Economic Theories of Smith and Marx

Karl Marx is regarded as one of the most controversial person in the 20th century (Smith, 1937). He is also known as the pioneer of the theory of communism from which people viewed him as a radical and dangerous political philosopher.Marx is the founder and father of economics as a science and until today his tremendous work is appreciated by many. Being part of the school of classical thought, this enabled him to merge both economics and moral theory in relation to how man is supposed to live. Our capital economic systems are today shaped by his explanations of market forces and the role of the states in the economy. Marx and smith appear in the school of classical economics which tells us that their ideologies are similar although politically their ideologies differ to great lengths. In the following essay, I will define and explain their ideologies in full depth in order to establish and show how the two philosophers differ in their philosophies. Marx was born in the year 1818 in German. At the university of Berlin and Jena, Marx studied law, history and philosophy. His work and bright ideas on revolutionary and communists theory made him very famous. He is also famous for his books on economic theory and Das Kapital .It is obvious that without production, there is no consumption.Therfore we can breakdown capitalism into production and consumption which without the two we cannot survive on earth. We must produce the things we eat before we can consume them.

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Marx differed with the above assumption for capitalism on the part of production. To him “in production, men act on nature as well as one another. Men produce only by cooperating in a certain way and mutually exchange their activities .For them to produce, they enter into definite connections and relations with one another and only within these social connections and relations does their action on nature take place (Marx, 1996)”.Marx felt that human beings were able to cause change in the environment as well as in their lives by exercising practical activity on the practical world which makes us feel that he believed in the ideology that practical activity in the practical world led to the desire to meet the needs of the people living in the society which in return led to the individual desire to produce. Marx divided the economic process into four parts thus the production, distribution, exchange and consumption. He summarized all the four components of economic process as follows “production creates the objects that correspond to the given needs, distribution divides the objects according to the social laws, exchange parcels out the divided shares in accord with individual needs and finally in consumption the products move away from the social cycle and turns into being a direct servant and object of individual needs and is consumed to bring satisfaction (Marx, 1996)”. Consumption and production are similar to each other .this is because the end product of production is consumption and productions are also regarded as an act of consumption. All the two, according to Marx are related in many ways and he defined this interrelationship into three, the immediate identity in which he states that production is consumption and consumption is production second, production and consumption relate to each other in a mutual dependence which we can elaborate further that an object has to be produced for it to be consumed.Thirdly, each supplies the other with its object.

Marx also had issues with the aspects of production and labor of capitalism. He strongly believed that laborers were oppressed and exploited in the capitalists. In this segment, he felt that laborers spent many hours toiling in the fields something that made them become alienated from the society, from the human race and from the objects that he produces.Alliniations forms the basic part of Marx work on his views on capitalists. Marx expressed the following opinions for why he disliked the concept of capitalism: one,marx felt that under capitalism, wages paid to the workers were very minimal in relation to the work they perfomed.This is because the workers have no other alternative than to accept this since they need to eat.Second,work is punishing since the workers have to obey the capitalist and are usually overworked.Third,labor is normally degraded and is always one sided and fourth ,he felt that labor had become a commodity because it is sold in the market just like any other good and service. Lastly, Marx felt that the workers life had become a subject of use to the wealthy and capitalists.

Adam Smith the author of Moral Sentiment and Wealth of Nations was born in 1723 and did moral philosophy at the university of Glasgow and Balliol College. In his work of the Moral Sentiments Smith‘s concerns are addressed to individual human virtues which include approval of others. This is the requirements that he insists that human beings should have in order to have a prosperous society. Between 1750 and at the end of his life in 1790, Smith as the Chair of Moral Philosophy at the University of Glasgow worked on the moral treatise The Theory of Moral Sentiment. Smith had vigorously defended the need to pursue self interests among individuals. The self interest he wrote and talked about had to be accompanied by virtues that were morally acceptable in the modern commercial society (). Smith advocated for a moral economic system that was based on sympathy. Smith just like Marx objected the issue of capitalism. Smith’s point of view, capitalism is exactly what profit-seeking societies aim to achieve. Adam Smith emphasizes that human life revolves around technological advances in manufacturing, land cultivation and increased commerce among other issues.

While Marx views capitalism in terms of labor, Smith defines capitalism as a voluntary-exchange, limited government, nonviolent society that is orderly organized with a system of natural laws that interact with human beings. The law relating to system of just property rights and the law that enables human beings to have absolute freedom from fellow human beings ().

