Liberal vs Marxist Approaches to Economic Exchange - Essay Example

?Economic liberals argue that economic exchange is a positive-sun game. In the Marxist approach, the economy is a site of exploitation and inequality. Who is right? The capitalistic economic exchange is the permeating economic model in the world today. Even socialist and autocratic regimes such as those in China are adopting some elements of free market, highlighting the economic liberalism’s perceived efficiency. Majority of the economists and academics have already posited that it is, in fact, the most effective economic model to date and, unarguably, the most widely used. There are several schools that analyze this phenomenon. Two of the most important are the liberal and the Marxist schools. These two explain the prevailing capitalistic economic exchange in opposing light. The former upholds the capitalistic ideal while the latter criticize it based on the argument that it such exchange is a breeding ground of exploitation and inequality. Although both of these schools have valid arguments, this paper will argue that the liberal point of view holds more legitimate positions than Marxism in explaining the economic exchange in the capitalist system. Free Market The fundamental features of a capitalist economy are right to private property, profit-motive, freedom of choice, market forces, and minimal role of government. It promotes individualism and is consisted of individual units like workers, people, capitalists, consumers and firms and that social forces determine the formation of a capitalist economy. A critical aspect of capitalism that is relevant to the subject of this investigation is the labor market. In this case, individuals play an important role in the exchange of goods. First, they are incapable to produce what they need and what they consume. This is the reason why a highly specialized division of labor emerged so that people rely on others, particularly, the producers, in order to survive. Callero explained that when someone is looking for a job in a capitalist economy, that individual is engaging in a capitalistic exchange using his skill and abilities as a commodity to be traded for wage, which is necessary in the procurement of food, shelter, clothing and other goods (25). The labor market also collectively demonstrates the flow of goods in capitalism and depicts several capitalistic principles. If there is excess in the labor force, unemployment and low wage emerge as a result. The implication of this situation demonstrates two important points. First is that the unemployed or the labor force in general will be engaged in fierce competition for the scarce work and this is often characterized by enhancing competitive advantage (Todorova 31). Finally, there is the profit motive characteristic wherein people engaging in the economic exchange, especially the producers, operate with profit and self-interest as their primary concern. Each individual, grouping and organization relegate concern for others or the society secondary to their own interests. At first glance, this appears cruel and unjust but economists argue that emphasizing profit is a driving force behind free market economies. It functions as a reward for people, entrepreneurs, and organizations who work hard, invest time and money, take risks and innovate. According to Mink, profit, which critics such as those coming from the Marxist school assails, is behind efficiency in production because it is behind – through competition – the efforts of economic actors to constantly innovate (125). The Marxist Criticism Karl Marx’s investigation of the late twentieth-century capitalism resulted in several important criticisms to the economic system. But these criticisms are based on an important Marxist theory, the theory of exploitation and inequality. Here, an unequal exchange develops between workers and capitalists. Solimano explains: While the workers’ only asset is labor (in flow terms, “labor power”), capitalists are in advantageous position due to ownership of the productive capital that allows them to organize production, set the rules of the game in the enterprise, and decide the distribution of the economic surplus (19). The above explanation underscores how the Marxist point of view is influenced primarily by its preference for distributive outcome and individual welfare. In addition, Marxism is also concerned with property relationship and productive wealth. In this area, the theory adds that “ownership of productive wealth gives the capitalist class the dominant political power in society as a whole to preserve, through the state apparatus, favorable conditions for the stability, reproduction, and flourishing of the capitalist system” (Solimano 19). These variables paint a grim picture that do illustrate how workers can be exploited and disadvantaged because capitalistic systems appear to protect and encourage the power of the producers and, hence, their ability to manipulate the mechanisms of the economic system in their pursuit for profit. The Marxist point of view emphasizes class as opposed to the liberalist focus on individuals. It is in this aspect that it manifests its flaw. Its preoccupation with treating the players in the economic system into groups or aggregates overlooks numerous other variables at play. It only identified two antagonistic classes: the bourgeoisie, the class that owns the production; and, the proletariat, those who own only its labor power (Jackson & Sorensen 186). Other players and factors such as the “different types of skilled and unskilled labor and the treatment of past labor, besides other measurement issues” in addition to the role of the entrepreneur and other factors of production besides labor” are overlooked (Solimano 19). Indeed, this is true. For instance, the manufacture of goods is not dictated by the sheer whim of producers