Adam Smith and Absolute Advantage

In 'The Wealth of Nations' (1776), Adam Smith attacked the mercantilist belief that a nation grows rich by hoarding gold and limiting imports. He opened with a pin factory, where dividing the work into separate steps let ten workers make tens of thousands of pins a day, far more than each could make alone. Smith argued that what works within a factory works between nations: if another country can make a good more cheaply than we can, it is better to buy it with goods we make efficiently.

This is absolute advantage, the ability to produce more of a good with the same resources. Smith's argument gave intellectual force to free trade, though he accepted some exceptions, such as defense, and he warned that merchants often lobbied for monopolies that hurt consumers. His theory left a puzzle, though: what if one country is better at producing everything?