The founder of the classical economic school was Adam Smith. He critically opposed mercantilists, who argued that the wealth of the state directly depends on the presence of treasures in the form of jewelry and gold coming from the excess of exports over imports.
Smith proclaimed as the main wealth of peoples and nations the international division of labor and the corresponding specialization of various countries in the production of products for which they have absolute advantages.
Such a model of international trade is most easily achieved in economically free conditions, in which manufacturers will be able to choose their own type of activity within the framework of the current legislation. This policy, proposed by Smith, provided for government non-interference in the economy and freedom of competition. Due to this direction, the resources of each state should go into profitable industries due to the fact that countries cannot compete with each other in non-profitable industries.
To establish the type of products on which the state should specialize, Smith proposed taking into account the law of comparative advantage - natural and acquired.
The first may include climatic features or possession of certain natural resources. So, for example, in accordance with the climate, you can determine the type of agricultural products, the production of which will be most beneficial to the state. The presence of reserves of oil, ore and other raw materials will determine the specifics of industrial production.
The state may have acquired advantages as a result of a high qualification level of the workforce and developed production technology. Technological advantages are associated with the ability, first of all, to produce complex and diverse products at the lowest cost and to produce more homogeneous products more efficiently.
The differences between the acquired and natural advantages of different states, as a rule, have a very stable and long-term character. This is mainly due to reduced mobility of production factors. In this regard, the costs in different states for the manufacture will also be different. As a result of the difference in income, the basis for mutually beneficial trade is formed.
The theory of absolute advantages provides for the rejection of the manufacture of unprofitable products. The concentration of resources on the production of products that bring benefits, contributes to an increase in output. As a result, increased exchange between states.
Thus, the theory of absolute advantages is that countries export only the products that they produce at the lowest cost. At the same time, only those goods that other countries produce at the lowest cost are imported.
The theory of absolute benefits includes several points.
First of all, labor is the only production factor. The theory of absolute benefits involves full employment. In other words, all labor resources are used in production. According to Smith, the world economy included two countries. Trade occurs between them only two goods. Production is associated with costs, the reduction of which increases the demand for products. The cost of one product is expressed in the amount of labor that was spent on its manufacture of another. Foreign trade is carried out without regulations and restrictions.
