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Economy: Adam Smith Vs David Ricardo

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In the past, people simply exchange things with other to get another. When time changed, people start to use money or printed paper as a representative of a value to exchange with the things. Mostly, people trade within their own territory or country because there is no diplomacy. People cannot cross the border to other countries because they would be accused as a spy. After globalization, not only trading can across the countries, knowledge, ideologies, and ideas also. There is the emergence of many important thinkers from various disciplines such as Adam Smith and David Ricardo from the economics part.

Adam Smith is one of the famous economists in the world. He was known as the father of economic because his works were inspired and acknowledged people until the present day. One of his famous idea called “The Invisible Hands” which mainly focus on the free market that run without any government regulation. Due to the fact, consumer prefers the best product with low price and producer prefer to maximize their profit by selling the product with the high price as much as they can. When the price of product rises up, there are likely to be more producer. This shows the mechanic of the market that can change due to the demand and supply. Another of his famous idea called Absolute Advantage which means that producer decides to do what they work better or specialized to lose their benefit as less as they can.

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David Ricardo is another economist that came after Adam Smith. He also got an inspiration from Adam Smith’s work called The Wealth of Nation which talks about the free market that people follow their own interests. As human nature from Adam Smith that want to maximize their profits as much as possible. Then, it will create the competition in the market and it leads to the perfect society. David Ricardo famous’s idea is about the Comparative Advantage from the Principles of Political Economy and Taxation. Comparative advantage is when the producer decides to produce what they lost the lowest opportunity cost. (Opportunity cost is the cost that you give up when you decide to work on something else.) Moreover, his idea focuses on the international economy that country would choose to produce what they lost the lowest cost of opportunity.

To clarifying Adam Smith and David Ricardo. Adam Smith’s idea mainly focuses on the free market without government interferes and people will work on what they do best to gain the higher profits. However, David Ricardo is quite different, His idea focuses on how the state should produce products to lost the lowest cost of opportunity. In the international level, Adam Smith’s idea allows people to pursue their own interests to make a great market with high-quality products. Then, the country can export what they are good at. On the other hand, David Ricardo focuses on how the state should work on what they lost the lowest opportunity cost and let other countries do what they lost the lowest opportunity cost also. After that, they import and export the product from each other to gain mutual benefits.

In conclusion, both of them are the famous economists that give us precious awareness of the economic world. They inspired many thinkers leads to the new idea of economic to let people understand and predict the future plan because economic is part of everyday life. Economic is not only accounting, it’s more than that. People can learn the comparative advantage and absolute advantage to decide what they should produce to maximize their benefit the most. From the previous paragraph also shows the political relationships in economic activity because trading can create the good relationship between them. That’s why politics and economics are interconnected.

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