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International Economics: The Major Differences between Adam Smiths and David Ricardos Theories of International Trade - Term Paper Example

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The key classical and neoclassical economist theorists who have introduced the notion of international trade were Adam Smith and David Ricardo. The foundations of their theories and the major difference of the viewpoints are the subject of this paper.     …
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International Economics: The Major Differences between Adam Smiths and David Ricardos Theories of International Trade
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Download file to see previous pages The comparative advantage theory bypasses the importance of the division of labor in the explanation of trade as well as growth. It is possible that Ricardo was only interested in putting forward additional arguments for free trade so as to avert the declining rate of profit and consequently the onset of the stationary state, for which the theory of comparative advantage came in handy. In any case, Ricardo's main concern was not to develop a theory of international trade but to show how the distribution of income among various classes affected capital accumulation and growth. Also, in his preface to The Principles of Political Economy and Taxation, he mentioned that he wanted to confine himself to aspects of political economy on which he differed from Smith. It is, therefore, possible that Ricardo did not develop the theme of the division of labor as an explanation for growth or international trade because he saw no reason to differ from Smith on this.
Another major input of Ricardo is the maid in his work Essay on the Influence of a Low Price of Corn on the Profits of Stock. Here the author laid out the idea of a law of diminishing returns as it applied to labor and capital. The theory describes the land's value determined by the demand for the land. As industry expanded, the land would appreciate in value according to its scarcity and location, with respect to industrial demand. There was also the demand for dwelling space as well as for agricultural output; as land became exhausted or of marginal use, its value would depreciate accordingly. Ricardo also emphasized output, internal efficiency in industrial output, as well as entrepreneurship in the mustering of capital and resources for production. The Malthusian problem was certainly known to Ricardo, as Malthus and Ricardo engaged in extensive correspondence.    ...Download file to see next pagesRead More
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