Compare And Contrast Marx And Adam Smith

Different Viewpoints

Being from the same era- the industrial revolution, yet separated by almost a century in existence, Adam Smith and Karl Marx had contrasting and distinctive theories of economics. Smith, being a Professor of moral philosophy, associated moral theory with economics, which led to the development of the modern world capitalism. Karl Marx positioned his thoughts on injustice and disparity between different social classes, these thoughts became the underlying foundations of communism.

Smith and Marx both have diverse theories as to what would lead nations to a stable and efficient economy. Smith wrote his famous “Wealth of Nations” in 1776, which became one of his greatest works. The changes in the European economy and industrialization had an impact on Smith which is reflected in his writings. The complex formation of today’s economy throughout the world is highly influenced by Smiths take on capitalism. Despite the fact that Smith’s approach might have a more conclusive stance in the

world today; the significance of the critique of capitalism that Marx provided cannot be denied or overlooked.
The key point of Smiths theory is that the success and growth of a nation lies in expanding its capital. His labor theory shows how different types of labor can help accumulate the capital needed for future economic growth. Smith’s labor theory focuses on the concept that there are two types of labor; productive and unproductive. He compares the two, the productive labor was one where the final product was tangible and didn’t have immediate consumption, whereas the product of the unproductive labor had immediate consumption and didn’t last long at all. The labor at a manufacturing plant adds value to the product and therefore should be considered a part of the productive labor force. This is the labor that produces commodities and isn’t solely helping themselves but also the economy. The wages that they earn get adjusted with the profit that the owners make through them. This basically means that this productive labor doesn’t cost anything to the society but rather adds to the profits and accumulation of capital, while the unproductive labor and the labor that doesn’t work at all, are the ones which are supported by the society. They don’t add any value to the growth of the society. A classic example of unproductive labor is a servant, but it is to be noted that there are other works of unproductive labor as well. Smith highlights that the proportion of productive, unproductive and labor that doesn’t work at all is highly linked to the total produce of an economy. The greater the productive labor ratio is, the higher the total product will be. According to Smith for a nation’s output to increase it is extremely necessary that the nation’s capital increases as well. This increase in capital can be arranged by the productive labor force. But there is only so much of the labor force that is productive. After a point the productive labor ratio can’t increase, at that point it is crucial to have excess capital which would help improve the machinery or division of labor properly.
Smith states “Capitals are increased by parsimony and diminished by prodigality and misconduct” (Wealth of Nations, 337).

Savings serve as the basis for the accumulation of capital for Smith. If there were no savings the accumulation would never be more than that of the spending and there wouldn’t be any capital stored up for growth. The extravagant and useless spending of money diverts the use of capital from productive to unproductive use and diminishes the amount of capital that could’ve been used effectively for increased amounts of total production. He believed that government involvement and their prodigality would be a threat to the nations. When all or most of the public revenue is used in supporting the unproductive people there us not much capital left for the productive population to use. Whereas the capital used on the unproductive will never be regained as they will continue to produce absolutely nothing and not contribute to any production in

