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Adam Smith

Adam Smith

Adam Smith was a famous philosopher and political thinker known for his work The Wealth of Nations that revealed the relationship between the division of labor and the extent of the market. David Ricardo was also a philosopher, who contributed to economy and politics by writing his study, entitled On the Principles of the Political Economy. Consequently, both thinkers wanted to explain the pattern of economic specialization under free trade. However, there were distinctions between them. Thus, this paper intends to explain how Smith understands the relationship between deepening divisions of labor and the extent of markets, to explore whether Smith is right, and to reveal the distinction in approaches, provided by Smith and Ricardo.

Smith’s Understanding of the Relationship between Divisions of Labor and the Extent of Markets

According to Smith, the relationship between the division of labor and the extent of the market is direct, as the division of labor appears in result of the human necessity to exchange. Thus, this interdependence leads to the specialization of production and international trade among nations or individuals. Adam Smith insists that the scope of the division of labor is preconditioned by the market and human talents that operate there. One should mention that Smith’s vision of market is related to the improvement of infrastructure. Smith regards the division of labor as the list of advantages, which provide the predisposition to trade in the domestic and international markets. It means that the division of labor is the driving force of the market extension and trade.

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According to Smith, one can distinguish the following advantages of the division of labor: savings, technology improvements, specialization, and dexterity. Consequently, there is a necessity in deepening the divisions of labor. Among the necessary conditions of the division of labor are the agreement on the exchange measure tool and living in exchange. Moreover, labor is the way of standardizing the value in exchange. Thus, the quality of labor can measure exchanging. It is evident that Adam Smith believes that all human beings have a nature to exchange. As the philosopher explores the ways of incorporation of new markets, he underlines the importance of economic integration that depends on infrastructure and connectivity. Furthermore, Smith evaluates the quality of the land as a driving force of economic integration and a benefit to infrastructure.

As Adam Smith pays much attention to economic development, he sees it in the increasing division of labor. It means that the philosopher insists on the idea of specialization of the labor force that presupposes the division of large jobs into small ones. It is evident that the worker should become an expert in the narrow area in order to demonstrate high efficacy and performance. He should not switch from task to task for saving time and money. The weak point of the production process is that employees should perform unnecessary work that leads to the undesirable and dissatisfying results. Thus, the strong side of Smith’s study is that it reinforces the idea of additional learning and training, as they are necessary tools for the development and growth.

Smith’s theory of the division of labor presupposes the idea that each worker performs the duties that satisfy and suit him/her perfectly. Consequently, the formula of the productivity is based on the production of tangible objects and creating the surplus. Moreover, Smith determines two kinds of value resulting from the deepening division of labor. They are as follows: exchange value and use value. It means that products become more qualitative and can be sold at the diverse markets. Thus, Adam Smith sees labor as the source of value, and claims that its products should be sold at the natural prices. However, natural prices can be shifted by competition.

One should mention that Adam Smith has two approaches to the division of labor: economic and sociological. The economic aspect refers to the positive consequences of labor. It means that labor extends markets, increases the quality of products, as well as benefits performance and selling goods. Moreover, the division of labor encourages mechanization and invention. Specialization and deepening of labor save time of switching from one process to another. In addition, the division of labor presupposes the concentration on the fewer processes. As far as sociological aspect is concerned, it is related to the negative effects of labor. It is mentally stultifying and morally degrading. However, this aspect refers to worker’s attitude to work. Adam Smith believes that economic entity of the division of labor can extend markets and open more opportunities for selling the goods.

Economic Specialization under Free Trade

If Smith in his studies was right about the division of labor, we should observe the changes in economic specialization under free trade across national economies. Free trade can lead to important outcomes. First, it provides a better distribution of labor, which presupposes a global division of labor and the division of labor-comparative advantage. Second, deeper specialization is provided by the natural growth of the competitive advantage. Third, free trade and economic specialization can provide economic gains when trade influences the basic consumption of the workers. Consequently, these facts lead to the trade-profit maximization. In other words, free trade decreases the level of inflation and increases the level of employment. Moreover, economic specialization under free trade can result in lower subsistence wages. It means that it is necessary to expect the tendencies of trading and profiting maximization that can lead to the economic integration among the nations.

It is evident that free trade is a necessary condition for better distribution of labor. However, the division of labor requires a more effective distribution of jobs and specialization. Adam Smith underlines the parallel between free trade and the division of labor not without a reason.  Another pattern of economic specialization is related to the growth of globalization that is a driving force of free trade between nations. It means that the division of labor should take place at the global level through the geographical distribution and the increase in the production processes. Consequently, one can observe a situation at the global market when some countries become headquarters, while others perform the roles of industrial facilities. For example, many products of Apple, Inc. are designed in America but are assembled in China. It is obvious that if the division of labor takes place within a country, it will provide the inner structural change of labor.

