Karl Marx Vs Adam Smith

The “Invisible Hand” vs. Exploitation

Adam Smith, a Scottish philosopher, is a founder of the modern capitalistic views. Karl Marx, a German economist and political scientist, had opposite views, that fall under the communism category. Smith came to the conclusion that as a whole, when each individual in society acts in his or her own self-interest, they manage to produce and purchase goods and services that they require as a society. He called this mechanism “the invisible hand,” in his book “The Wealth of Nations.” Smith also founded what is known as the “laissez-faire” attitude, which shows the government’s effort toward the marketplace, where it allows the “invisible hand” to guide everyone in their economic efforts, create the greatest

He believed that “the people” should own the means of production and would not have to fear exploitation. This thinking had an impact on many societies, particularly the USSR (Union of Soviet Socialist Republics) in the twentieth century. In the “Communist Manifesto” Marx writes, “They (the communists) openly declare that their ends can be attained (achieved) only by the forcible overthrow of all existing social conditions. Let the ruling class tremble at a communist revolution. The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries, unite!” Marx believed in a society where everyone gave as much as they can to their ability and in exchange received according to their needs. He believed that the needs of a society should be put above the needs of an individual, which is what led to the fall of the communist state. The communists decided what the general economic goals for the state was and owned all the means of production and distribution. In the “Economics: Institutions and Analysis” it states, “As events were to prove, the Soviet Union was in reality an impoverished nation whose collapse was largely the result of its failed economic system.” Marx wanted the communists to be in control of production and their wealth. He feared that they would be cheated of their labor if they allowed the businesses to do as they pleased, however his fear

“The circular flow model describes the stream of funds, goods, and services constantly passing back and forth among consumers, businesses, and government. In our market economy, prices determine WHAT goods and services will be produced, HOW they are produced, and WHO will receive these goods and services.” Two events undermine Marx's theories. First, the socialist centrally planned economies, are proven to be far less efficient at producing and delivering goods and services, in the sense of creating the greatest good for the greatest number of people, than capitalist systems. Second, workers' incomes have risen over time, which undermines the theory that labor is exploited in the name of profit. If workers' incomes are rising, they are sharing in the growth of the economy, more specifically sharing in the profits. Marx’s theories however show weakness in capitalism. For instance, large companies enjoy certain advantages over small ones and can absorb or undercut them. In addition, the income distribution in U.S. capitalism creates a multiple class system of people categorized under certain economic wealth and