Category: Adam Smith

Adam Smith’s View of Wealth and Virtue

Wealth is an abundance of valuable possessions or money. In other means such as the plentiful supplies of a particular resource. When one asks themselves, ‘What is wealth?’, people immediately think of money. They think of nice cars and big houses. People think of power and the ability to have control over others, and money is not the only wealth that can be obtained in life The one percent are the small percentage of people who are the people who have money and lots of it. The one percent tend to have riches, fame, and luxury. According to the definition of Adam Smith, economics is only concerned with wealth earning activities. Every human living in society needs wealth to fulfil their basic requirements. All human beings living in society or concern to earn more and more wealth. It means economics deals with production, distribution fusion, exchange and consumption of wealth.

Adam Smith is known as one of the fathers of economics. He is most known for his profound ideas and theories on capitalism presented in his book ‘The Wealth of Nations’. Adam Smith defined economics as follows: “Economics is the science of wealth”. In ‘The Wealth of Nations’ the ideal capitalist government and society relies on man being prudent and those assumptions and descriptions of the prudent man are seen throughout ‘The Wealth of Nations’. The prudent man is what Smith assumes makes a capitalist government successful and have a path of steady, but not rapid growth. The prudent man is content with what he has, he is a hard worker, and he is honest. The prudent man is guarded but maintains friendships.

‘Theory of Moral Sentiments’ is Smith’s look inside man’s thoughts and is more of a psychological thesis than an economic one. Smith claims man is self-interested and partakes in self-interested sympathy. The word ‘sympathy’ often brings thoughts of altruism and compassion, but for Smith sympathy is about one wanting to maintain their levels of happiness, Smith writes: “Upon these two different efforts, upon that of the spectator to enter into the sentiments of the person principally concerned, to bring down his emotion to what the spectator can go along with, are founded two different sets of virtues. The soft, the gentle, the amiable virtues, the virtues of candid condescension and indulgent humanity, are founded upon one: the great, the awful and respectable, the virtues of self-denial, of self-government, of that command of passions which subject all the movements of our nature to what our own dignity and honor, and propriety of our own conduct require, take their origin from the other” (23). Sympathy occurs when man sees a fellow man happy, which brings oneself happiness too. Sympathy also occurs when man sees another hurting or desolate because witnessing this pain brings man’s mood down. Smith also discusses a more abstract concept in regards to sympathy in the ‘Theory of Moral Sentiments’, the impartial spectator. The impartial spectator acts a third party judging a person’s behavior. Although Smith’s two books were written years apart, they have multiple connections between the two.

The assumptions and claims he makes about a man in the ‘Theory of Moral Sentiments’ seem to hold in ‘The Wealth of Nations’. Benefits from trade and globalization. In a protectionist society, profits fall while rents rise; to Ricardo, this was a catastrophe. In ‘A World of Ideas: Essential Readings for College Writers. 10th ed.’, Adam Smith says: “Upon Equal, or nearly equal profits, most men will choose to employ their capitals rather in the improvement and cultivation of land, than either in manufactures or in foreign trade” (327). The wars that England fought affected its food imports and the price of grains. This forced capitalists to pay higher wages, and British goods became more efficient on the international level. During the Corn Laws era, the capitalists dominated the economy while the landlords controlled the parliament. Ricardo’s iron law of wages states that wages must remain at a constant level of labor’s natural price, capitalists had to pay high wages to their workers; therefore, they found out that it was easier to start importing grains. On the other hand, landlords resented imports because they depressed the prices and profits of their grains.

Wealth is an abundance of valuable possessions or money. In other means such as the plentiful supplies of a particular resource. This topic is focused on the middle class, which he views as the most virtuous and therefore the most admirable. He finds it to be a huge flaw to admire the super-rich because although it is good to have wealth, they often do not have virtue, which is morally important. Humans often feel sympathy for the super-poor, however Smith advises on not admiring the poor even if they are virtuous. However, there are exceptions to all of these cases they are just recommendations on achieving wealth and virtue.

Adam Smith Vs Karl Marx: A Comparative Essay on Their Key Thoughts

Adam Smith was an eighteenth-century scholar eminent as the dad of modern economics, and a noteworthy defender of free enterprise monetary arrangements. In his first book, ‘The Theory of Moral Sentiments’, Smith proposed the possibility of an undetectable hand—the inclination of free markets to manage themselves by several methods such as rivalry, free market activity, and personal responsibility. Smith is additionally known for his hypothesis of remunerating wage differentials, implying that risky or unwanted employments will in general pay higher wages to draw in specialists to these positions. In any case, he is most popular for his 1776 book: ‘An Inquiry into the Nature and Causes of the Wealth of Nations’.

Adam Smith gave a blue print to a model of social association based on the arrangement of flawless freedom. Private property and deliberate trade are the primary highlights of the industrialist economy. Smith offered a critical knowledge into the job of the division of work, rivalry, capital collection and private property in making a working and prosperous business society. He gave a dream of the general public all in all moving towards a far off yet plainly unmistakable objective of progress. He gave a dream of society where people are following their personal responsibility without state impedance or a focal arranging expert, through a system called political economy, or, in the present phrasing, financial aspects. In his laws of showcase he endeavored to settle the essential inquiry of how the private intrigue and enthusiasm of people can be driven toward a path that can bring predictable valuable outcomes for society overall. He was intrigued to investigate the instrument through which society is held together, regardless of everybody hectically following his or her personal circumstance.