Another expectation from the deepening process of economic integration and the increasing division of labor is economic gains in consumption. It means that both activities will bring economic development and growth. Moreover, one can observe an increase in the division of labor and in profits, propelled by international trade, as well as a drop in subsistence level wages. One should mention that this pattern refers to developing countries and their citizens rather than to the developed countries and multinational corporations, because they have already passed the way to globalization and free trade. The problem is that prosperity is not distributed equally. However, international trade should provide gains and growth of the equalizing process. Moreover, a deepening process of economic integration and the increase in the division of labor should be also based on the process of capital mobility and technological awareness, as it increases the living standards of people in the domestic and global markets.

Another pattern that is based on the interaction between national economies under free trade is a global exchange currency. However, the main challenge is the fact that only the global economy can establish standards for others. Consequently, this pattern presupposes the rise of American currency that is the standard for the international transactions. Moreover, it is necessary to expect an increase in new markets incorporations. It is obvious that the interaction between national economies leads to the benefit of free exchange. It means that both sides benefit if this exchange is free. Adam Smith insists on the necessity of exports and imports, as both these processes are valuable for the community. Another benefit of free trade is the growth of Gross National Product. Adam Smith states that the wealth of a nation depends on its commerce and annual production. It is evident that Gross National Product can increase due to commerce in general and not only because of the exports. One should also mention that the philosopher underlines the necessity of reinvestment, as it improves production and provides a constant growth of wealth in the society.

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The Differences between Smith and Ricardo

Without a doubt, both Adam Smith and David Ricardo insist on the necessity of the division of labor and free trade. However, David Ricardo’s ideas are more extended than those of Smith. Consequently, there are some distinctions in their vision and perception of the division of labor and functioning of economies under free trade.  First, Smith believes that the extension of markets is possible to achieve with the help of the improvements in infrastructure. Ricardo, on the other hand, sees the extension of markets in the incorporation of new fertile lands into production. It means that both political thinkers support the idea of the market extension, which can provide environment for free trade, but they suggest different ways for the achievement of this goal. Both Smith and Ricardo agree on the notion of labor division, but Ricardo relates the expansion of the division of labor to social classes. As far as Smith is concerned, he believes that the division of labor is given naturally.

Smith sees such advantages of deepening the division of labor and economic specialization as savings, technology improvements, dexterity, and specialization. Ricardo in his turn states that the deepening of labor division is based on land, labor, and capital that determine the further economic success and growth. Consequently, Smith’s division of labor starts from specialization, whereas Ricardo’s model is related to the use of capital. Smith insists that each person should live in exchange, as it is provided by the division of labor. It means that labor is the measure of the exchange. However, Ricardo does not agree with this statement. He relates labor to the laws of demand and supply that underline the distinctions between the natural price of labor and the market price of labor. Thus, Ricardo underlines the parallel between the exchange and the rate of currency.

Another difference between Smith’s and Ricardo’s ideas refers to the nature of the division of labor. Smith sees the division of labor as a natural tendency. Ricardo, on the other hand, claims that better distribution of labor emerges from the necessity to make the mankind happy. It means that the division of labor is the basis for the human contentment. Both philosophers admit the advantages of the foreign trade. However, Smith views maximizing profitability as a unique gift, given to human beings, while Ricardo claims that there is no source for doing this. One should say that both Smith and Ricardo underline the importance of economic integration. However, Smith is convinced that it depends on the development of infrastructure and connectivity between free trade and the division of labor. Ricardo, on the contrary, believes that economic integration can be achieved by improving the land quality that influences the degree of production. Moreover, Smith thinks that the quality of the land is predetermined by infrastructure and its benefits. However, Ricardo states that the quality of land depends on its soil fertility.

It is obvious that Adam Smith and David Ricardo support the division of labor and free trade, but there are the distinctions in their approaches to these processes. Smith uses the departure concepts, while Ricardo uses the extended concepts. However, it is evident that Ricardo applies Smith’s studies as the basis for his own investigations.

In conclusion, it is necessary to say that Adam Smith sees a direct relationship between deepening of the labor division and the extent of the market. First, human beings have a natural desire for the exchange. Second, the deepening division of labor benefits the increase of profitability, globalization, and interaction between the nations. If the study of Smith is correct, then one can observe such patterns of economic specialization as better distribution of labor, provoked by free trade; the equality of globalization in developed and developing countries; deepening process of economic integration and increasing division of labor; as well as increase in profits, global exchange currency, and new markets incorporations. Both philosophers, Smith and Ricardo, conducted a research on the division of labor and free trade. However, there are some distinctions between them. They refer to the nature of the division of labor, methods that are used for the development of the production, and the extension of markets.