The pivotal and revolutionist theories of Adam Smith and Karl Marx, introducing novelty ineconomies, became the fundament of political and economic thought. Both Marx and Smith wereconscious of the crucial role the economy has but their development of the idea largely differed,in a social and political level. In this essay, we are going to critically compare the theories of thistwo pivotal “century away” economists and revolutionist thinkers, Adam Smith and Karl Marx.
We will analyse their general research agendas by going through the similarities and thedifferences in the theories and ideas, exposed by them in major works. Moreover, we will comparethe two and develop the idea of the way in which each of these two revolutionist thinkers helpedand contributed not only in their epoch but also in the modern economic context by becoming thebandwagon in the economic thought. It is important to note that by analysing Smith’s and Marx’stheories, we are comparing and relating works published during the, respectively, 18th and 19thcentury which reflect the analysis’ of the context and Era in which they individually lived, thatlead them to two different approaches. Adam Smith, also known as “founding father of Political Economy”, introduced his ideas in “TheWealth of Nations” (1776) – considered as the basis of his thought and also reckoned to be hismagnum opus. Smith’s critique was chiefly focused against mercantilism, (predominant during the18th century).
This theory is centralized in the belief that the trade plays a significant role in thewealth of a nation, positively augmenting its prestige. Albeit, Smith did consider the foreign tradeas a way of helping a nation’s economy prosper and government stabilize, he associated this tomercantilism. Furthermore, as introduced in the Wealth of Nations, a crucial concept of Smith’sthought was the “Invisible Hand”. This is the idea that the individual does not tend to promote thepublic interest, the only thing he seeks is his own security, wealth and happiness but, driven by aninvisible hand, he involuntarily, by pursuing his own gains, promotes that of the society (Smith, 1776)1. This would lead to free market and enterprise where, Smith argues, the government shouldhave a “hands-off” approach since it would distort the economy. “Although each individualundertaker “intends only his own gain,” he is led by the ‘invisible hand of competition to promotean end which was no part of his intention'” (Sackrey et al, 2004, p.46).
2 Marx strongly disagreessince in his ideal economy, there is no free market like we see in a capitalist society. In Smith’sview the government with its regulation – privileging the few – should let the market regulate itselfand linger onto public works, allowing the invisible hand to guide the economy. From this, theconcept of “laissez-faire” (let them do) is born, wanting capitalistic forces to naturally competewith one another; for Smith, a core requirement for economic growth. Smith’s idea, and his belief,as stated in his “The Theory of Moral Sentiments”, was that every individuals goal was happiness.In nuce, Smith’s idea was that the consumer, through consumption, drives the economy. Similarly,to Marx, in his theories, he emphasized the class struggle and gap caused by mercantilism (withMarx this is replaced by capitalism), asserting that a nation’s economic trade earnings lavishly fallinto the richer class’s hands, leaving the working class with no prospering possibility. Thus, Smith,in part alike Marx’s ideal economic system, sought for a government whose main role was helpingsocial growth and individuals, believing that public goods (i.
e. canals and roads), and themaintenance of the state, were something the government had the duty to provide to its people.The way he believed this was going to be accomplished was via the use of a taxation system akinto the contemporary one. Through this system, the discrepancy between the upper and workingclasses was of main importance since the richer, which are thought to benefit most of thegovernment goods, as a result, have a higher taxation. Smith (1776) states that “it is not veryunreasonable that the rich should contribute to the public expense, not only in proportion to their 1 Smith, A (1776) 2 Sackrey, C. Schneider, G and Knoedler, J (2004) revenue but something more than in that proportion”3.
Marx lived during the 19th century, witnessing the condition of workers in England and the Springof Nations in 1848 (events that contributed to fund his ideas). Following the study of Smith’stheories, and other pro-capitalist economists, he believed that capitalism was per se imperfect anduneven, on an economic and mostly social level, he affirmed that “the history of all hithertoexisting society is the history of class struggles” (Marx, 1867)4. In his new social and economicapproach, he envisioned the transit from a capitalistic society to a socialist society. He dwelt hisideas by publishing two major works Das Kapital (1867) and The Communist Manifesto (1848),here he presents his ideal approach to a new economic system, also criticizing the capitalistic one,in which he finds numerous flaws. Chiefly, he thought that capitalism produces the phenomenonof “under-consumption” and strongly believes that working classes receive less than what theyproduce.