He exhibited through his laws of market that opposition among self-motivated people will eventually result in the arrangement of products to society at market value that society is set up to pay.

Nonetheless, this is just conceivable for the situation when the market works under the state of immaculate freedom. Therefore, singular personal circumstance in a market economy, under the state of impeccable freedom, is watched through rivalry as opposed to any planning expert. Rivalry transmutes the childish thought processes of men through an automatic arrangement of the market framework for society’s efficient provisioning. Furthermore, the law of gathering and the law of populace move the efficiency of the market in a rising winding. In this manner, if amassing achieves its immersion point, where more interest for work expands the wages to the degree that they destroy the wellsprings of gathering, the law of population will bring the parity back (Heilbroner, 1999).

Over recent years, because of the monetary emergency, the western industrialist framework has gone under an extended and merciless assault in broad daylight banters on an amazing scale. Enduring caused by the ongoing financial emergency has driven researchers to trust that it is imperative for the general well-being and survival of free enterprise to survey the model of the industrialist economy and its supernatural forces expected by its unique creator. Generally private enterprise will be ruined or decimated by inside disappointments or outer weights. As indicated by Lewis (1977), Adam Smith appreciates an extraordinary position in monetary idea. Being a moral logician, he was a piece of a scholarly structure, in light of a more extensive good establishment of common rights. Be that as it may, the central purpose in financial idea has separated from Smith’s investigation of the free market from its moral establishment. Lewis contended that despite the fact that Smith supported the evacuation Filosofía de la Economía, of market confinement, expanded profitability and development, he had a more extensive, furthermore, increasingly inconspicuous reason for the market framework at the top of the priority list. Smith saw the advertise as pivotal instrument to spare common society through the manner by which it constrained men to perceive characteristic rights. That there has been little concern with these regularizing and political parts of Smith’s fundamental monetary ideas has an extensive impact on monetary hypothesis and strategy.

On the off chance that we look at, as to strategy, Adam Smith’s ‘abundance of countries’ with Karl Marx’s ‘capital’, the unequivocal and furthermore most clear contrast is this: while the previous is an endeavor to sum up for a fact (as found in authentic and factual records, yet additionally in discussions with Glasgow shippers) and to check those speculations by endeavoring to clarify an ever more extensive scope of exact marvels (as per the ordinances of Newtonian science), the last is – as the caption demonstrates – an evaluate of political economy which begins from the hypothetical presuppositions of middle class financial analysts so as to indicate how their classifications and laws somewhat uncover and incompletely cover up, however are basically unfit to clarify, the truth of the entrepreneur monetary framework.

For Smith, the perusing of prior and contemporary economic treatises served to illuminate his very own perspectives, however he had no need of mercantilist or physiocratic thoughts so as to clarify his own hypothesis. Whenever rather late in his work (in Book IV) he examines those thoughts, it is just to demonstrate the prevalence of his own framework. Marx, despite what might be expected, cautiously examined two hundred years of monetary writing so as to find the “life systems of common society” and presents as premises of his basic hypothesis (at the start of Book I) what he takes to be the essential classes and standards of “established political economy”.

Adam Smith is a well-known economist by numerous individuals to be the ‘Father of Capitalism’ whereas his partner, Karl Marx, is considered by numerous individuals to be the ‘Father of Communism’. The thoughts of these two men differentiate as a general rule, yet there is some similitude in the thinking behind a significant number of their thoughts. The primary contrasts incorporate their thoughts with respect to the division of work and how merchandise and enterprises ought to be esteemed and valued by makers while the fundamental closeness between the two includes their perspectives on the advantages of rivalry between the makers of products and ventures.

The hypothesis of the division of work is the possibility that if individuals from a general public practice into explicit professions or errands inside their work, at that point the yield of the general public will be a lot more noteworthy than if individuals somehow managed to work alone. Adam Smith depicted this enhancement in yield as the reason for expanded smoothness from learning, apparatus plan developments, and reserve funds in time because of not evolving undertakings. Smith contended that the division of work would be incredible regardless of whether all people were indistinguishable in view of that gainful limits are found out (Munger, 2018). Karl Marx saw this thought as what wasn’t right with society. He thought it was uncalled for to constrain men to contend and saw the division of work as the reason for a social chain of command. This social chain of importance was the reason for monetary contrasts caused through the specialization of various occupations which had unequal money related motivators for the work. He contended this disturbed society and made social issues through the opposition. Marx was especially against the social chain of importance that was made by financial disparity that he accepted was made by the division of work. Marx trusted that in a socialist society in which there was no division of work, all individuals would be monetarily equivalent and thus there would be no fluctuating social classes (North, 1969).

