Adam Smith believes that the principle of division of labor that is applicable to different occupations and jobs within a country is also applicable to the country, thus forming his theory of international division of labor.

Free trade will lead to international division of labor, and the basis of international division of labor is favorable natural endowment or favorable production conditions. All these can make a country in a more favorable position than other countries in production and foreign trade.

If all countries carry out division of labor and exchange according to their own favorable production conditions, so that resources, labor and capital can be used most effectively, then labor productivity and material wealth will be greatly improved. This theory is an international division of labor based on the absolutely favorable production conditions of various countries, also called absolute cost theory.

Extended data

Other theories of Adam Smith:

axiology

When talking about value, Adam Smith pointed out that value includes use value and exchange value. The former indicates the utility of a specific financial commodity, while the latter indicates the purchasing power of one financial commodity to another. It is further pointed out that wealth goods with the greatest use value often have no exchange value, and water and diamonds are famous examples. However, it was not until a hundred years later that the marginal utility school successfully solved this problem by comparing the values of water and diamonds.

distribution theory

Adam Smith's distribution theory is a theory that determines the natural ratio of labor wages, capital profits and land rent.

Adam Smith pointed out that although employers have the power to lower wages, wages still have their lowest level, which means that workers must be able to maintain a basic life. Assuming that the demand for social workers increases or the salary fund increases, the salary will be higher than the minimum level. On the other hand, the increase of a country's wealth, capital or income will promote the increase of wages, which in turn will promote the increase of population.

The level of capital profit, like labor wages, depends on the increase or decrease of social wealth. The increase of capital can promote the increase of wages, but the profit will decrease. Adam Smith pointed out that if businessmen invest in the same cause, the profit rate will naturally decrease because they compete with each other.

References:

Baidu encyclopedia-division of labor theory