As a result, the consumption will lessen and capitalism will provoke a struggle throughthe social classes alongside a profound crisis in the economy. Moreover, Marx thought that thevalue of a commodity is measured properly when taking into consideration – by measuring – thetotal hours of labour took to get the finished product, this is referred to as the “labour theory value”.Thus, Marx believed that what workers do in, and for, the market is selling labour to capitalists inreturn for a wage. In Marx’s framework, this is viewed as the “labour power”. However, hebelieved that capitalists exploit the workers to a level that this rate can be measured and to do sohe created the “range of exploitation” concept (surplus value divided by the variable capital).Marx also believed that “..
.this primitive accumulation of capital represented…the transformationof human labour into a commodity”5 (Milgate and Stimson, 2009, p.
80). Moreover, he disdains 3 Smith, A (1776) 4 Marx, K (1867)5 Milgate, M and Stimson, S (2009) capitalism and its free competition since this triggers exploitation, thus he asserts that “unlimitedexploitation of cheap labour-power is the sole foundation of their power to compete” (Marx, 1867,p. 520)6. Furthermore, Marx believed that individuals – born creative, spontaneous and free – inthe capitalist system are limited, alienated and treated in a ludicrous way, to the point they becomeobjects (Prychitko, 2008)7. What leads Marx’s fundamental idea is the people’s need to form acommunal society, where the state owns and controls the major means of production – differentlyin Smith’s ideal capitalist economy, in which property and business are owned and controlled byindividuals. In relation to Marx’s ethos, every individual, in the willing to fund a greater society,would give up, partially or wholly, their happiness, from here the idea of Communism, whichoffered in his view the best political-economic model.
In spite of this he affirmed that “we callcommunism the real movement which abolishes the present state of things” (Marx, 1845, V. Ip.1)8, referring to the predominantly capitalistic society. Karl Marx also had his dire political view,differing from Smith’s. He affirms that the bourgeoisie and the proletariat will never veer to abetter class position since the true nature of capitalism keeps them stuck at their original socialstatus.
Marx’s answer to this problem was a proletariat revolt with the intent to build new, just andunbiased social order in which no distinction in segments of society would be present. Smithdisapproved any revolutionary action to re-build a system since stability was the key to resolvingthe problem of social oppression. Furthermore, Marx theorized the rigidity of capitalism which,not only breeds the discrepancy between the social classes but also, gives the chance to theproletariat to keep the wages as low as possible while maximizing their wealth. 6 Marx, K (1867)7 Prychitko D., 2008, http://www.econlib.org/library/Enc/Marxism.
html 8 Marx, K (1845) Die Deutsche Ideologie by Karl Marx and Friedrich Engelshttps://www.marxists.org/archive/marx/works/1845/german-ideology/index.htm Using the analyses above, we can state that Smith and Marx agreed on few core ideas, such asproduction and distribution of goods, services and resources and the role of the government. Whilein Smith’s ideal society the distribution of resources would not be equitable or eliminate gapingwealth levels between the different societal classes, Marx’s ideal economy would produce,according to the directives from a central authority, and distribute resources according to the needsof the public. In his ideal economy, Marx pictured the abolishment of any class distinctions andan appropriate and just valuation of a labourer efforts, which in a capitalistic society cannot happensince profit-seeking capitalists deprive the lower classes of their true earnings. We can assert thatthey both similarly worked to sought for a just, equilibrated economy and government, also aimingto reduce the discrepancy between the classes.
To conclude, we observed the agendas of two great economists, Adam Smith and Karl Marx,analysing the differences between the two. Both vivid prospectus concerning the mechanisms ofthe economic systems which embraces and analyses the opulence of the social strata and politicalside of a state influenced the contemporary economy and policy. Moreover, we can assert thatmost of the contemporary economy is founded upon their thoughts and revolutionary ideas andcritique. For example, we can observe how, nowadays, big capitalistic companies compete in themarket place and how profit incentive drives corporations to develop innovative new products thatare wanted by the consumer and have demand in the marketplace. In short, both ideas seek to reacha stable economy and greatly influence modern economic system.