Adam Smith vs. Karl Marx: Legacy on Capitalism and Morality
Capitalism remains to be the enduring economic system in societies surrounding exchange and distribution of goods and services. Popular debates center on its issues and controversies on why such a flawed system continue to rule. And no other great names inspired discussions on capitalism than Adam Smith and Karl Marx, extreme sides in the political-economic gamut. This essay aims to decide the point of convergence and divergence in their political-economic philosophy regarding capitalism.
Karl Marx and Adam Smith both created a niche in classical economics, proponents of socialism and capitalism, respectively. As one of the original minds behind communism and first and foremost a revolutionary, Karl Marx is often regarded as brilliant radical philosopher of the 20th century. According to Marx, history evolves through the relationship between the “modes of production” and the “relations to production” (Engels & Marx, 2007). Adam Smith was the first one to established economics as a science. He combines his economic teachings with moral theory on how people ought to live (Heilbroner, 1995). His ideas on market forces and the role of the state in economics are his greatest contribution to our economic system today.
Karl Marx frowns on the central tenants of capitalism − less and no government intervention in economic affairs, free and steady market competition, private ownership and equal chance for everyone to maximize profits. His hatred to capitalism’s basic ideas leads him to believe that communism is the best political, economic and social system in every society.
Production and consumption are the two essential parts of capitalism. For consumption to take place, production should happen. According to Karl Marx, the problem lies in the production side. His belief is that rich factory owners reap the benefits of poor man’s labor (Engels & Marx, 2007). Workers are subject to exploitation as capitalists compete in the exchange market and must deliver their goods at the lowest possible cost. In turn, the workers protect themselves being exploited. Karl Marx believes that these social relations of production are inherently problematic, causing the class struggle and ultimately the overthrowing of capitalism by the working class.
Like Karl Marx, Adam Smith believes in the importance of production. He believes in a free-trade society where a common man can start a business without government intervention and consumers can buy whatever they want at a price dictated by the law of supply and demand (Smith, 2009). The law of supply and demand in the free market leads to efficiency which keeps the most competitive consumers and producers afloat. There is no need for the state to be involved as the free market has its own devices to always return to equilibrium. Central planning, which is deemed necessary by Karl Marx to allocate resources, is not necessary and posed more burden according to Adam Smith.
Both economists have a labor theory of value. For Karl Marx, a commodity should be valued according to the amount of labor it requires to be produced. Commodities have “use-value” (according to their capacity to satisfy the needs) and “exchange-value” (monetary value, in relation to other commodities in the market) which differ from one commodity to the other commodity. The amount of labor that goes to the production is their only common denominator and thus should measure the value of all commodities in the market. On the other hand, Adam Smith’s labor theory of value stems from “spectator sentiment” (Heilbroner, 1995).
He identifies two kinds of prices, the natural price and the market price of the goods. According to Smith, the natural price is the value that consumers are willing to pay for the time and pain of the laborer of acquiring the skills along with the risk involved in the production. This natural price depends on the labor hours and effort that went to into making the commodity. However, natural price is not always equal the market price in a competitive market of supply and demand. Through competition, the market price is push to approach the natural price of the commodity.
On the division of labor, Karl Marx and Adam Smith recognize its benefits. However, Karl Marx believes that under strict specialization a person is being dehumanized. A worker who is not able to fully grasp the process of creation and do repetitive labor seems more like a machine than a human. On the other hand, Adam Smith maintains that division of labor benefits society as a whole. It promotes specialization where things are done more quickly requiring fewer numbers of workers. A worker is not fit to produce the entire output and specialization allows him/her to focus on the job where he/she is good at.
Karl Marx and Adam Smith also disagree in their view of private property. For Marx, all private ownership should be abolished. Capitalism, the system of private ownership of production” alienates human beings from their creation. A laborer only works as a means of survival and obtains no fulfillment from doing so because his/her output does not belong to him/her. These products are sold to the market by the capitalist for more profits. These laborers, born in the working class, are forever workers.
The lucky ones born in capitalist class forever belongs to it. Capitalists do not only own the means of production but also control the government, media, universities and maintenance of status quo. He advocates a revolution of the proletariat to overthrow the capitalist class to change the current social, political and economic status. For Smith, capitalism is not only favorable to the rich population. He argues that because private property exists, everyone has equal right to own, create and earn their own living. A privately owned property, motive to earn and productive actions are the right combination that leads to the natural market functions of the free market economy.
He believes that capitalists have noble virtue behind their selfish desires as to avoid being greedy. Unlike Marx, he does not believe revolution as the solution. “The peace and order of a society is of more importance than even the relief of the miserable,” (Smith, 2009). For him, a revolution is unnecessary because of the benefits derived from capitalism of both capitalists and proletariat. Both have equal chances to better their situation in a free market.
Though Karl Marx and Adam Smith seem to oppose one another based on their political ideologies, both their contributions are well regarded and manifest its influence up to these days.
Engels, Frederick & Marx, Karl. The Communist Manifesto. Filiquarian Publishing House, 2007.
Heilbroner, Robert L. The Worldly Philisophers: The Lives, Times and Ideas of The Great Economic Thinkers. NY: Robert Heilbroner, 1995.
Smith, Adam. The Wealth of Nations. NY: Classic House Books,2009.