ADAM SMITH DAVID RICARDO
Smith points out that labor is the real measure of the Ricardo specifies that the two sources of price
value of all goods (he uses corn as a reference to
estimate the value of labor). The value of labor does
not change, although the prices of goods do.
Smith understands profit as that part of the value
Labor Value created by the workers in the production process,
which is appropriated by the owners of capital.
Theory It states that the price is determined by the wage,
interest and rent (taxes). The aforementioned
components are income derived from the surplus
created by labor.
Quantity of work = Quantity of goods
variation are scarcity and the quantity of labor
employed. He concludes that, although there are
goods that cannot be produced using labor, these are
exceptions, while the vast majority are governed by
the quantity of labor.
This implies that the real exchange value of a good will
increase or decrease as the amount of labor used to
produce it increases or decreases. And not the
amount of goods that are delivered to the worker as a
reward for his labor.
Quantity of goods / Quantity of labor
 Smith argued that, with free trade, each country could
specialize in the production of those goods in which it
had an absolute advantage (or could produce more
efficiently than other countries) and import those in
which it had an absolute disadvantage (or produced
less efficiently).
This international specialization (or international
division of labor) would lead to an increase in world
production, which would be shared by the countries
participating in trade.
Based on this theory, for trade to take place between
two countries, neither country should have an
advantage over all goods. If one country had an
International advantage over all or none of the goods, there would
be no international trade at all.
Trade Theory
Ricardo states that even if one country has an
absolute disadvantage in the production of both
goods with respect to the other country, it is still
possible for both countries to make a profit by
trading. Example:
"P has an absolute advantage over I in the production
of both goods. According to Smith's theory, it would
be concluded that there would be no room for trade
between the two countries.
Ricardo points out that the key lies in the fact that
each country should only produce the good that has
the lowest opportunity cost.
Absolute costs are lower for "P", but relative costs are
different in the two countries.
"P" produces at lower cost than "I", for wine (
120−80
×100 ¿=33.3 % cheaper and for cloth
120
100−90
×100 ¿=10 % cheaper. But at the same
100
time "P" has a comparative advantage in wine
production as it is comparably cheaper than cloth.
Ricardo points out that trade can benefit any country,
since it allows each country to specialize in the
production of goods and services in which it has a
comparative advantage.
 Adam Smith in his Essay Concerning the Nature and David Ricardo in his Principles of Political Economy
Cause of the Wealth of Nations (1776) asserts that and Taxation (1817) expounded the principles of the
private competition, free from regulation, distributes theory of land rent, of profits and wages, and the
wealth better than government-controlled markets. theory of value.

If for the mercantilists wealth came from the
accumulation of precious metals and for the
physiocrats from nature (land), Smith points out that
true wealth is found in work, in the activity of human
beings.
In addition, Smith argues that the state should refrain
Economic from intervening in the economy because it would be
useless and harmful to the economy.
Liberalism The economic order would be generated by itself, by
the free play of supply and demand. For, if men acted
freely in the pursuit of their own self-interest, there
was an "invisible hand" that turned their efforts into
benefits for all.
The natural wage theory was based on the idea that
wages always tended to settle at a subsistence
minimum using the distinction between natural price
and market price.
The natural price depended on the price the worker
had to pay for subsistence (the cost of living). The
market price was the remuneration that the worker
received for his work, determined by the conditions of
supply and demand.
The rent theory was conceived by Ricardo as the
consequence of the scarcity of land produced by
population growth, which forced the cultivation of
lower quality land that in the long run offered a much
lower productivity compared to good land.

Comment
Adam Smith and David Ricardo were two giants of the classical school whose contributions contributed to unquestionable advances in later
times. Thus, Smith was the first economist to point out that profit is generated in the production process, that economic growth depends
fundamentally on the productive utilization of the profits obtained, etc.

However, there were also criticisms of his work, for example, in David Ricardo's model where he refers to two countries, two goods and labor as
the only factor of production (where production functions are homogeneous) and does not take into consideration other factors such as
transportation and trade barriers.In short, the fundamental criticism of the theory is that its assumptions are unrealistic. But that does not rule
out the fact that Smith and Ricardo's models were of paramount importance and the basis for economists years later to contrast what they
had proposed, but with more real facts.