Adam Smith and Karl Marx: Economic Thought Comparison
Adam Smith (1723 – 1790)
Scottish philosopher and economist, one of the greatest exponents of classical economics. In 1776, he published “An Inquiry into the Nature and Causes of the Wealth of Nations,” which is considered the foundational text of political economy.
Key Contributions of Smith
- It was the first attempt to analyze the determinants of capital formation and the historical development of industry and trade between European countries, establishing the basis for modern economic science.
- Smith conducted a thorough analysis of the processes of creation and distribution of wealth.
- He showed that the fundamental source of all income and wealth distribution lies in the distinction between rent, wages, and profit.
The central thesis of his work is that the best way of using capital in production and distribution of wealth is one in which the government does not intervene, i.e., under conditions of laissez-faire and free trade.
Smith saw competition as the most suitable economic mechanism, stating that the contradictions engendered by market laws would be corrected by what he called the “invisible hand” of the system. Thanks to the appeal to individual egoism, collective wellness is achieved.
The Scottish philosopher and economist pointed out that most human needs are met by exchange and purchase. His book provides principles for designing government economic policy. The benefits of the market’s “invisible hand” will only materialize in a well-governed society.
Further Important Concepts
- The clear distinction between use value and exchange value.
- The recognition of the division of labor, defined as the specialization of tasks, reducing production costs.
- The prediction of possible conflicts between factory owners and workers.
- The accumulation of capital as a source for economic development.
- The defense of the competitive market as the most efficient allocation of resources.
According to Adam Smith, human beings have always had a strong tendency to “barter, change and exchange one thing for another.” Thus, capitalism, like money and the market economy, is given a spontaneous or natural origin in the modern age.
Appreciation Note
A value that the unpaid labor of the worker creates, exceeding the value of their workforce, which is appropriated freely by the capitalist.
Karl Marx (1818 – 1883)
German economist and philosopher of Jewish origin. He is considered the father of scientific socialism, communism, and modern Marxism. His seminal work is “Capital: Critique of Political Economy” (1867), a study on the historical specificity of modern society.
Marx’s Critique and Analysis
He was a courageous figure who dared to oppose the abuses committed by the wealthy against the poor, which often forced people out of their businesses. Marx recognized that workers were not mere beasts of burden but people deserving respect equal to their employers. He was a revolutionary thinker who championed the ideas of the weaker against the rich oppressors.
Although his ideas were deeply humanitarian, they struggled to find a place in global society, not because they were utopian, but because powerful industrialized nations, focused on relentless production and profit, suppressed any philosophy that might threaten their income.
Labor Theory of Value
Marx studied the concept of labor value, which postulates that the value of an object comes from the amount of work required to obtain it.
The capitalist pays the value of the labor force but receives the value created by the use of that labor force during the workday. Consequently, for a portion of the workday, the employee works to reproduce the value of their own labor power, and the remaining portion works “for free” for the capitalist.
The employee is obliged to sell their labor to a capitalist to survive. They are free only in the sense that they can choose which capitalist to sell to, or be free not to sell and face extreme poverty and marginalization. Salaried workers are free only in that they are not slaves or servants subject to personal power forcing them to work; what compels them is the impersonal power of the economy.
Capital Accumulation
The “general law of capitalist accumulation” dictates that with increasing capital accumulation and consolidation, there necessarily occurs an increasing number of surplus workers within the system. This supernumerary population must survive in precarious conditions, exerting downward pressure on the working conditions and increasing misery for workers in general.