Adam Smith proposed that the value of a commodity should be equal to the amount of labor required for its production. This theory was further developed by David Ricardo that introduced the principle of a comparative advantage and suggested that laborers were empowered to exchange their best commodities. Later on, the WTO adopted Ricardo’s ideas. It used them even more efficiently than Ricardo could expect because the process of trade has become simpler throughout the centuries.
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In the meantime, the key problem that exists in the modern market is that a laborer is no longer empowered to allocate the labor; as well as the cost of a commodity is no longer determined by the amount of power necessary to produce it. The latter statement can be illustrated by stockbrokers’ activity.
According to Ricardo, the power of labor is its inherent characteristic. In other words, laborers were not initially supposed to face any challenges in the market – in case their labor could not be exchanged into the target commodity in this country, it could be naturally exchanged in another. However, the experience has shown that the win-win theory does not work in real terms. The most vivid evidence of its invalidity is the current crisis with the growing level of unemployment. The latter is a particularly persuasive illustration of the labor’s powerlessness.
Thus, the question arises regarding the miscalculations made by Ricardo and Smith in their theories. In other words, a few centuries ago, it seemed to be evident that labor possessed inherent power that ensured its exchanging capacity. Hence, it is unclear what factors deprived labor of this intrinsic quality. It might be assumed that the economists overlooked the possibility of the capital’s mobility.
Hence, they relied on the assumption that the capital of a particular state cannot be invested in the labor of another state. At this point, it becomes clear that the power of labor determined by Smith and Ricardo cannot be achieved in the modern reality where trade has become not theoretically but literally global. Meanwhile, the lack of labor power that is enhanced by the unlimited capital’s mobility is likewise inadmissible because it leads to overall unemployment. Therefore, it might be assumed that the power of labor should be determined by the state that is obliged to take up the responsibility for ensuring its exchange capacity.