Comparison of Smith's and Marx's Views on Capitalism

'Marx has a very different view of capitalism to Smith: he believes it is founded on exploitation and Smith believes that it is founded on mutual benefit.'

Do you agree with this assessment of the relationship between Smith's and Marx's views of capitalism?

In this essay, I will be discussing my opinion on the relationship between Smith's and Marx's views of capitalism, which is that I agree to an extent with the assessment given however there are instances from the respective authors' works where this assessment does not hold.

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Adam Smith defines capitalism as a system of operation that naturally engages in mutually beneficial exchanges without state intervention through the help of the 'invisible hand', which is believed by Smith to determine supply and demand of goods and services in a free market efficiently "as which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society" (Smith, 1982, p.5).

Marx defined capitalism as an evolutionary process and "by nature a form or method of economic change and not only never is but can never be stationary" (Elliott, 1980, p. 46). To engage in the views of Adam Smith and Karl Marx on capitalism, one must understand the prominent role that Smith believes the process of division of labour plays in a capitalist economy.

Smith states that the source of productivity growth is from the effects of the division of labour (Smith, 1981, p. 4) which is also acknowledged by Marx to be a major source of growth in productivity by the capitalist "producing more cheaply, and new division of labour in place of the old…,one capitalist[increases productivity and creates extraordinary profits]" (Elliott, 1980, p. 48).

Adam Smith states that division of labour occurs as an unintended consequence of our propensity to barter, and exchange as humans are constantly looking for opportunities to mutually benefit in any form of transaction (Smith, 1981, p. 5). The division of labour under capitalism is ultimately a major source of productivity growth that can benefit both parties in an economic transaction through the exchange of a good or service. The mutual benefit occurs when one individual who is naturally better at producing a certain good or service specialises in its production, exchanges with another individual who has also specialised in the production of their respective good or service. This characteristic of certain individuals being better at certain tasks than others is mentioned by Adam Smith in the Wealth of Nations "In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other" (Smith, 1981, p. 5).

This process of barter and exchange will allow people in a market economy to attain the products they require and through the division of labour, open even greater opportunities for mutual benefit. However, despite Adam Smith discussing the mutually beneficial exchanges that occur under capitalism, there is still a sense of persuasion involved to obtain the product people want in exchange for a product someone else wants which originates from the concept of self-love raised by Smith. Smith acknowledges that a transaction cannot occur solely based on the benevolence of one party but can occur as a result of persuading the other party that they will benefit as a result of a transaction by giving the opposite party what they want. (Smith, 1981, p. 5).

This mutual benefit may not even be known to both parties involved in the transaction, as each individual is motivated by their "self-love" to obtain the things they want so the process of truck, barter and exchange can be seen as a subconscious affair that leads to mutual benefit under a capitalist economy. This viewpoint of Smith aligns with the assessment that capitalism is founded upon mutual benefit.

Karl Marx states that under capitalism the working class is being exploited by the capitalists due to the origin of profits being the performance of unpaid labour. Marx argues that capitalists dominate the labour market and that 'The will of the capitalist is certainly to take as much as possible' (Marx, 1898, p. 6). The disguise of workers feeling unpaid labour is paid labour, under the wage structure of a capitalist economy is the basis of what capitalists receive as profit (Marx, 1898, p. 20). This profit originates from the capitalist selling a commodity at its 'real value' which is determined by the total quantity of labour required to produce the commodity (Marx, 1898, p. 17).

However, this 'real value' creates a separation between the worker's actual value and the wage paid to the worker thus, resulting in the manipulation of wages to be undervalued in order to increase profits for the capitalist (Resolutereader.blogspot.com, 2014). Marx also strongly voices his view on the wage system under capitalism to be unfair towards the working class as there's a constant tension between workers and capitalists regarding profits and wages. 'If wages fall, profits will rise; and if wages rise, profits will fall' (Marx, 1898, p. 23).

"The general tendency of capitalist production is not to raise, but to sink the average standard of wages" (Marx, 1898, p. 30).