Adam Smith felt that organizations ought to have the capacity to create as a lot of their item or administration as they need and that they ought to have the capacity to charge buyers whatever value they accept spoke to the estimation of the great or administration. He trusted that shoppers would possibly buy a decent or benefit when the cost was at a point in which they trusted they would profit by. This would make the market move to a balance point in which the two makers and customers were profiting from each other. Adam Smith authored this the hypothesis of the ‘imperceptible hand’. The hypothesis additionally expresses that when left to their own gadgets, individuals will act in view of their own personal matters, along these lines making a decent harmony point. Karl Marx contended that enabling makers to set their very own value focuses was a principle contributing element in the abuse of specialists. Marx had confidence in the work hypothesis of significant worth, which expresses that “the estimation of an item can be dispassionately estimated by the normal number of work hours required to deliver that product” (Prychitko 2018). In light of this, Marx contended that charging customers anything more prominent than the estimation of the work put into the item by the laborers was misuse of the specialists. Marx believes that when specialists are paid at a rate that is not as high as that at which great men are sold, they generate additional respect. This surplus esteem is the thing that makes the benefits that go into the pockets of the organization proprietors.

Adam Smith and Karl Marx both trusted that opposition among makers was valuable for society all in all. Smith trusted that opposition between makers was gainful on the grounds that it gave the buyer a decision about where they needed to buy merchandise from, consequently keeping makers legitimate and reasonable towards buyers. As per Marx, “the sole barrier against the business people is rivalry, which as per the proof of political economy acts advantageously by both raising wages and bringing down the costs of items to the benefit of the devouring open” (Marx, 2018). In spite of the fact that Marx saw the advantages of rivalry among makers, he likewise observed the negatives of the opposition. Marx trusted that the opposition would in the end move to the other side and consequently lead to an imposing business model as one maker overwhelmed the rest.

To conclude, two of the real contrasts in the thoughts of Adam Smith and Karl Marx are based around the division of work and how to esteem merchandise and ventures. The comparability examined was their perspectives on the advantages of rivalry between makers. Albeit the vast majority of the thoughts and speculations of Adam Smith and Karl Marx vary, there are likenesses to be found.

What Did Adam Smith Think the State Should Do and Why?

As a laissez-faire economist, Adam Smith believed in the importance of the free, competitive market. However, he also recognized the importance of the state in maintaining order in society.

Adam Smith believed that it was the state’s duty to “protect society from the violence and invasion from other societies” (Sandmo, 2011, pp. 55). He analyzed four different stages of an economy and recognized that each stage required contrasting forms and levels of protection, more advanced economies needing the most. As Europe entered the industrial revolution, the rise of manufacturing meant that there was a definite need for government-funded defense. One reason why a professional army needed to be paid for was that a manufacturer could not leave his work. For members of the agricultural state of society, voluntary action was a possibility. If the war were to arise before the harvest, the men would not be away from work during a vital time (Smith, 1776). Unlike a farmer who can leave the weather to grow his crops, a manufacturer is the sole worker of his craft. If a carpenter, for example, leaves his woodwork to fight, it would never get finished. In addition to this, as the manufacturing industry developed, so did the art of war. Campaigns became longer and more challenging, which prevented workers easily being able to return to their career. Shepherds had a vast amount of spare time and could dedicate themselves to military responsibilities (Smith, 1776). On the contrary, the demanding hours of a worker in a commercial economy meant there was rarely a moment for relaxation, let alone for army training or war; a professional army would be far more skilled and ensure society’s protection.

An advanced economy is more likely to need national defense because it is far more likely to be invaded in the first place. As an economy develops, it becomes wealthier and more prosperous, qualities that are desired by potential invaders. Hunters, being the most primitive stage of an economy required no state-provided defense. As they rarely had any property or other assets, there was far less risk of being attacked (Smith, 1776). Smith recognized that having a skillful military is an invitation to be invaded (Reisman, 1998), but the pre-existing risk an advanced economy already faces makes it important that society is sufficiently protected. The evolution of more modern and dangerous firearms meant that more advanced training would be required in order to be under control of weapons. This level and intensity of training may only be viable for those whose sole career is the military (Smith, 1776). The scarcity of technical weapons during the earlier stages of society meant that training was not as vital. In addition to this, hunters in particular were exposed to similar tribulations to what they would face at war. Whether a hunter was defending his tribe or avenging the antagonist, a hunter was sufficiently protected by his own abilities and able to overcome these challenges. Thus, there was no need for a sovereign to prepare a hunter for war or assist him whilst he is fighting (Smith, 1776).

As much as Smith was in favor of the division of labor, he understood that there were damaging effects that would make the average worker “incapable of defending themselves” (Smith, 1776, pp. 698). In ‘The Wealth of Nations’, he goes onto explain that the monotony of a worker’s job could cause his “heroic spirit” to become “almost utterly extinguished” (Smith, 1776, pp. 541). Smith believed that it would be most effective if the state created a police force that obliged citizens to take part in the military to some extent or employ citizens to become a permanent member of the military (Smith, 1776). ‘The Wealth of Nations’ proves that a more industrial economy will require a professional military. The UK’s professional army is more important than ever considering the speed at which our economy is growing.

