The Economical Debate
Essay Preview: The Economical Debate
Report this essay
Adam Smith is a renowned British economist who contributed innumerable theories to modern economic thought and furthered ideas related to overall efficiency and effectiveness with regards to industrial output and production. It is safe to say that the views espoused by Adam Smith run in direct opposition to those advanced by Karl Marx, even at the most basic and fundamental level. Because of these extreme and vast disagreements regarding the basic premises of economic study, a discussion between these two would be complicated and highly divisive, and there would be very little common ground that could be established.
Adam Smiths most prolific and widely recognized published work is called The Wealth of Nations and it was completed in 1776. In this piece of literature, Smith analyzed and dissected the industrial practices of the time in an attempt to increase efficiency. He also investigated and theorized on commerce, trade, and other economic principles. Many scholars consider The Wealth of Nations to be the first published work designated to the field of economics and ultimately the beginning of the academic study of this area of concentration.
When this literature was published, the idea of free-market economics was not widely accepted and there were skeptics aplenty. In The Wealth of Nations, Smith gives a detailed explanation of why a free-market economic system is the most favorable and advantageous format. In this work, Smith stresses ideas of an individuals advantage and the pursuit of self-interests in terms of economic and industrial productivity. One of the most recognizable and influential reforms that he suggests, deals with the division of labor. Previous theorists believed that land was the most important subcategory of capital and that this resource was paramount in terms of its relevance and importance. Smith believed that labor was the most important, and therefore advanced a theory to demonstrate this stance. Smith advocates a division of labor and the specialization of tasks to increase industrial efficiency. To emphasize his point regarding the superiority of dividing labor, Mr. Smith presented the example of a pin-maker and the multitude of tasks involved in creating a pin. If a pin-maker worked by himself, Smith hypothesized that he would be able to make about one pin per day; very inefficient. However, if ten people divided up the 18 steps involved in making a pin, all together they could make thousands of pins per day, based on his calculation. This astronomical increase in productivity was so significant and simple to understand that he quickly acquired many followers and other schools of economic thought were ultimately discredited.
While his advocacy of the division of labor was a major point of emphasis in The Wealth of Nations, the arguments that Karl Marx would have vehemently and mercilessly contested had to do with free-market economics. One of the main points in this text is that while the free-market economy seems highly chaotic and unregulated, it actually has the ability to regulate and monitor itself based on ever-present market-forces. He refers to these forces as the “invisible hand” that many recognize as Adam Smiths most significant contribution to the field of economic study. He used this metaphor to convey the idea that even though a country, or citizen for that matter, is constantly pursuing their individual self-interests, this constant pursuit has a way of regulating the economy for all those involved.
If Adam Smith were in a room or coffee shop with Karl Marx, Smith would contend that the pursuit of self-interests inadvertently stimulates the economy and ultimately benefits society as a whole. If each consumer is free to choose what product to buy, and each producer has the ability to decide what to sell and how to produce it, the force of the Ðinvisible hand will allow the market to settle on a level of supply and demand that is advantageous to the community. This is the idea of free-price system that came out of The Wealth of Nations. The company that produces the product will attempt to adopt the most efficient modes of production to maximize profits. This is also where the idea of competition comes in. The ordinary citizen benefits from this economic template because competitors will try to charge the lowest prices to win over consumers. In turn, private investors will invest money into those industries that are the most efficient and profitable, and less money will be allocated to those companies that are less efficient and popular. This constant competition and fluctuation of market forces is the idea of the invisible hand because it they are constantly at work and the economy will tend to regulate itself automatically. Smith discourages the presence of monopolies because it undercuts competition and inhibits the impact of the invisible hand.
After this compelling argument has been made, Karl Marx will understand that Adam Smith is a major advocate of the free-market system. To maximize the level of freedom, Smith suggests that no tariffs or other barriers to trade are in place as a way of promoting commerce and stimulating interdependence. Smith will also tell Marx that his system has the ability to work as a balancing mechanism as well because the price of labor and goods will remain relative to the state of the economy. For example, the citizens of a poor, undeveloped nation will be willing to work for very little pay because of the scarcity of monetary resources. Investors can make massive profits by building factories in these poorer countries and utilizing the cheap work force that is desperate for a source of income.
Considering Adam Smith and Karl Marx are discussing their views on economic policies in the newly constructed Centennial Hall in the year 2007, the most poignant and salient point that Smith will make will reference the rapid growth in globalization that has taken place over the past quarter of a century. Marx will have a difficult time claiming the superiority of socialist economic policies after Smith cites the economic and political collapse of the Soviet Union and the flourishing of capitalist nations. Smith will tell Marx that even a nation such as China that has maintained their communist format throughout the decades has recognized the superiority of capitalism through their creation of special economic zones where free-trade is allowed. Referencing the current dynamic between world politics and economic prosperity will be difficult for Marx to refute.
Karl Marxs first argument against the contentions of Adam Smith would be to express his concern with the exploitation of the common worker. He will grant to Smith that industries will inevitably invest in those nations that have cheaper labor and that it would have a beneficial effect on price