Adam Smith And Karl Marx

6 June 2016

Adam smith described the labor value of money by stating that the price or value of a commodity depends on the amount of labor required to produce those products, Adam smith considered labor as a factor of production that was used in the production process together with capital in the production of goods, the amount of labor used determines the value of the final commodity, Adam smith also introduced his theory of absolute advantage which states that the differences in labor production brought about trade, countries will specialize in that which they have absolute advantage and trade with other countries and import that which they do not produce.

Karl Marx considered labor as a factor of production where the owners of production who are the capitalist employ labor to their firms where they maximize their profits by over working the proletariats without extra pay, Marx considered labor providers as those living in a state of false consciousness, this means that laborers are alienated from their work but do not realize that the owners of production are the cause of all their problems

Natural laws that each writer ascribe to labor:

According to Marx there exist two classes in our society those who are owners of the means of production and those who work in the firms where they are not well paid, the majority are the workers and the owners of production are just a few people, the few people enjoy big profits at the expense of the workers.

Adam smith on the other hand applies the natural law that labor is a factor of production and the final of the products produced will depend on the amount of labor used in the production process of that product. Adam smith considered that the final value of a product will depend on the cost of production of that product.

Organization and productivity of labor

Adam smith who was a classical economist advocated for free markets, therefore the organization and productivity of the labor is determined by the market, the cost of labor is therefore determined by the market, productivity is also determined by the free market whereby firms will always tend to hire highly productive labor.

Marx who was a radical economist stated that the pay of labor was determined by the owners of production, the organization of this labor was also determined by the owners of production who determined how much to pay and how many people to employ, productivity of labor however according to Adam smith differed from country to country and the differences in labor productivity caused trade.

The collective power of labor, or man’s motivation to labor:

To Marx laborers are the majority yet they are alienated from their job and accept very little pay despite doing all the work, however to Marx laborers have the power to over through the capitalist, the alienation and oppression by the capitalist will reach a point where the laborers will revolt against the capitalists and a communism based society will emerge from the ruins of capitalism.

Adam smith who was a classical economist stated that labor was a factor in the production process and that labor used in the production process determined the value of a final good, also that labor productivity differences between countries caused trade between the countries.

Why do you think these writers both want to base their political economies upon labor?

Β The two scholars base their political economics on labor due to the fact that the majority in the society are laborers, these laborers are oppressed and alienated according to Marx, to Adam smith for production to take place there must be labor and labor productivity determined final values of goods for export or domestic production, therefore the two scholars analyze the significance of labor in their theories as a way of expressing the importance of labor and the way the majority in our society today are oppressed and poor .

Assumptions about human nature:

Both scholars assume that the only factor of production is labor whereas there is capital and land which are factors of production; they assume that only labor determines the final value of products but also there are other factors like capital and land used in the production process.

Marx assumes that capitalism will end due to increased polarization between laborers and capitalist, but in now capitalism has become legitimized and that


The two scholars state that labor used in the production process determines the value of the final product, however Marx theory of capitalism states that the laborers are oppressed by the capitalist or the owners of production, therefore the final value of the products will not reflect the amount of labor used in the production process.

However the two theories give us a clear picture of the process of production and the value of final goods produced however they both do not consider the role played by other factors of production in determining the value of final goods produced.


Philip Hardwick (2004) Introduction to Modern Economics, Pearson Education Press, UK

Brian Snow (1997) Macroeconomics: introduction to macroeconomics, Rout ledge publishers, UK

Stratton (1999) Economics: A New Introduction, McGraw Hill Publishers, US

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