Adam Smiths Understanding of Capitalism - Essay Example

In the Wealth of Nations Smith established a pure view of capitalism. Perhaps the most seminal aspect of this theoretical perspective on capitalism is Smith’s notion of the invisible hand. For Smith, economic markets operate in a state of supply and demand, such that the cost of a product is contingent on a proportion of a proportion between its demand and availability. Smith believed that the invisible hand of the market would regulate supply and demand procedures, as well as outside market conditions.

For instance, if a product were deficient, then the market would eventually regulate its price. It was Smith’s understanding that individuals, all acting in their self-interest, would constitute this regulating mechanism, or ‘invisible hand’. Smith’s view of capitalism can be contrasted with Karl Marx’s theories on communism. Marx’s major text in these regards is Das Kapital. In this work, Marx proposed a vision of markets as occurring in an exploitative structure, where people with greater resources can leverage their power in unfair business practices. Mark believed these practices would ultimately be overthrown not through capitalism, but through the emergence of a communist structure, where society would operate in an equitable structure.

While many elements of Adam Smith’s theory of capitalism persist today, his view of pure capitalism has proved impossible in modern markets. There are a variety of reasons why Smith’s theory of the invisible hand does not go far enough. One of the major reasons Smith’s theory fails is because of the possibility of monopoly structures. In these situations, organizations can gain significant power that allows them to shape market elements in their favor, effectively eliminating the process of supply and demand, and making the emergence of competitors an impossibility.

In these situations, it became the responsibility of the government to institute regulatory mechanisms, as not doing so would result in potential recessions or economic complications. Other elements are the nature of ethical considerations. With the advent of the Industrial Revolution organizations increasingly presented longer workweeks and poor working conditions. While it’s possible the invisible hand would ultimately regulate these situations, there remain significant human rights concerns in permitting such a pure capitalistic structure.

In conclusion, this essay has examined Adam Smith’s theory of capitalism and demonstrated why it is impossible in the modern world. In this context of understanding, the essay demonstrates that Smith proposed an invisible hand that regulates the market. Still, this is impossible in the modern world because of the potential of corporate monopolies and widespread human rights concerns. Read More