Adam Smith and Karl Marx Economic Theories - Essay Example

? Topic: Lecturer: Presentation: Introduction Economic deals with study of human nature hence most theories ineconomic are based on the nature of humans. Adam Smith and Karl Marx are considered as the greatest economists of their time, in fact Smith is regarded as the father of modern economics (Skousen, 3). Most of the theories in economics today are based on the ideas of Smith as well as Marx and Keynes. These individuals have different ideas on how the economy works and the best economic system that would ensure the good of all people in the society. They also differ on the role the government is supposed to take to drive the economy to prosperity. All these differences are prompted by the views held by different theorists regarding human nature and this will be the subject of our discussion in the next section but emphasis on the role of human nature in economic theories of Smith and Marx. Adam Smith (1723-1790) As stated earlier, Smith is regarded as the father of modern economics and capitalism. According to him, human beings are social and as such they have a tendency to care for each other. They are also driven by self-interest but this does not deter them from empathizing with and help each other (Skousen, 11). This is the basis of his economic theory written in his book An inquiry into the nature and causes of the wealth of nations or what is commonly referred as Wealth of Nations in 1776 (Das Kapital). This brought about industrial revolution and emergence of capitalism as the dominant mode of production (Hall). The capitalist economy is based on the mechanism of free markets whereby Smith believed that individuals driven by self-interest and not infringing on the rights of others can in the process benefit the whole society (Hall). The market is driven by the ‘invisible hand’ whereby producers produce goods and services and take to market where they meet buyers who are in need of such goods for consumption. In this case, the buyer and seller only meet when exchanging products and do not negotiate on the quantity to be produced or bought (Skousen, 10). Individuals are assumed to self-regulate themselves in this economy and as such there is no need for government intervention unless to provide public goods such as infrastructure and make sure people adhere to contracts. There is thus free movement of labour, capital and goods (11). Smith’s economic theory is also based on economic independence. Natural liberty according to smith is a fundamental human right thus individuals are given freedom to do what they want (Hall). They produce what they want, at a price they want but the principle of justice must be withheld, that is, there is freedom of production and exchange. As such, all the actors in the economy (workers, landlords and capitalists) work in harmony; there is no conflict of interest (Skousen, 27). In such case, Smith assumes that human beings are honest, just according to societal rules. They can therefore, pursues self-interest without offending or ignoring the needs of others but for the benefit of all. Smith did not envision greed and egotism in human nature. Furthermore, capitalists have to consider the interests of consumers if they want to make profit. Human beings are competitive in nature. This according to Smith was not a negative thing but affected the economy positively, that is, is led to economic growth (Hall). Man should therefore “bring his industriousness and capital into competition with those of others to create harmony” (Skousen, 27). Competition leads to determination of prices in the market thus the market is always in the equilibrium. The producer is able to get profit for his produce and the consumer benefits from low prices as well as improved quality (to lower prices, manufacturers improve technology thus produce quality goods at low cost). As such economic prosperity is achieved through economic independence. Karl Marx (1818-1883) Smith and Marx had very different views regarding human nature and as such capitalism in general. While Smith advocated for capitalism, Marx spent his entire time criticizing it and advocated for a communist system of production. Smith was of the view that the self-interest of individuals if pursued could lead to the benefit of all and that there was no conflict of interest. Marx, on the other hand saw humans as being driven by self-interest which led to conflicting interests in capitalist economy and antagonisms (Marx 1999, ch.07). In this case, human beings cannot self-regulate themselves since they are driven by greed and egoism. The capitalists who are the dominant class own all the means of production and as such are the dominant class and exploit workers for their selfish gain, that is, profit or capital accumulation (Ch. 31). Due to conflicting interests, the system is dominated by class struggles and the only way for workers to emancipate themselves is to seize the means of production through a revolution that would see overthrow of capitalism and emergence of communism. Harmony as envisaged by Smith is thus not achieved. Smith on the other hand was against a revolution and believed society was orderly and that self-restraint, fair play and free competition led to good life (Skousen, 103). For Marx, human beings are not naturally good as Smith led us to believe thus the class struggles. Marx was of the view that the nature of individuals depends on material conditions determining their production and that social structure evolve out of life process of definite individuals not as they appear but as they really are, that is, how they operate and produce (Marx 1845, ch 1). As such according to Marx, the system of production is determined by the dominant mode of production, that is, of producing material existence and as the mode of production changes, so does the economic system (Marx, 199, ch 24). This explains the evolution of economy from feudalism to capitalism and the expected emergence of communism. These conditions are forced on individuals by the environment although they are also capable of molding the environment. Another dominant view is that human nature is made by social relations. These social relations in capitalism are determined by the relations of production thus the resulting class differences. Marx was against capitalism for alienating individuals from their means of production and as such from their nature. This is because human nature exists as a function of human labor or what people do (Marx 1999, ch.7). Contrary to Smith who believed that capitalism brought about the good for all, Marx was of the view that it brought about inequality as capitalists exploit workers. This is evident in his theory of surplus value of labor. Workers produce goods not for their own use but for exchange and if their productivity increases the capitalist gets more value but workers do not get increased wages thus the concept of surplus-value which is exploitative (Mandel, 9). Due to selfishness of capitalists, the market is never in equilibrium and does not benefit the whole society. Capitalist continue accumulating capital whereas workers just get enough for subsistence and do have extra to enable them own property. The situation is worsened by competition which pushes wages down as capitalists join hands to guard their interests resulting in monopolies and high prices for products (Mandel, 35). Since humans act to fulfill their needs, they have no option but to persevere until a time when their collective conscience will drive them to a revolution and overthrow of capitalism. Conclusion Smith and Marx are among the founders of economics but their economic theories are very different due to how they conceptualize human nature. For Smith individuals are just, competitive, not egoistic and empathetic. As such, granted economic freedom pursuing their self-interests results in benefits for the whole society. He believes in harmony and social order as well as self-regulation through the ‘invisible hand’ thus no need for government intervention in the market. The market as such works efficiently; no surplus or deficits. Marx on the other hand, believes men are greedy, unjust and unscrupulous and that they can shape and be shaped by their environment. As such, the market is characterized by disharmony and exploitation of many by a few capitalists due to selfishness and competition. The only solution is thus to overthrow the capitalist system and install communism for the good of all. Works Cited Hall, Shane. Theory of Economics. eHow.com. Web. http://www.ehow.com/about-5373482 theoryeconomics.htmAccessed 14 December, 2012. Mandel, Ernest. An Introduction to Marxist Economic Theory. Australia: Resistance Books, 2002. Print. Marx, Karl. Capital: A Critique of Political Economy, Volume I. Trans. S. Moore & E. Aveling, 1999. Web. http://www.marxist.org/archive/marx/works/1867-c1/ch26.html. Accessed 14 December, 2012. Marx, Karl. The German Ideology: Critique of Modern German Philosophy According to its Representatives Fauerbach, B. Bauer and Stirner and of German Socialism According to its Various Prophets, 1845. Web. www.marxists.org/archive/marx/works/1845/german ideology/ch01.htm. Accessed14 December, 2012. Skousen, Mark. The Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes. New York: M.E.Sharpe, Inc. 2007. Print. Read More