Adam Smith and Karl Marx - Contrasting Views of Capitalism - Research Paper Example

Adam Smith and Karl Marx - Contrasting Views of Capitalism Introduction Adam Smith never claimed a capitalistic approach but his advocacy of freedom to individual abilities indicated his ideas of capitalistic and competitive economy. He wanted that production and distribution be left at the behest of competitors and believed that it would increase the welfare of all, though not in equal proportion. Karl Marx, being socialistic, was critical to labor exploitation for making nil or less contributions of additions to the capital. He believed that competition or capitalistic approach would ruin human capital and machinery power would rule if not checked. Contrasting views of Adam and Marx Adam Smith was a great believer in individualistic abilities and in an economic system that was not directed but guided by an invisible hand. That was the system of lassiz- faire. Under lassiz- faire production and distribution among classes is all automatic. Smith’s idea was that governmental expenditure should be dominated by military procurements and rest of the expenditures and procurement should be automatic as individuals and institutions were capable of meeting the consumable and other demands. Interestingly, Adam Smith never used the terms lassiz- faire and capitalism, though he was aware of the implications of these terms. Adam Smith believed that consumption creates demand and necessity to produce. Production will not take place unless there is raw material and demand for the product. “Prior to industrial revolution, production of goods hinged on work completed by human hands. Today machines have replaced much of human capital, but that is not to say that human labor is not currently an important part of production.” (LT, 2006)i.Even Marx realized that human capital is required to produce, though human capital does not have capacity to bargain because of their being in surplus Karl Marx is very straight forward in his views on capitalism. He says there are only two classes of the society and these classes are in direct competition with each other. One class is of BOURGEOISIE and the other class is PROLETARIAT. According to Karl Marx there is no middle class, and proletariat is the exploited class in capitalism. Proletariat class is a class of laborer who find work so long as their work increases the capital. There will not be any work when laborer stops adding to the capital under the state of capitalism. Capitalism does not regard proletariat as a class of people, and that is why they are exploited the most just to add to the capital. As per Alan W Erlt (2007)ii “Marx saw capitalism not as an institution and not as a result of organic economic laws, but as a phase of in the evolution of modern human society.” (page 314) Adam Smith was a believer of freedom or free market economy. Free market leads to competitions, and that is regarded as basis of capitalistic society. But there is always a danger of monopolistic competitions controlling the production, distribution, and thus prices. But Adam Smith never advocated monopolistic set up for its detrimental effects on the society. Richard G. Lipsey (1989)iii remarked that “The classical economist’ message, however, was that any monopoly power is against social interest. Adam Smith observed that businessmen rarely got together, even for a picnic, without plotting some new action to exploit consumers.”(Page 395) So called capitalist attitudes of Adam Smith were clear when in his Wealth of nations he attacked authorities for putting restrictions on the trade. He advocated free trade and free economy, or rather an open economy free from any sort of restrictions from authorities. This is because free economy encourages free trade that maximizes production, making it possible for every consumer to get more goods than it could with free trade. This does not imply that everybody will be better off. He never advocated a society where trades were protected against the influence of monopolistic or foreign powers. Free trade means no restrictions and only competition should influence the demand and supply and thereby prices. Karl Marx, being a socialist, felt that Bourgeoisies were part of the capitalist society and their role in the system was to exploit Proletariats. In fact Proletariats are considered machines and machinery has got more economic worth than worker, as machines provide capital to add to the economic power in the economic system. The worker is only considered as part of the machine whereon he works. Capitalism is a system that is only run for earning profits. Capitalism is like a machine and labor, capital, raw material, and markets are the constituents of this machine. Karl Marx realized that workers as machines must produce something to be able to sustain into the system of capitalism. After initial investment on machinery the machinery becomes self supporting as it earns and purchases raw material for its further working. Similarly, according to Karl Marx, laborers should also be self sustaining. If they are not self sustaining, that is not adding to capital, then such workers would be discarded like machines that become worthless after a point of time. The value of the labour is its cost called wages. In capitalism workers must earn more than its cost like the machinery earns more than the cost of its purchasing and installation. The cost incurred to install machinery becomes sunk cost and the capitalism always seeks laborers and markets to add profits to such already wasted or invested capital. Growing markets regularly add to the profits. Amount invested in the raw material cannot change itself, so the only labour is expected under capitalism to change and add to the profits. When the workers are not able to add to profits, they become redundant and are discarded like useless machine. Karl Marx believes that there is excess supply of labour than its demand. Excess work force is called by Karl Marx as large reserve army of labour. Because of this reserve army of labour, the wages go down and so the value of workers. Falling wages increase the value of techniques of production, as they help in increasing production, and the rate of labour exploitation also goes up. Though under capitalism the labour has free will to do or accept a job, but excess supply of laborer than opportunities mars this free will. Workers have choice of either remain free or migrate to other places in search of jobs. But both activities require further capital, and thus exploitation of workers is immineient as per the Karl Marx’s version of capitalism. Marks, as cited by Allan W. Wood (2004)iv stated in Capital that “within the capital system all methods of raising the productive power of labor are affected at the cost of individual laborer… they mutilate laborer into a fragment of human being, degrade him to an appendage of machine, and annihilate the content of this labor by running into torture.” (Page 45) Conclusion Adam Smith advocated free economy that results into automatic process of creation of demand, production, and distribution, though not equitable. Karl Marx was critical of treatment capitalism would render to human capital for making less or nil additions to capital and treating them as machinery. Each of them carried contrasting views about capitalism. They have become the pillars of economic system, though approach now is refined and realistic. Word Count: 1280 References Read More