Adam Smith also thought that the state should be responsible for the administration of justice. He said in ‘The Wealth of Nations’ that the government should “protect, as far as possible, every member of society from the injustice and oppression of every other member of it” (Smith, 1776, pp. 708). Like defense, different stages of society required different kinds of justice, with more advanced economies requiring stronger degrees. In a rich and advanced economy, many people will own property, whether it be a home or land. Some people may own financial assets such as bonds. With wealth comes a risk of theft and other crimes such as fraud and therefore legal authority is very important. When society was made up of hunters, who owned little to no property, there was little theft and less need for a justice system. It was only “envy, malice, or resentment” that could “prompt one man to injure another in his person or reputation” (Smith, 1776, pp. 709). Shepherds, on the other hand, owned property and therefore, there was high inequality within the society. Civil government was created in order to defend the rich from the poor (Butler, 2007) who would band together to sabotage those who owned desirable assets. We could say that civil government is just a natural result of the conflict that arises when there is inequality within a developed economy (Butler, 2007). It was through the reassuring protection from the state that allowed the wealthiest of society to “sleep a night in security” (Smith, 1776, pp. 710). The UK is one of the most developed economies in the world and thus the legal authority is very important in ensuring each member of society is provided justice.

Adam Smith believed that the state should provide certain public goods. The state should be responsible for building and maintaining public works which are advantageous to society but not profitable to the individual. Public goods are non-excludable, meaning we are unable to stop someone from using this good and we cannot charge them to use it. A good example of a public good would be street lighting. It is important that the state should provide public goods due to the issue of the free-rider problem, where people can enjoy the benefit of a good whilst not paying anything towards it. There is no profit incentive for private individuals or groups of individuals to provide public goods due to the impossibility of charging the consumer; they can easily enjoy the good for free. If the government were not to intervene and supply them, these public goods would be under-provided or not provided at all (Sandmo, 2011) To illustrate his belief, Adam Smith compared the provision and maintenance of canals and roads. He suggested that canals may be sustained using the revenue gained by charging a small toll to all who choose to use it; the toll being proportional to the amount of damage the boat is likely to cause (Smith, 1776). If a canal is not maintained, it simply becomes impassable. If the public sector, whom is usually careless and inattentive, take on the responsibility of maintaining the canal, it will likely be left uncared for and unused. If a private owner maintains the canal, he can make a profit each time a consumer wishes to use it. It is for this reason that canals should be provided by the private sector. Roads, on the other hand, should be provided by the public sector. Unlike canals which are unusable if not managed, consumers will use roads even in their worst condition (Smith, 1776). Therefore, it is unprofitable to the private owner to maintain them properly. Smith also felt that the state should provide infrastructure for the education of the youth. The UK’s public sector today not only provides these educational facilities but is also responsible for implementing state education for every child. Although for the most part, the state provision of education is benefitting the UK, the government is struggling to afford the funding the sector needs.

In conclusion, we can determine that Adam Smith felt the state had three main responsibilities: national defense, administration of justice and provision of public goods. Although the UK’s public sector is perhaps larger than Smith’s ideal, today’s government has fulfilled each of his desired obligations. Smith believed that a minimal state is the best system for the efficient allocation of resources and I believe that the implication of Smith’s laissez-faire views is one of the leading reasons why the UK is one of the world’s most powerful economies.

References

1. Butler, E (2007) ‘Adam Smith: A Primer’. Institute of Economic Affairs.
2. Reisman, D.A. (1998). ‘Adam Smith on Market and State’. Journal of Institutional and Theoretical Economics (JITE).
3. Sandmo, A. (2011). Economics Evolving: A History of Economic Thought. New Jersey, VIC: Princeton University Press.
4. Smith, A. (1776) The Wealth of Nations: An Inquiry into the Nature and Causes of the Wealth of Nations (General ed.). Oxford, VIC: Oxford University Press.

Adam Smith’s Key Ideas in ‘Off the Rent of the Land’

In this paper, I will discuss the ideas of Adam Smith in his book ‘An Inquiry into The Nature and Causes of the Wealth of Nations’, specifically, chapter 11 in the first book which is called ‘Off the Rent of the Land’. The chapter is divided into four parts: off the produce of land which affords rent, the produce of land that could afford or not, the variations in the value of the produce, and digression concerning the variations of the value of silver. In this chapter, Adam Smith talks about the factors that determine the rent of land and the types of commodities produced within that period. Moreover, he ends the chapter explaining why the value of silver varied in an unprecedented way during the last four centuries. Essentially, the issues addressed in the chapter are interrelated. The connection between the demand for a good that is produced using the land, its rent and the discrepancy between the prices of different kinds of goods form a foundation for the chapter. In the subsequent paragraphs, each part will be explained concisely.

Adam Smith views rent as the price paid for the use of land which is equivalent to the maximum amount a tenant is willing to pay. In some cases, the tenant is charged less due to the incompetence of the landlord, while sometimes tenants tend to overpay due to their naivety. Rents are valued based on the profits generated from the use of land after the production of a certain good. Even if the tenants improved the land by their own money, the landlord would charge more for rent. These characteristics of rent lead to the belief that the price of rent is considered a monopoly price (Smith, 1776, p.116). Although the production of certain goods won’t necessarily guarantee rent. While other kinds of goods insure rent after their production. These factors are what determine the rent charged by a landlord and the good produced by a farmer.

