Adam Smith And Traditional Theory Of Free Trade

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Adam Smith a well-known British economist, derived the concept of free trade in the „Wealth of Nations “ a book, he stated that the best solution for good economy is to specialize and trade. Other economists like David Ricardo and Thomas Malthus and others had been affected by Adam Smith theory in their writings. (Altschiller, 1998) According to Mankiw and Taylor, Countries open up to free trade because it generates more profit, gathering new ideas about goods and services, wider range of customers, high opportunities through market diversification, access to main resources, access to better values and lower cost production, gain from participants, develop economies of scale, (2011) When countries open to free trade and allow export and…show more content…
Traditional Theory of Free Trade The most known thing to all of the people in the world since the appearance of exchanging and transaction, is to meet at markets to trade goods for money or for other goods. Exchange of goods for other goods is called Barter Transaction. A transaction that gives up one goods for other or the exchange of goods. Through the time people developed a price system which make the process of trade easier. (Micheal, Stephen. 2011)
Economists since the time of Adam Smith have believed that free trade across national borders leads to good effects on labor division among countries, that free trade leads countries to increase their production and consumption, increase the living standard of nations across the world. Protectionism is an economic policy that restricts free trade in order to protect domestic market from foreign competition in the way of different interventions by the government. Countries engage in protectionism in order to achieve political, social and economic goals, to benefit the domestic goods or interests. To create jobs by protecting industries from foreign competition and to change the competitive environment. Behind all of these arguments for protectionism the results from restrictions can lead to price inflation because supply is restricted and therefore domestic prices increase and the consumption level decreases because of
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The industries in developed countries cannot compete with the ones in developing countries which have labor that produce at low cost. Government, in order to protect their domestic market, impose some trade barriers to stop imports of products from low costs labor countries. We can say that Protectionism is the opposite to Ricardo theory of comparative advantage because in this theory it is stated that more free trade is better, not less, but protective barriers involved with the specialization of labor in a country cause high living standards. Also, restriction of imports causes decrease of product choices and make the cost of products in the domestic market more expensive
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