This shows that Marx believed capitalists will find a way to exploit workers under capitalism and even goes as far to say that the wages system should be abolished thus, indicating the unjust and exploitative wage structure under capitalism will not be tolerated by Marx (Marx, 1898, p. 29). My opinion on this view presented by Karl Marx does strongly agree with the assessment presented as it contrasts with Smith's view of mutually beneficial exchanges that occur under capitalism.

Karl Marx mentions the term 'alienation' of workers and capitalists under the system of private property capitalism and regards it as a product of the division of labour which can certainly be interpreted as a form of exploitation due to its detrimental impacts on the economic well-being of individuals (West, 1969, pp. 1-2).

The alienation felt by workers is argued by Marx to originate from workers having no ownership or say in the means of production as well as having no influence over the decisions made by the managers (West, 1969, p. 2). This powerlessness faced by workers is more relevant to the capitalist system due to the capitalists owning all the industrial property in production so workers are left with little to no power which leaves the room for poor working conditions and vulnerability to be 'hired and fired at will' (West, 1969, p. 3).

The feeling of isolation is stated by Marx to be felt by both workers and capitalists. From the perspective of workers, the division of labour meant that each worker was just another component of a wider group who perform the same task, which suppresses any expression of free thought and spontaneity that an individual should possess as argued by (West, 1969, p. 4). Marx also states that the 'capitalists become isolated from workers and from other capitalists' (West, 1969, p. 4). This can be due to complete ownership of private property in production, allowing capitalists to dominate their workers and treat them as 'a piece of industrial raw material' (West, 1969, p. 3) rather than a human being.

This treatment of workers will create rifts between the workers and capitalists which creates a sense of isolation for both workers and capitalists. The severe competition to produce new inventions and acquire new capital to generate greater profits can create a secluded capitalist culture that is more rivalrous as opposed to cohesive.

Marx argues that another aspect of alienation comes from the loss of fulfilment from working due to the externalised system that capitalism promotes where the fruits of labour flow out to others but not the worker himself (West, 1969, p. 5) The loss of entitlement and satisfaction from workers when performing their jobs can suggest that Marx felt workers suffered a lot of misery under division of labour as the worker is constrained to a specific task that improves their dexterity but at the cost of "Having been rendered incapable of following his natural bent to make something independently" (West, 1969, p. 6) which turns the human worker into more of a machine rather than a free-willed human being.

This expression of the concept of alienation by Marx suggests that capitalism has been ultimately been built upon the exploitation of mainly the workers but partly the capitalists as well which I believe agrees with the assessment presented.

Adam Smith also acknowledged the dangers of alienation under the division of labour in a capitalist economy but to a lesser extent than Marx. Alienation is given less importance by Smith as he believed that the innate human nature to barter and exchange which led to the division of labour encouraged social interactions (West, 1969, p. 10).

Furthermore, the benefits of the division of labour such as increased productivity trickle down to all classes in society (West, 1969, p. 8) not just to capitalists in the form of greater profit margins. Smith believes that the working-class under the division of labour "seems to be the happiest and most comfortable". This suggests that workers also receive the benefits of engaging in specialised tasks encouraged by capitalism.

There have been mentions by Smith that the deserved wages are given to workers under capitalism due to the competitive bidding among employers guided by the invisible hand. This would counter the idea of powerlessness due to the upward trend of wages indicating that capitalists valued workers and their human capital (West, 1969, p. 9). However, Smith did acknowledge that there was room for wage exploitation under capitalism due to the employers making use of their greater bargaining power in comparison to workers (West, 1969, p. 9) which indicates that exploitation can occur under capitalism without a legal framework that protects worker rights which goes against the assessment of Smith solely believing capitalism is founded on mutual benefit and does align somewhat with the view of Marx on alienation under capitalism.

Marx does believe "the bourgeoisie, historically, has played a most revolutionary part" (Marx and Engels, 1969, p.15) through the rapid improvement of production instruments that converts even barbarian societies into civilisation (Elliott, 1980, p. 47). To explain the revolutionary role of the bourgeoisie, the crisis theory that Marx introduced can be discussed.