The cost of labor to maintain the production process is what determines whether the process is profitable or not. The bigger the cost of labor, the lower the profits that are generated which in return isn’t favorable for the landlord. According to Adam Smith, the landlord is merely a lazy member of society since he earns money effortlessly. Some possible ways to use the land are growing a cornfield or raising cattle. Although the labor required to keep to production process going is different between these goods, it is certainly profitable enough to provide the rent for the landlord. This would happen because the food is an essential part of human life and it will certainly continue like that.

The profits generated from these different types of uses depending on the cost of production. If the land is further, then the transportation costs will increase the price of maintaining such goods. Essentially, this affects the supply of the good, therefore demand and pricing (Smith,1776, p.120). Landlords prefer to rent the land out to a tenant who is willing to produce a profitable good using the land. This will ensure that the surplus left after paying the costs of production is enough to pay the rent. Moreover, the location of the land would affect the rent since it could either decrease or increase the incurred costs. Therefore, the food industry would always afford rent to the landlord due to the need for it for subsistence.

In part two of the chapter, Adam Smith discusses why there are some commodities that won’t always afford rent. However, due to the need for it in society, it is a must to produce such goods. For instance, the demand for clothing is inconsistent because the supply is great. This would happen due to the fact that the skin of an animal would be used for clothes (Smith, 1776, p.131). Therefore, it would sometimes leave a surplus for the landlord as opposed to being unprofitable in specific cases. This depends on the amount of labor required, population, and supply of animals. In addition to clothing, silver mines, and coal mines are considered some of the industries that generally don’t always generate necessary profits to afford rent. Although sometimes it might be very lucrative to employ labor in these industries, it doesn’t necessarily mean that this is always the case. The quantity of silver and coal produced varies according to natural resources. One mine could generate a lot more than another even if the same resources are used in the investment process.

Moreover, the complexity of the demand and supply of these commodities would make it even harder for the landlord to predict if an operation would be profitable. This means that if one day the operations were successful enough to pay rents, it doesn’t guarantee another successful day. Even if the mining process was considered a success, the demand for these types of goods would ultimately determine whether rents are afforded for the landlords or not. Also, the demand for such kinds of goods would be affected by materialistic people that already satisfied their essential needs. This demand is inherently inconsistent and varies according to the needs of a certain group of people.

The third part of the chapter is concerned with the pricing of different types of commodities whether it could afford rent or not. In essence, the need for food to sustain life would only mean that the supply of food is abundant compared to different types of goods. Therefore, the demand for food will always be there. However, what determines the price of these goods would be the supply of it and the population in society. The upper class would definitely consume more than the lower class. What determines whether the price of goods such as wheat and meat is increasing is how much the supply of it is growing compared to the population. The demand for the food would react according to these two factors. On the other hand, goods such as clothes and metals would have a higher demand if the city advanced in general. Although the supply would grow in the same way as the demand in order to satisfy the demand. This doesn’t necessarily mean that profits would be generated from the use of land for such operations.

Eventually, Adam Smith would address the topic of the discrepancy of the change in the value of silver in the last four centuries. The unprecedented change in the value of silver throughout the period between 1350 and 1770 led to a revelation regarding the causes of it. The first period between 1350 till 1570, the price of grain and silver were going down. This was followed by a period of increase in the price of grain between 1570 till 1640. Therefore, Adam Smith was trying to prove that there is a relationship between the price of grain and the value of silver. Then during the third period that is between 1640 and 1770, the price of silver increased after the civil war that causes a low production of grain. This would lead to a higher price for corn. Later on, exporters of grain were incentivized to produce more due to the increase of the reward for doing it. This was followed by an increase in the value of silver after that period. Food is considered a necessity and is strictly utilitarian. However, commodities like gold and silver have an intrinsic value that would change the demand for it accordingly. The correlation between the price of grain and the value of silver was relatively relevant back then. In spite of that, this connection would be considered obsolete in modern economic thinking.

The supply of silver would change according to the productivity of the mines or to the demand of it by wealthy people. Furthermore, the quantity of silver available in the market and the demand for it would ultimately determine the value of it in the market. Essentially, Adam Smith was trying to find a relationship between the value of silver and the highly demanded goods such as food in the economy. He was disregarding the notion that economic prosperity would increase the value of silver and gold. There is a relationship between economic growth and the prices of such goods. Nevertheless, the different factors that determine the value of silver and the prices of goods would make this correlation somewhat irrelevant. In statistics, these factors would be called unknown variables in regression models. Therefore, the complexity of the markets would lead to an overestimation in the correlation between two variables due to the unknown important factors. Nowadays, the scrutiny of different markets would require market isolations to understand the pricing in such markets. When Adam Smith discussed the value of silver in an economy, he consequentially talked about inflation, deflation and purchasing power. This part of the chapter could be divided into two parts, each one would be analyzed on a macroeconomic level and microeconomic level respectively.