society.
Karl Marx argues that the values of commodities surpass the labor. He believes the bourgeois (capitalists) exploit the labor force (proletariat) and social product is exclusively due to the performance and work of the labor force. Surplus value emerges from the net value of the commodities produced and the actual value of the labor used for making those commodities. A capitalist uses the abilities of the labor force at the price he is willing, and produces products with greater values which leads to a surplus. The surplus value is only due to the work of labor, consequently the actual value of labor is more than what is explicit.
The surplus value is the source of what Marx calls exploitation of the labor force. Being a socialist, he feels that the upper class uses the capital for themselves, and not for the growth of the working class. This domination leads to further exploitation of the labor force. They aren’t given what they deserve. He firmly believes that there is a constant clash between the proletariat and bourgeois. The labor is constantly in control and owned by the capitalist. In addition to that the commodities produced by them are also controlled by them.
The surplus value which is used by capitalist is the accumulation of the capital. Surplus value is nothing but excess money from the value of commodities. It is considered capital when it employed to for the production of added commodities which would create more labor. On the other hand the consumption of the surplus value by capitalist is just revenue made on other commodities. He argues that the invested capital makes the capitalists richer. The employment of capital makes commodities that further these rich people use and show as an exhibition of their wealth whereas the poor are left abstaining from the amusements of life.
Although they wrote in different times, Smith and Marx have some connections. Both of them present the importance of capitalism. It may not be so obvious because of Marx’s heavy critique on capitalism, but he also believes that capitalism is extremely necessary for a nation to build up. But once that is done, it is essential for another form of society to develop and emerge. Capitalism is would eventually lead to clashes between the different classes of society and the system will eventually fail, hence it needs to be replaced with some efficient form of economic and social system.
Both of them (Smith and Marx) held the same view that labor was an important part of the economy. Each of them had their own theory on labor and made a point that production of commodities highly depends on them. The labor force also continuously produces capital. They concurrently agree that value of production is very important for advancement. An increase in production insures accumulation of capital and economic growth.
The two also shared the view that people acting in their own interests will lead to some sort of consequences. Smith thought that society acting in its own interest will lead to self-benefits and economic growth while Marx thought it would lead to the exploitation of workers and the poor class. This marks the basic distinction between the two as well.
Smith’s theory of the “invisible hand” basically assumes that the free market economy is self-correcting. In the free market, where everyone works according to their interests, no government intervention is necessary. The economy will function well without any restrictions, regulations or hindrances from the government. In response Marx determines that it is absolutely crucial to keep the people in economy under check. He believed that people won’t be able to cope up with the economy themselves and they shouldn’t be trusted to do so either. The major reason behind is this the inherent human nature. As everyone tries to do best for them personally and not socially, the work force would be left behind; this would create a bigger gap between the rich and poor making it impossible to overcome the problem of class struggle inequality.
As the world today continues to move forward with a capitalist approach it is exceedingly important to bear in mind its expected drawbacks. Marx’s provided his critique on capitalism more than a few hundred years ago and it is still pertinent today. It is based on expansion of economies throughout history and provides a thorough understanding of the effects capitalism. Marx major issue with capitalism was that it was unethical and degenerative. Joey Moloney states in his article, “Marx viewed capitalism as immoral because he saw a system in which workers were exploited by capitalists, who unjustly extracted surplus value for their own gain”.
It is quite evident that the capitalist approach deals more in favor of private ownership of business and their growth. The expansion of economy is majorly based on the growth of these privately owned businesses. John Elliot states, “… capitalism is associated with private, rather than governmental, ownership and control of the means of production…”. Marx adds that impulsively each private owner will be inclined to personal profits and gains. The value which the labor adds to the commodities is less than what he earns for it; the distribution of the surplus is unfair and the bourgeoisie end up taking all the profits. This approach shows no regard for the poor and it is quite noticeable that presently the gap between the rich and poor has increased rather than decrease. The capitalist approach is somewhat catering solely to the prosperity of the upper, rich class which only ends up giving them more control over working class. Elliot wrote, “… capitalists exercise strategic levers of nonmarket control over workers, for example, control over the length of the working day, employment of women and children, speed of machinery, combination of division of labor, investment and technology policy and so on…”. This is entirely and completely true in the world today. The labor force all around the world are bound to the terms and conditions of the capitalists. Though it might differ from country to country, it still is happens in most economies of the world. The work force is underpaid and in some cases not even paid minimum wages. Capitalists look for cheaper labor throughout the world; they import the labor and/or shift their plants and industries to where it costs them less. With all this going around the world it is hard for the poor class to come at par or even minutely decrease the gap between themselves and upper class. Elliot gives the gist of Marx’s theory on this process:
“Money must be transformed into physical means of production and labor power (in a process of exchange) which, in turn, must be transformed into commodities in the process of production. Commodities then must be sold and the monies obtained again transformed into physical and human capital. To grow, the process of capitalist reproduction must be sustained on an "extended scale." In either case, Marx pointedly observed, this circular flow process not only reproduces output and income, it re-creates the social relations of the capitalist economy itself and thereby, as will be described presently, the conditions for the continuity of capitalist alienation and exploitation”.
Elliot clarifies here that the capitalist make interest off from the hard work of the labor force. It is fair for Marx to say that the whole concept of capitalism is based on class division. It separates the actual makers and producers of the commodities from ownership of production and its profits.
There is a lot of logical and empirical evidence that Smiths theory will lead to unstable results as it is showing nowadays (the rich and poor gap). According to BBC says, “The gap between the rich and the poor keeps widening …, In (Organization for Economic Cooperation and Development) its 34 member states, the richest 10% of the population earn 9.6 times the income of the poorest 10%”. The growing gap will lead to nothing less than an uprising and fall of the upper class in order for the poor class to get equal opportunity for economic growth. Boundless provides an article stating “Normative Marxism advocates a revolutionary overthrow of capitalism that would lead to socialism, before eventually transforming into communism after class antagonisms and the state ceased to exist”.
Smith and Marx are both propose remarkable and efficient theories of accumulation. Both of these theories can be seen to have a footing in the real world. They both tackle the importance of labor and production even though they have different approaches as to how the world will become better economically. The basic assumption or point that highlights Smiths theory of capitalism is the invisible hand; the market will fix itself given that there are no interjections or regulations. And the fundamental critique that Marx provides is that if there is no intervention, the bourgeois will continue to work for their interest and the proletariats will be left behind in progress. The conflict of interest and the disparity between the different social classes will lead to failure of capitalism.
The world presently can be seen as a mix of Smiths capitalist society. No doubt it is true that the world economy has grown and advanced way more than it ever did, but it is also true that gap between the rich and poor has never been more. Marx’s theories and predictions about the inequality between the different social classes, is also proving right. It isn’t clear if communism is the right solution to the problems caused by capitalism, but clearly something needs to be done about it. Adam smith was sure that the growth of economy cannot ensure equality as everyone tries to work in their own interest. On the other hand, Karl Marx conceptualized a growing economy which included equality between all social classes. In other words he was focused on social growth as well as the economic growth.
Smith and Marx have influenced people by their deep theories of how economic growth should be achieved. Some economists believe in Smiths perspective that capitalism and private ownership ensures prosperity and monetary and industrial growth. Others choose to believe Marx’s assumptions that only through public ownership and social equality can we achieve the kind of economic growth that will lead not just the bourgeois but also the proletarians to well-being.