Smith Vs. Marx - A Comparison

Smith versus Marx - A Comparison

S. Glen Balanoff

July 04, 2004

Smith versus Marx - A Comparison

Modern economic society can be described as a combination of certain points from several theories combined into one. Changing dynamics and economic needs of nations has spawned a development of various, and contrasting, economic systems throughout the world. Perhaps the two most contrasting philosophies seen in existence today are that of capitalism and communism. The two philosophers most notably recognized for their views on these economic systems are Adam Smith and Karl Marx. This paper will identify several fundamental aspects of economic philosophy as described by Smith and Marx, and will compare and contrast the views of these philosophers in relation to current global economic systems.

Adam Smith was the first of the two philosophers to reign on the economic world. Smith rose to prominence with the publishing of two controversial works: The Theory of Moral Sentiments in 1759 and The Wealth of Nations in 1776 (Heilbroner, 1999). It was the publication of The Wealth of Nations in 1776 that launched Smith as a visionary philosopher of economic theory, and the father of the free market system employed by many nations today. Smith posed a fundamental approach that economics is a community concern (Armour, 1997).

Karl Marx shocked the world with his own publication, The Manifesto in 1848, which sharply contradicted the visions of Smith and the emergence of the Industrial Revolution (Heilbroner, 1999). Marx concepts of unification without social class for the good of all people were communicated and the birth of communism was realized. Unlike Smith, who believed that the division of labor increased productivity, Marx believed that labor becomes a commodity and power rested in the hands of those who controlled production (Armor, 1997). Marx believed that the pending Industrial Revolution would create havoc and confusion to the capitalists' society (Romer, 1995).

Understanding the role of individuals in economic society can help clarify the vastly opposing views between Smith and Marx. Smith believed that self, self-interest, and self-determination, all were mechanisms where individuals are motivated to gain wealth and power for individual gain and group gain. Smith believed that 'self' is a matrix of reason and passion (Levine, 1998). Furthermore, Smith believed that sympathy leads to empathy, and our individual self-determination leads to accumulation of wealth that benefits others as well as us (Levine, 1998). Examples of this concept are evident in our current economic society today. We see Bill Gates and Microsoft providing technology to communicate more efficiently, Henry Ford's posterity changing the transportation market, and many others who impact man with their accumulation of wealth.

The simplistic perception of capitalist society varies greatly among Smith and Marx. Smith believed that capitalism is a mechanism designed to curb man's selfishness and put it to work for the general good of all (Baumol, 1976). Conversely, Marx believed that capitalism is based on neither good nor evil, but a product of historical circumstances or experience (Baumol, 1976). Marx also believed that the law of motion in capitalism frustrates, rather than facilitates, the individual ends (wealth). Marx believed that wealth divides capitalists by class, and that workers must develop in a universal class (Levine, 1998). Marx also disagreed with Smith in believing that production must cease to be a labor process if it is to produce wealth and value (Levine, 1998). This concept is known today as Marx labor theory if value.

The concept of 'value' in itself has different interpretations by Smith and Marx. Smith considered value to be the labor put into producing an output (Heilbroner, 1999). Marx, on the other hand, saw value as a "surplus value" represented as unpaid work. In Marx viewpoint, this surplus labor represented profit (Heilbroner, 1999). The concept of profit brought forth the question of dealing with profit erosion. As labor increased in duration to produce the increased demand of product, Smith believed that the workforce would proportionally increase to maintain profit (Heilbroner, 1999). Marx believed that profit erosion was inevitable in a capitalist society, and the answer to profit erosion was in the development of labor-saving machinery (Heilbroner, 1999). Today, we see some semblance of both philosophies in practice. The workforce increases when demand dictates higher production and profits allow the expense of labor resources, and technological advances allow society to mechanize many labor-intensive operations to increase productivity and maintain quality.

Smith and Marx agree that through a concerted effort on behalf of society, greater economic good could be achieved. Despite this common thread belief, contrasting philosophical perspectives placed both theories on opposite sides of the spectrum. Today, we see Adam Smith's concept of a free market society much