EdwardBaiamonte
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- Nov 23, 2011
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- #101
CON$ervative know-it-alls are 100% ignorant of economics. Smith supported laissez-faire which CON$ stupidly call free trade, but Smith supported tariffs which is anything but free trade.
Economic: Adam Smith Free Trade International Trade Theory
Smith, on the contrary, argued for unregulated foreign trade, reasoning that if England can produce a good, e.g., wool, at lower costs than France, and if France can produce another good, e.g., wine, at lower costs than England, then it is beneficial to both parties to exchange these goods, with each trading the good it produces at lower costs for the good it produces at higher costs. In the language of economics, this became known as the absolute advantage argument for foreign trade. This argument, moreover, is not limited to international trade. It applies to trade within a country as well.
Embedded in Smith's analysis of how markets develop dynamically over time, one finds another argument for free international trade. Although Smith never fully developed this argument, later economists were able to infer it from the Wealth of Nations. We have already seen that Smith held that a key determinant of the wealth of nations was the productivity of labor and that labor productivity depended primarily upon the division of labor. As labor becomes more divided and specialized, he pointed out, its productivity increases dramatically. Smith held that differences in individual abilities, and hence productivity, were largely the effects of the division of labor, not its cause. At birth, Smith asserted, we are all similarly talented; it is only after we begin to specialize in various activities that we become more proficient relative to others who do not so specialize. We learn by doing, becoming progressively able to produce our goods more cheaply as we get more efficient in our specialized tasks.
In the language of modern economics, there are increasing returns (decreasing costs) as labor becomes more and more specialized. Part of Smith's argument for the advantages of foreign trade was broadly based