In conclusion, Adam Smith indirectly emphasizes the role of supply and demand in the markets. These forces not only would determine the value of rent, but also the commodities produced using the land. This revolutionary view of the markets would transition economic thinking regarding the prices of commodities and the use of land into a whole new level of thinking. Moreover, the way the value of silver varied would also prove the complexity of the silver markets. Even though the evolution of thinking regarding this topic has led to a vast difference in perspective, the interrelatedness of markets and consumers will always be crucial for economic analysis. Adam Smith’s contributions to economic thinking will live forever, due to his broad outlook on how markets work. In chapter eleven of his book, he discussed how the goods produced using the land might afford rent. Also, how these goods would be sold through markets according to factors affecting the prices. Therefore, Adam Smith discussed the complexity of lands, goods, and markets in an economy. He studied the cost side of the prices of goods. His work built a foundation for economic thinkers to make sense of how economies and markets would work.

Significance of Adam Smith’s Principles

When the great economist and philosopher Adam Smith wrote ‘The Wealth of Nations’ and ‘Moral Sentiments’ he could not have foreseen the profound and enduring impact these works were to have on society. Yet, a quarter of a millennium later, students are exploring his work and examining their impacts on society. How can this be? As these books contained countless economic and philosophical ideologies, I shall focus on just two of the most important: division of labor and free markets as these have had the most sustained impacts and are the most relevant today.

Division of labor is a concept introduced to us through ‘The Wealth of Nations’, published in 1776, and describes how the production methodology of goods and services is optimized when each stage of the manufacturing process is divided into individual tasks, carried out by an individual(s). Its impact is best summarized by Smith himself as “a proportionable increase of the productive powers of labor”, and goes beyond simply reducing the costs of production. Division of labor means workers become specialists and ultimately contributes to sustained economic growth of an economic entity. This idea has been adopted widely in modern society, for example China’s rapid economic growth came from the efficiency and low production cost of their factories where the Division of labor principle was applied to their manufacturing processes. The result? China transformed itself from one of the world’s poorest countries to become the economic superpower it is today in just 30 years. However, as the global economy shifts from manufacturing dominance towards being services led, the principle’s reputation has waned as workers resent the monotonous repetition it requires of them. Still, it remains true that the division of labor had a profound impact on economic principles and undoubtedly catapulted modern economic progress forward.

Moving on, another hugely influential aspect of Smith’s economic principles is the importance of free markets in benefiting society, businesses, and consumers alike. A free market is a system where there is minimal government interference and prices are determined through the nature of rationing self-regulation. The idea of a free market has evolved and remained in importance since first championed by Smith. A great example of this is the on-line marketplace eBay, which is founded on this principle of economic democracy. eBay has 182 million users worldwide and is able to connect users across the globe from over 190 different markets. The principle of connecting buyers and sellers without government interference is directly reflected in Smiths principles and the creation of micro-multinationals (individual sellers) aligns with Smiths ideas on international trade.

However, Smith could not have foreseen the damage these concepts would have on the environment or on human rights through modern slavery. Without intervention, these two concepts have contributed to a climate catastrophe that is poised to wreak havoc on society and the situation today, with human labor being exploited as a means of production, is a profound an issue now as it was during the slave trade during the 18th-19th centuries.

Without a doubt, Smith’ principles are important as they have fueled economic growth and that society has prospered as a result with over two centuries of raised living standards and wealth across the globe. But as what cost, as these negative costs hold equal importance as the benefits?

Adam Smith and Karl Marx: Compare and Contrast

Introduction: The Economic Titans – Adam Smith and Karl Marx

Only a few people in our history can be credited to have radically transformed the functioning of societies and systems. Among them are Scottish philosopher, Adam Smith and German revolutionary, Karl Marx. In 1776, Smith published his magnum opus entitled “An Inquiry into the Nature and Cause of the Wealth of Nations”. His publication aimed to revolutionise the economy and provide both, the rich and the common man, with a more prosperous economy, better pay and independence from the traditional market structure of Mercantilism which had its clutches deeply embedded in the commerce and politics for many centuries. Adam smith set in motion, the ‘wheels’ of modern economics. The latter, Karl Marx, was born 28 years after Smith died and authored the monumental book “The communist Manifesto” in 1848 which blazed the trail for a new social and political system called “communism”. He is considered to be a revolutionary and not just a philosopher or an economist.

Marx Skousen author of ‘The big three in economics’ points out that “Marxism has become a quasi-religion, with its slogans, symbols, red banners….and definitive truth” (pg 67). If Smith is the pioneer of “Laissez Faire” and ‘natural liberty’ then Marx in his classic work ‘Capital’ contrasted his notions. Smith was one of the leading proponents of Capitalism and contrarily Marx is well known to have developed the communist ideology. Even though, Marx is considered to be the greatest critique of Adam Smith, the two geniuses do share similar outlook on some theories. This essay is aimed at discussing some of the key similarities and differences between Adam Smith and Karl Marx. Moreover, it will further evaluate the relevance and impact of their economic beliefs in modern day.

