Amongst the most prominent economists of the last few centuries, Karl Marx and Adam Smith are noted for their distinct contributions to economic thought. They are both great revolutionaries and thinkers in their own unique ways. Marx’s work in economics laid the basis for much of the current understanding of labor and its relation to capital, while Smith was a pioneer of political economy simultaneously laying down the essential foundations of classical free market economic theory. Though the two may seem different from each other in many ways, they also may have more similarities to each other than one might think. To understand Smith’s Theory of Capital Accumulation, we must first understand Smith’s view of what stock is. Smith argues that …show more content…
With that said, overall technological progress has long term labor saving biases, and that overall long term effect of saving labor time in producing commodities with the aid of more machinery will eventually result in a falling rate of profit on production capital. Marx’s theory of capitalist crisis argues that capitalist society’s crises are results of overproduction, the falling rate of profit, and a full employment profit squeeze. Overproduction occurs when capitalists win a class struggle to push down wages while simultaneously pushing labor effort up. Once this occurs, the rate of surplus value increases, which results in the economy facing issues of excess producer supply. This ultimately leads to an inadequate aggregate demand. As stated before, the falling rate of profit occurs when the accumulation of capital, and the advancement of efficient work techniques all involve a tendency for the degree of capital intensity. This leads to a fall in profit rates which ultimately slows down accumulation. The full employment profit squeeze is where capital accumulation brings up the demand for labor power, therefore raising wages. However, the wages can be too high, which would hurt the rate of profit. Once this occurs, an economic recession would