alone. Consumer requirements and policy environment are just two of the most influential variables that affect the production of goods. There is also the case of competition and the value in production. Furthermore, treating players in the economic system into groups and aggregates is problematic because it is difficult to evaluate or capture how a group or, in this case, the proletariat, is being exploited. Marxists believe that people in liberal economies are being exploited while the majority of those under this economic regime would say otherwise. Terence Ball and James Farr provided a working definition about exploitation in the context of capitalism. They stated that a group is exploited if it has some conditionally feasible alternative under which its members would be better off (200). Marxism could not provided a better alternative except the suggestion of infringing the rights of the producers in areas such as ownership and wealth distribution. This is a simplistic alternative because it will involve other players such as the entrepreneurs and other individuals that engage in economic activity. It deprives them of the means to produce, compete, expand and innovate. It is in this area that the liberal theorists hold the upper hand. The Positive Economic Exchange Liberals are content with leaving the economy alone. This is the core capitalistic ideal, taken after the laissez faire theory wherein the state is limited in its involvement in the economic system. It combines the utilitarianism and marginal revolution and promotes positive rather than normative paradigm (England 259). In answer to the Marxist criticism, the economic liberals posit the efficiency by which exchange lead to the so-called Pareto-superior distribution typified by parties emerging better-off than they were before the exchange transpired. Paula England explained that, “if governments do nothing to prohibit exchange or to redistribute resources, a succession of sequentially Pareto-superior moves will occur, leading to a Pareto-optimal distribution” (259). The argument is that government intervention will lead to inefficiency and that the market economy should be an autonomous sphere. Jackson and Sorensen stressed that when this occurs, the market is proven to “maximize benefits for the rational, self-seeking individuals, the households and the companies that participate in the market exchange” (186). It is clear, hence, that liberal economists avoid the pitfall of the rigid aggregation emphasized by Marxism. Instead, it takes into consideration numerous variables that result in the position that liberal economy is not exploitative but rather a cooperative sphere where individuals, groups and companies mutually benefit in the market exchange. It is difficult to understand how a market exchange that is characterized by mutual trading gains and reciprocity in the relationship can be exploitative. As Marxism argue that producers or capitalists own the means of production and, thus, have control over it, there is the fact that individuals are free to enter an exchange relationship with one. Individuals have the freedom of choice because there are numerous producers in a state of competition. With regards to the issue of labor, the liberals can refer to two important counters to the Marxist criticisms. The labor market in the liberal economy is also governed by the law of supply and demand. If the market has an oversupply of labor, then the workers are at a disadvantage because the capitalists will offer low wages and workers are engaged in fierce competition. However, if the scale tips the other way, companies offer high compensation in order to compete for skills and knowledge. This dynamics in the labor market should highlight that the producers do not manipulate it. Rather, it is driven by market forces in addition to the legal and economic mechanisms present in a particular state. Conclusion To sum it up, Marxism criticize liberal market economy because it is supposedly exploitative and a site for inequality. This position is based on the argument that producers control and can manipulate the economic system. Unfortunately, this school fell short in its analysis. The capitalist system is not only consisted of two aggregate classes – the producers and workers. There are numerous other variables that determine the market exchange. The liberal economists view that capitalist market exchange is a positive system provides valid and legitimate arguments. The most important of which are the focus on individualism, profit and autonomy in the market exchange. They are the driving force of economic efficiency. To borrow Stein’s words, since this kind of exchange is based primarily on comparative advantage, it leads to a division of labor and to growth of economic interdependence (7). Works Cited Callero, P. The myth of individualism: how social forces shape our lives. Lanham, MD: Rowman & Littlefield, 2009. Ball, Terrence and Farr, James. After Marx. CUP Archive, 1984. England, Paula. Comparable worth: theories and evidence By Paula England. New York: Transaction Books, 2010. Jackson, Robert and Sorensen, Georg. Introduction to international relations: theories and approaches. Oxford: Oxford University Press, 2007. Mink, G. and O-Connor, A. Poverty in the United States: an encyclopedia of history, politics, and policy, Volume 1. Santa Barbara, CA: ABC-CLIO, 2004. Paul, Ellen. Liberalism and the economic order, Volume 10. Cambridge: Cambridge University Press, 2006. Solimano, Andres. Social inequality: values, growth, and the state. University of Michigan Press, 2011. Stein, Arthur. Why nations cooperate: circumstance and choice in international relations. Cornell University Press, 1990. Todorova, Z. Money and households in a capitalist economy: a gendered post Keynesian-institutional analysis. Cheltenham: Edward Elgar Publishing Limited, 2009. Read More