Capitalism: A Tale of Two Perspectives

Both Marx and Smith wrote about Capitalism, however, they both reached different conclusions about the benefits and workings of capitalism. Smith wrote about capitalism around 50 years prior to Marx was born which meant that the society Smith lived in was far less complex than what the society was during Marx’s time, making Smith’s work and ideas about free market, free trade as well as minimal government intervention more basic and straightforward. Smith considered Capitalism to be the most efficient and ideal economic system. He proposed the concept of “Free Markets” in which producers can produce as much as they want and charge the consumers as they desire without any government intervention. He argued that individuals are driven by their self-interest and aim to maximise the benefits they can obtain. He explained it further with his famous doctrine of “Invisible Hand” wherein the producers will demand as much cost for their products according to the time spent in producing the goods and the consumers will pay the amount according to the benefits they will derive from the goods which will create a state of equilibrium in market resulting in no surplus, deficit supply or demand. Thus, both producers and consumers derive the maximum benefits with minimal government intervention. Smith highlighted that the human self-interest and the tendency of competition leads to an optimum economy.

Though, Marx has famously been against capitalism, he indeed recognises and credits the capitalists for successfully breaking the stagnant economy under Mercantilism, thereby generating new markets and wealth. He writes in his book The Communist Manifesto, “The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all the preceding generations together.” (Marx and Engels, 1964[1848], 12-13). However, Marx objected to this free market system and inherent self-interest and competition by reasoning that such a system would lead to inherent class struggle, inequality and exploitation of workers by the capitalists. He argued that the Bourgeoisie being the wealthy powerful capitalists and the Proletariats being the working class would inherently be stuck in their classes and the only way to break free from this would be for the Proletariats to rebel and bring about a revolution to change the social order.

Additionally, Marx held a contradictory notion against Smith’s claim that a capitalist economy generates a state of equilibrium and equal benefits to capitalists and workers. He argued that if the value of a product is directly proportional to the amount of labour, what happens with the interests and profits?(is it a question?) Marx claims profits and interests as ‘surplus value’. He pointed out that in the spirit of competition and maximising benefits, the capitalists obtain the cheapest labour possible and extract more hours of labour than they pay to the workers thus, leaving them with surplus value which Marx concludes, the capitalist obtain from working class through exploitation instead of distributing the surplus value equally among the working class. He argued that capitalists exploit the proletariat and derive maximum labour in minimum wages by employing women and children who are ready to work at a lower wage than men. Marx concluded that capitalism was an exploitative, competitive and greedy system with ‘definite class struggle’. (Skousen, 2006, pg, 85). According to Marxist John E. Roemer, the main difference between Smith and Marx is, “Smith argued that the individual’s pursuit of self-interest would lead to an outcome beneficial to all, whereas Marx argued that the pursuit of self-interest would lead to anarchy, crisis, and the dissolution of the private property-based system itself. Smith spoke of the invisible hand guiding individual, self-interested agents to perform those actions that would be, despite their lack of concern for such an outcome, socially optimal; for Marxism the simile is the iron fist of competition, pulverizing the workers and making them worse off than they would be in another feasible system, namely, one based on the social or public ownership of property” (Roemer 1988. 2-3). Marx and his successors have continued to compare capitalism with imperialism because of its nature of exploiting domestic and foreign labour and resources. One of the most famous anti-capitalist argument has been “The hallmark of Capitalism is Poverty in the midst of plenty.”

The Role of the State: Minimalism vs. Revolution

When it comes to the state, both Marx and Smith mirror some opinions. According to Smith, the rich and powerful greatly influence the workings of the state in their favour. Therefore, Smith contends a minimal role of the state in a capitalist society in order to protect the other powerless sections of people. Both Smith and Marx agree that the state has certain functions to perform, including protecting private properties. Historically, both Smith and Marx have had quite distinct understanding of the state and development of property with Smith predominantly banking on the stage if social development whereas, Marx focused more towards relying on production methods.

Division of Labor: Efficiency or Exploitation?

Smith went on to explain the process of capitalism and free market economy in terms of division of labour. He explains this with an example of a pin factory where the production is greater if one person is skilled in making only a particular part of the pin rather than each person trying to make the complete pin.

Marx recognised the concept of division of labour and built on it by pointing it out to have two parts; ‘the social division of labour’ and ‘the technical division of labour’ wherein the former entails creating specialist occupations and the latter involving the breakdown of a whole task into smaller tasks. However, despite the increase in efficiency and more output due to division of labour, both Smith and Marx are on the same wavelength here when they point out that this mechanism can lead to severe detrimental ramifications on the mental welfare of the workers in a capitalist industry because they are confined to a fatuous monotonous soul-destroying work day in and day out. Smith writes in his wealth of nations (1776). “In the process of the division of labour, the employment of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two…[he] generally becomes as stupid and ignorant as it is possible for a human creature to become”. Marx, in his Economic Philosophic Manuscripts (1844), echoes the same observations, where he writes, “In his work…he does not affirm himself but denies himself, does not feel content but unhappy, does not develop freely his physical and mental energy but mortifies his body and ruins his mind”.

