Smith and Marx in Economics - Essay Example

 SMITH AND MARX Two of the greatest economists of all time were Adam Smith and Karl Marx. They came from different worlds and espoused different ideas, but their works became classics and influenced the way we regard economics and even politics today. Their influence is seen everywhere. There was an important different between the two, however. Smith's ideas led to the generation of wealth and political freedom, while Marx's lead to oppression, poverty, and suffering. Marx in particular is a great example of a philosopher's whose best intentions paved the road to hell. In his economic theory he focused largely on issues relating to labour and power, while Smith focused on capital and freedom. A significant number of people think that Adam Smith invented economics when he published The Wealth of Nations in 1776. In it, Smith wrote about how wealth is generated from both labour and land, and how this generation of wealth can lead to higher living standards and productivity. Accumulated wealth is capital that can be reinvested and yielf further dividends. The accumulation of wealth was a good thing; it was especially encouraged in systems that permitted free trade. Free trade permitted goods and services to be exchanged without tariffs. The main advantage of this was that it allowed people who had different items at their disposal to obtain things they needed. He wrote about the market’s “invisible hand.” This is an illustration that suggests that the market knows best, as it is the accumulation of peoples' desires. It is most famously summed up by Smith as follows: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages” (26-7). The system Smith recommended was one that was motivated by self-interest, but not one that was exclusively self-interested. Smith always believed that the wealth of nations was key to human progress. Specializing and dividing labour were key instruments of this: The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes … . [T]his produce … bears a greater or smaller proportion to the number of those who are to consume it … .[B]ut this proportion must in every nation be regulated by two different circumstances; first, by the skill, dexterity, and judgement with which its labor is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed (Smith, 10). His insight into 18th century economics was remarkable at the time. But hindsight makes Smith's contribution especially impressive as it resulted in political freedom and a remarkable generation of wealth. This was in direct contrast to the work of Marx, which led to misery and death. Smith's work was picked up great economists such as Frederick Hayek and Milton Freedman to argue for freer markets and more private ownership. Today the Wealth of Nations is considered a foundational text and Smith, who was cited frequently in his own day, is considered one of the greatest economists (Campbell, et al, 7). Throughout the 19th century a number of economists took up Smith's work and added to it; but the greatest economist of that century was surely the German Karl Marx. His influence on world history was tremendous. His work was very different than Smith's. He focused on the unfairness inherent in the capitalistic system and felt that only labour was valuable. He felt that workers were being oppressed by employers and that they should rise up and form a new ruling class. Revolutionaries around the world took up his ideas in the 20th century to disastrous effect. In the Communist Manifesto he described the historical processes at work in the economic system. It is an extraordinary statement: We see then: the means of production and of exchange, on whose foundation the bourgeoisie built itself up, were generated in feudal society. At a certain stage in the development of these means of production and of exchange, the conditions under which feudal society produced and exchanged ... the feudal relations of property became no longer compatible with the already developed productive forces; they became so many fetters. They had to be burst asunder; they were burst asunder. Into their place stepped free competition, accompanied by a social and political constitution adapted in it, and the economic and political sway of the bourgeois class. A similar movement is going on before our own eyes ... The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring order into the whole of bourgeois society, endanger the existence of bourgeois property (Marx and Engels). Two of the countries that most readily adopted Marx's ideas were China and Russia. These two countries had revolutions that completely reordered their political institutions and their economies. For some time the centralized control the leaders of these countries possessed under Communism allowed them to gain economic ground, but soon the failure of these experiments became obvious. Political freedom was non-existent and central planning was inefficient. In 1991, the Soviet Union, the first and longest national experiment with Marx's ideas, collapsed, and Russia embraced capitalism, and Smith's ideas. China is still officially Communistic, but it is experiencing economic growth in so far as it is plugged into world trade and the world capitalistic system. It is likely that is will soon experience a political opening. Unfortunately, around the world, there are still a few hold outs such as Cuba which maintain closed economies and centrally plan. The problem with central planning, which Communist leaders eventually discovered, is that it eliminates the invisible hand. Planners believe they have enough information to make decisions about who should work where and how much should be produced. The truth, however, is that they are only human: they cannot possibly respond quickly enough to price points or shortages in the economy. It is far more efficient to allow the invisible hand to do its work and to provide people with the things that they want. This is something Marx did not accept and which Smith felt was most important in any economic system that claimed to have the people's best interests at heart. The truth is that Marx's ideas were misused and manipulated. He would never have supported the totalitarian states of Mao or Stalin. He was a champion of individual liberty (Simon, xxxv). Nevertheless, his relentless focus on labour and support for the idea of revolution led directly to the suffering of millions. He was not responsible for the way Lenin married Marxism with violence or the liquidation of class enemies that occurred in so many Communist countries. Nevertheless, his focus and his persuasiveness were ruinous and have destroyed much of his credibility. As Marx's stock fell, so Smith's stock has risen. Where Smith chose to focus on capital, Marx preferred labour. That is the main difference between the theories proposed by both men. At the end of the day, one man stood for freedom and the other created the rhetorical structure upon which totalitarianism could hang its coat. Marx was a genius—no one could question that—but his genius was misused and led to the death and destruction of millions of innocent people. Work consulted Bussing-Burks, Marie. Influential Economists. Minneapolis: The Oliver Press, 2003. Marx, Karl. Selected Writings. Edited by Lawrence Simon. Hackett Publishing Co., 1994. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. University Of Chicago Press, 1977. Campbell, R. H. and Andrew S. Skinner. Adam Smith. Routledge, 1985 Read More