| Why is it possible that Americans are able to buy so | | | | thought of as the only way to truly increase wealth |
| many foreign products? Let's look at world trade | | | | of a nation. The early 19th century was when Smith's |
| history. Once upon a time, way back in Europe, | | | | ideas on trade became refined. David Flicardo, a |
| during the age of kingdoms and Oligarchies, the | | | | wealthy bond trader explained the concept known as |
| volume of trade increased immensely. The European | | | | "comparative advantage." Flicardo's contention was |
| nations dominated back in the 1500s. They developed | | | | "absolute wealth didn't matter, but comparative |
| a concept or economic philosophy defined as | | | | advantage was more important. The idea entertained |
| mercantism. This was the ideal they came up with. | | | | a comparison like this: Imagine if it took one hour to |
| The concept was precious metals determined a | | | | create a tea kettle in the United States and four |
| nation's wealth. Then they started thinking of ways | | | | hours to create the same tea kettle in Whateverland. |
| to increase what ever wealth they had. Kings looked | | | | The United States would have the advantage on |
| at other nations to get wealth from. Besides stealing | | | | making tea kettles. Now imagine if it took the United |
| and creating war, the civil contention was to export | | | | States four hours to make a bar of soap, however |
| more goods than imports. Kingdoms and Oligarchies | | | | one hour to create that bar of soap in Whateverland. |
| became focused upon finding new natural resources | | | | Whateverland would have the advantage on making |
| for processing and manufacturing goods. Their focus | | | | soap. Compare the two advantages. |
| was to sell the goods abroad and not to import much | | | | Now the philosophy arises if all nation's exploit their |
| other than precious metals. Yes, they wanted to | | | | comparative advantages, everyone can prosper. |
| export as much as possible, for the purpose of | | | | Please understand that this is merely a story based |
| acquiring precious metal. Their main import was | | | | on history and I personally feel like one of the |
| precious metals. That was the measurement of | | | | Brothers Grims. If all nations can exploit their |
| national wealth. | | | | comparative advantages, it is said idealistically, all will |
| Then in 1776 a man by the name of Adams Smith | | | | be better off and the standard of living in each |
| published something that contradicted the common | | | | nation will rise. It is projected by some that gross |
| belief of wealth. Adam Smith's belief was this: "A | | | | domestic product (GDP), the value of goods and |
| nation's wealth is determined by it's holdings of | | | | services produced in a country will increase and new |
| assets." Assets like house hold items and things | | | | jobs will be created in industries that have a |
| families could utilize. Smith presented the argument | | | | comparative advantage. I personally find Some of |
| nations should export what they where best at | | | | this highly idealistic, when considering world |
| making, to purchase what they where less good at | | | | corruptions as it is. However, I can't resist writing |
| making. This was his philosophy displaying what he | | | | "and they lived happily ever after. |