Capitalism is tailored towards the systems of just property rights in the sense that human beings have ownership rights over the property they exchange or create with their own labor. The absolute freedom gives human beings freedom of ownership. Capitalism is a social contract to gives one the right to exchange. No single or group of individuals can prevent the voluntary exchange by employing violence. The two also differ in their views concerning the wages paid to the workers.marx felt that the workers were exploited and paid poorly while Smith saw this as the only legal means by which individuals under capitalism can attain their goals is through economic activities. This is by creation and exchange in agreement and respect to the values of other human beings. The higher the value others accord on the individual’s activities, the higher the amount money he gets. The income is then channeled in inducing the cooperation of others to realize his goals. This results in gains in production. The greatest gain in productivity is attained through the division of labor that is brought about by the exchange privileges. Individuals will therefore only earn more than others if they are more productive than them. Human being with comparative advantages – capitalists- will specialize in coordinating the supply to demand. Such individuals align their resources to correspond with values that every human beings lay their service. This is why Smith says that capitalism not only creates wealth, but human beings direct it through highly valued and highly prized activities. Mercantilism environment which Smith was against is a status society. Unfortunately according to natural law all human beings do not have the same rights. Nations that tend to have superior rights (the superhuman caste) use violence as a means to survival at the expense of those that have inferior rights (the subhuman caste). Smith refers to this violence as a political means to attain wealth. Competition therefore in such an environment is directed in exploiting the subhuman caste. The system therefore halts productivity by doing away with genuine competition to engage in healthy competitive production and by use of castes that is responsible for doing away with division of labor.

The political and economic environment which enables human being to advance, both morally and materially is extensively discussed by Smith in Wealth of Nations. On the issue of capitalism, Smith illustrates four ways in which it affects human nature. The first illustration is stated that capitalism creates both internal and external impartial spectator. Secondly capitalism is responsible for the evolvement of self-commanding and humane nature of man. Third it is responsible for the developing of virtues in human beings. Lastly capitalism is the reason behind the creation of rules that govern the conduct and moral nature of human beings. In regarding capitalism to impartial spectator, Smith says that human beings have a self-loving nature and fellow-feeling for others. He calls fellow feeling sympathy. Sympathy according to him takes two forms; imaginative and immediate. Imaginative sympathy relates to the causes of the sympathy while immediate sympathy is passed from one human being to the other. According to him this is greatly felt when it is mutual. That nothing makes man happy except in looking at other men as fellow-feeling. Then mutual sympathy creates union among people that hold the society together. It is able to mature through switching of roles and the sentiment that follows. The fact that the ability to “feel for others” can only be attained in civilized societies does not in any way advocate that morality of life cannot be attained in a savage society (Clark p. 191). Smith in The wealth of nations categorically insists that such virtues can be easily attained and that they actually exist. Often human conscience is a result of the relationship of observing and attaining experience, of empathy of fellow human beings’ feeling and their response to your feeling (Clark p. 191). Such observation and empathy advocate for a need for security that is hard to find in subsistence economies. It therefore leaves the conscience-formation distinctively to be attained in the societies that are civilized.

Both Marx and smith showed the importance of production. Smith demonstrated this in his ideology of free trade. Every individual in the exchange has to gain voluntary acceptance of the other individual. By use of role switching each human being is able to understand the position of the other human being. This allows an individual to understand how he or she can entice the other individual into trade. For instant this happens quite often when negotiating for a product’s price between the buyer and the seller. The buyer offers to buy at a lower price while the seller offers to sell at a higher price. After negotiations they both reach an agreed price to carry out the transaction. This is referred to as attaining a coincidence. The result is an aggregation of sentiments that give birth to a civilized society. Dialogue is an example of the civilized society for Smith partially due to the fact that it entails a degree of free will that is not commonly found in the less advanced societies. This is because it contributes to the “natural system of liberty” in the social-moral realm (). In this free communication of sentiments is the dialogue. Like business of the marketplace, dialogue in price negotiation rests in the primacy of persuasion rather than in force as a mode of communicating. Persuasion itself is an implied acceptance of the right to certain form of liberty. Capitalism therefore offers an enabling ground for the growth of internal impartial spectator (Fine, 2009). The aggregation of all other participants’ evaluation of the actor’s activities constitutes the external impartial spectator. The evaluations are price bids and price offers in the voluntary-trade. The aggregate of these – the price on the market – is the impartial analysis of all participants of the actor’s market activities. Unfortunately violence is responsible for distorting such evaluations in mercantilism. This results in external impartial spectator.

