Adam Smith’s and David Ricardo’s Definition of the Economy Most scholars call Adam Smith the father of economics because of his views on the subject (Hunt & Lautzenheiser, 68). Adam Smith was a Scottish philosopher and he gave insights about technology and friendship that are useful in the current world today. He argues that the wealth of nations come the ideology that economies do best when they pursue their own interests. One individual may decide to sell cars, another may decide to broke insurance as a source of livelihood.
The decisions to engage into economic activities are rational and lead to the combined development of an economy. According to Smith, the involvement of the government into the affairs of individuals leads to the disruption of the economic development of the country. Adam Smith believes that nations get their wealth when individuals are at liberty to use their skills and capital in their own personal welfare (Hunt & Lautzenheiser, 70). Ricardo's argument was prominent during the Industrial Revolution. He read the work of Adam Smith and came up with the labor theory of value.
He maintained that most of the scholars and Adam Smith did not provide enough information on rental fee, earnings, and salaries in an economy. He develops the initiative of comparative costs which states economies can get products at a lower cost if they are manufacture them at a home country rather than trading. His argument defines international trade in most countries in the modern world (Meek, Bentham & Stark, 25). He argues that countries should maintain producing commodities in which they have comparative advantage over.
The self-interest of individuals drives the development of most economies in the world. England can produce a single bottle of wine with a time of five hours of comprehensive labor. In relation to the matter, it can produce a single loaf of bread with ten hours. On the contrary, France is more productive, produces a single bottle of wine with three hours, and uses an hour to produce a loaf of bread. Statistically, the cost of producing a single loaf of bread in England is lower in terms of labor.
It means that England produces a half loaf of bread for the production of one single bottle of wine. On the other hand, France has to produce three loaves of bread for the production of a single bottle of wine. According to Ricardo, England has a comparative advantage over the production of wine in their country. It produces two bottles of wine for every single loaf of bread it produces. On the contrary, France manages to produce a third of the bottle of wine for each production of bread. Statistically, it means that France has comparative advantage in the production of bread.
Adam Smith argues that nations have to pursue personal interest for economic development (Meek, Bentham & Stark, 78). On the contrary, Ricardo insists that nations should trade commodities in which they have comparative advantage over in order to make sense economically. England should focus in the production of wine and France focus on bread production. According to theory of Ricardo, both countries are producing products, which have a lower comparative cost. Works Cited Hunt, E. K, and Mark Lautzenheiser. History Of Economic Thought.
Hoboken: Taylor and Francis, 2015. Print. Meek, Ronald L., Jeremy Bentham, and W. Stark. 'Economic Writings, Vol I. '. The Economic History Review 15.1 (2008): 98. Web.