manufacture will also be different. As a result, income differences form the basis for mutually beneficial trade.

The theory of absolute advantages providesrefusal to manufacture unprofitable products. The concentration of resources on the production of products that benefit, contributes to an increase in output. As a result, exchanges between states are increasing.

Thus, the theory of absolute advantagesis that countries export only the products they produce at the lowest cost. At the same time, only those goods that other countries produce at the lowest cost are imported.

The theory of absolute advantages includes several provisions.

First of all, labor is the onlyproduction factor. The theory of absolute advantages provides full employment. In other words, all labor resources are used in production. According to Smith, the world economy included two countries. Trade takes place between them only two goods. Production is associated with costs, the reduction of which increases the demand for products. The cost of one product is expressed in the amount of labor that was spent on its production of another. Foreign trade is carried out without regulations and restrictions.