When it comes to economics, Adam Smith and David Ricardo were two of the most influential writers in history. They both are credited with publishing the basic theories on why nations should trade openly with each other and abandon any mercantilism doctrine they might hold. The theories of these two men were paramount in kick-starting the system of international trading we use today.
In 1776, Adam Smith’s published his most important book An Inquiry into the Nature and Causes of the Wealth of Nations, more commonly known as “The Wealth of Nations.” In this document Smith was credited with being the first to accurately describe capitalism. However, at the time, the term capitalism had not yet been created, and it was referred to by Smith as “a system of perfect liberty.”
In addition to capitalism, Smith also outlined the theory of Absolute Advantage in “The Wealth of Nations.” Simply put, this theory states that a nation should concentrate its resources on the commodities that it can produce more efficiently than any other country. The nation should then trade those commodities with other nations for goods that they can produce more efficiently. In order to better prove his point, Smith was able to show numerically that the overall ratio of outputs/inputs rose sharply when his ideas were put into practice. For instance, in an oversimplified example, assume that China can produce 3 bolts of fabric with 2 units of input and 3 tons of soybeans with 1 unit of input. Now, also assume that the U.S. can produce 3 bolts of fabric with 1 unit of input and 3 tons of soybeans with 2 units of input. As the example currently stands, the overall total equals 6 tons of soybeans and 6 bolts of cloth for 6 units of input. Should both nations trade with each other and produce only the things that they are most efficient at, the new numbers total 9 tons of soybeans and 9 bolts of cloth for the same 6 units of input. The inarguable mathematics that Smith used to...