The expansion of production forces depends on capitalists investing their profits in new capital which demonstrates the prominent role that capitalists played. Capitalists will only invest in new machines if there's a sufficient rate of profit to purchase these new capital goods but when the rate of profit is not enough, capitalists will hoard profits and aggregate demand falls in the economy due to lower investment. This is described as Marx as the law of the tendency of the rate of profit to fall over time due to the surplus-value(profits) being re-invested into the production process in the form of new capital to stay ahead of competitors (Bowman, 2009).

The crisis theory when applied to the immense success of capitalism and the rapid technological advancements we still see today can be viewed as the rate of consumption matching the rate of capital goods being demanded that has led capitalists to not hoard profits but re-invest them into the economy. This means there is a mutually beneficial exchange of newly innovated products for consumers and surplus profits for the capitalists that invest through the process of innovation (Elliott, 1980, p. 51).

Marx's view that the surplus profits being generated through innovation contradicts the assessment that he believes capitalism is solely founded on exploitation and agrees with the self- love concept presented by Smith where individuals engaging in exchanges initially due to their own interest that leads to mutual benefits.

To conclude, my view on the assessment shown is that the relationship between Marx and Smith's views on capitalism to tend to oppose each other. Marx does strongly show the exploitation of workers by stating the origin of profits to be the performance of unpaid labour as well as the concept of alienation where the well-being of workers is harmed under the capitalist system through the widespread use of division of labour.

Smith also seems to demonstrate the fundamentals of capitalism are founded upon the propensity for humans to barter and exchange that leads to the division of labour and generate even more opportunities for mutual benefit by exchanging goods and services of value to both parties.

Despite, there being instances where Smith and Marx partly agree on the concept of alienation and the mutual benefit that occurs through innovation for capitalists and consumers, the overall evidence I have presented seems to agree with my view on agreeing with the assessment.

Bibliography

Smith, A. (1981). An Inquiry into the Nature and Causes of the Wealth of Nations - Ecolab. [online] Ecolab. Available at: https://www.econlib.org/library/Smith/smWN.html [Accessed 2 Nov. 2019].

West, E., 1969. The Political Economy of Alienation: Karl Marx and Adam Smith. Oxford, 21(1),

Value, Price and Profit. (1898). [eBook] Available at: https://www.marxists.org/archive/marx/works/download/pdf/value-price-profit.pdf [Accessed 5 Nov. 2019].

Resolutereader.blogspot.com. (2014). Karl Marx - Value, Price and Profit. [online] Available at: http://resolutereader.blogspot.com/2014/01/karl-marx-value-price-and-profit.html [Accessed 5 Nov. 2019].

Elliott, J. (1980). Marx and Schumpeter on Capitalism's Creative Destruction: A Comparative Restatement. The Quarterly Journal of Economics, 95(1),

Smith, A. (1982). The Theory of Moral Sentiments. 6th ed. [ebook] Adam Smith. Available at: https://www.econlib.org/library/Smith/smMS.html?chapter_num=5&QOfuYSL_TUFjDog=J_St%5BcwsuVg9AIRr&jLwxmseOvfrWV=4ozqw9s0Wm5JA&LAaHTo_=Lx2vWngu&QOfuYSL_-TUFjDog=J_St%5BcwsuVg9AIRr&jLwxmseOvfrWV=4ozqw9s0Wm5JA&LAaHTo_=Lx2vWngu#book-reader [Accessed 8 Nov. 2019].

Marx, K. and Engels, F. (1969). Manifesto of the Communist Party. [ebook] Progress Publishers. Available at: https://www.marxists.org/archive/marx/works/download/pdf/Manifesto.pdf [Accessed 5 Nov. 2019].

Bowman, C. (2009). Marx's theory of economic crisis. [video] Available at: https://www.exploringeconomics.org/en/discover/introduction-to-mpe-concepts/ [Accessed 11 Nov. 2019].

Bowman, C. (2009). Marx's theory of economic crisis. [image] Available at: https://www.exploringeconomics.org/en/discover/introduction-to-mpe-concepts/ [Accessed 11 Nov. 2019].