Paganelli, Smith and Pack in their paper highlight that one of the difference between Smith and Marx is their point of reference. They point out that Smith mainly looks back in the history of Feudal Mercantilism and claims that the society is much better than before with free market and capitalism. Whereas, Marx looks into the future, claims it to be largely better than the present, and advocates Communism for a better future. Marx strongly urged people to replace capitalism with Communism claiming it to be more equal and uplifting for the working class. He and the Marxists in the following generations claimed that capitalism will eventually die out and communism will flourish. Michael Harrington in 1976, following The Great Depression and energy crisis predicted the demise of Capitalism. Marxist Ernest Mandel wrote, “it is most unlikely that capitalism will survive another half-century of the crises which have occurred uninterruptedly since 1914” (Mandel 1976[1867], 86]. However, all the predictions have time again been failed to materialize. Capitalism continues to have a strong hold on our society. Leszek Kolakowski, former leader of Polish Communist Party, said “All of Marx’s important prophecies turned out to be false” (Denby, 1996, 339). Marx and Marxists’ major argument against capitalism involved the class struggle and inequality between the upper class and working class. On contrary, the distinct separation between classes has collapsed. No longer are workers stuck in their monotonous work earning minimum wages. They invest in the companies they work for and many start their own companies and become capitalists themselves. Furthermore, there are set minimum wage laws in every nation. The conditions of the working class have not declined further as predicted by Marx and their standard of living has dramatically improved and continues to get better. Paul Samuelson writes, “The immiserization of the working class . . . simply never took place. As a prophet Marx was colossally unlucky and his system colossally useless” (1967, 622)

Smith’s work was more dominant in the west in an uprising industrial revolution whereas the East followed Marx’s communism. In the present age since the onset of 21st century, US has been one of the biggest capitalist nations along with Germany and a few other nations. These capitalist countries follow a very free trade economy with international trade and booming large multinational corporations.

The Evolution and Relevance of Capitalism and Communism Today

Supporters of Capitalism argue that it provides political freedom which would not be possible in a system like communism where the state is the all-powerful authority. Margaret Thatcher, a pro-capitalist, famously once said, “There is no alternative”to capitalism. Her government, by 1980s, began selling and privatising all nationalised industries. She successfully, privatised many major former state owned industries like British Airways in 1987, British Gas in 1986, Electricity distribution in 1990 and British Rail in 1995 and many other former public enterprise. Her attempt to privatise all major industries came with a lot of backlash from the working class. However, despite the booming capitalism since the onset of 20th century, people’s attitudes towards it have changed. According to a recent poll conducted in 2016 by The Washington Post, with young people between the ages of 18 to 29, 51 percent of them rejected capitalism.

The ‘Occupy Wall Street’ movement in 2011 in New York, protested against the vast wealth gap between the 1% rich capitalists and the rest of the citizens. According to a survey conducted by Oxfam, it was estimated that India’s 1% population own a humongous 73% of the c the only country to be completely communist in the strictest sense.

In the 1950s, Mao formulated the “Great Leap Forward” campaign in China, aimed at pushing farmers into communities, annexing their land thereby driving them into slave labour.

In present day China, the state controls a thriving manufacturing sector that yields astronomical profits by exporting electronics, toys as well as consumer goods across the globe.

Though China is generally considered to be a communist state, there seems to be uncertainty whether it can be considered as an absolute communist state, more so if we revisit Marx’s original ideas about communism.

Despite the Chinese private sector contributing a higher percentage of GDP than the state owned sectors, it is still extremely responsive to the state. Due this interference the World Trade Organisation does not recognise China as a market economy.

Conclusion: Bridging the Gap Between Capitalism and Communism

Professor Shaun Breslin from the University of Warwick argues that modern day China cannot be labelled communist because the country’s design has no element of class which is the one of the central themes of communism and Marx. He says, “The communist Party is there to deliver what they deem to be national goals and priorities and objectives, so there is no class-based analysis at the heart of this.”

According to renowned American professor and CEO, Ann Lee, China in reality is more capitalist than some western countries, rather than socialist. To quote her views on this subject, “I would say it’s in many ways much more capitalist than other self-proclaimed countries like the US, because if you look at the percentage spent on say, federal government, the US spends a larger percentage of its GDP on federal government than China does.”

Cuba is another prime example where the state monitors hospitals, medical professionals, drugs and medical supplies but unlike China, is battling a major economic crises.

This essay discussed the similarities and differences between two revolutionary thinkers Adam Smith and Karl Marx. Their respective schools of thought, Capitalism and Communism is still prevalent in our world but have evolved int take different shapes so there are not many nations which can be called completely capitalist or completely communist, as we discussed above. If we were to compare which of the two principles are more predominant in the present age, then capitalism takes the lead. In 2007, the Bank Of England, issued £20 notes with Adam Smith’s portrait on the back along with the illustration of workers in a pin factory. Smith’s ideas about Division of Labour and free trade continues to be central to many of the nations. However, he would be horrified to witness the wealth gap that capitalism brings with it today and the amount of government intervention that has come to take over in many capitalist nations. Though, Communism has not been able to set its foot down in the strictest sense, there are some eastern countries following Marxist principles but they have some elements of capitalism in their economy. The ideal situation would be to find a middle ground between capitalism and communism however, that seems a distant future