In direct opposite, mercantilism is not ideal when it comes to the creation of spectator. Mercantilism offers favoritism. Moral and productive creation of wealth that belongs to owners is the most dangerous form of mercantilism according to Smith. Capitalism is responsible for developing an enabling environment under which human beings develop virtues. In simpler terms, Smith says that a human being can develop further his ambitions by furthering the ambitions of others. The exchange in the environment of free voluntary markets benefits both individuals. Unfortunate no virtue is enhanced in mercantilism. This is due to the lack of competition which results in individual’s not developing self-command in them. Individuals who use violent as a means to achieve their objectives are not usually humane. The type of environment affects the moral nature of an individual. The proponents of violence have no time to switch roles with their purported victims. In return, the victim is only able to resent his master.

The switching of roles is the beginning of the two kinds of virtues that Smith talks about. First the friendly virtues such as condescension and humanity. Second, the dreadful virtues such as self-rule and self-denial. By having an impartial spectator, switching of roles develops the above virtues in individuals making them to attain a perfect human nature. Smith emphases that human nature can only be made perfect through the practice of role switching. According to The Wealth of Nations, in business environment human beings can only become wise and just by practicing using sympathy to make judgment of their behavior. Capitalism therefore provides the best catalyst necessary in enhancing this virtue in human beings. Capitalism is an economic system that human beings are able to achieve their goals only by furthering the goals of others. In capitalism therefore each exchange in the free and voluntary market benefits all the parties. Human being can therefore be under force of competition to observe self command and be humane to each other. None of these virtues is found in mercantilism. In mercantilism holders of wealth are the landlords and merchants. They cannot initiate the two types of virtues.

The third point of capitalism has to do with the development of human virtue. For capitalism to have value to human beings, a combination of self-command and superior reason is required. Human being must equally be willing to gain other virtues. Prudence in human being leads to higher virtues. The prudence grand is best enhanced in free markets. In the opposite case, prudence is not a means of prosperity in mercantilism. Wealth is only achieved by anyone who gets the favor of the nation. Free markets have elements of kindness and capitalism then tends to spread its benefits. Unfortunately the superior versus inferior relationship in mercantilism is not found in kindness. I believe Smith’s moral theory in The Theory of Moral Sentiments was meant for two kinds of societies as well as a society for the “most respectable”. It is meant for the “strange society” in the sense that the so called society is defined by a wide range of relationships between individuals who do not know each other. From another point of view, the moral theory is meant for the “most respectable” of human relationship. Those who get the name friendship are equally distinctive of civilized society. The two engage with human beings either in a community of virtue or a community of sentimental. The generalized secure nature of human life marks the civilized society enlisting all relevant human links in the determination of a self-conscious identity. Strangers and friends appear to fellow human beings through the prism “natural sympathy”. This gives then a crucial role in the moral education. Of course the roles are different but are complements to each other. Each of the roles takes place through a means of one kind or another of conversation. In my own understanding daily conversation is vital component used to transform sympathy into a moral undertaking. Such conversation in the civilized society is the ingredient of the human understanding of vice and virtue.

The capitalists (the rich and powerful) are inclined to be productive and prudent. In other words Smiths argues that they seem to be developing virtues. By copying virtuous human beings the rest of the society become virtuous as well. By this concept human beings will tend to be submissive very easily to their superiors. In the context of capitalism, human being can attain success by being productive by cooperating with fellow human beings. Order and piece in society is attained only where a virtuously environment is allowed to thrive. Contrary to this The Wealth of Nations confirms in mercantilism only the powerful and reach violently protect their ill attained privilege (Smith, p. 87). Since they are not virtues, the masses when copying them will equally not be virtuous.

Finally capitalism by virtue that it develops a free market, automatically it creates general rules that are applicable in the markets. In mercantilism human being will not act virtuously because of the lack of free market which is governed by screwed rules. In addition, the markets associate virtue with returns which aligns the sentiments of man with the course of nature. These rules will result in a complete in a society of contract. This means to prosper capitalists must be prudent. As a resulting of applying prudence, individuals who are capitalists will have enhanced virtues. This will reward them with wealth. Human beings who cannot attain virtue will have to follow virtuous examples of those who adhere to their virtues (Nathan p. 557). In direct opposite a status society does not reward prudence. Only those having political power will attain much wealth at the expense of those not in such positions. This result in the human being not taking the natural course to attain wealth but struggling to be politically well connected in order to attain it. This distorts the natural laws that are found in the free markets.


The economic theories developed by Marx and smith are similar. The two differ in their political ideologies. The two objected the issue of capitalism and agreed on the issue of production.

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