Karl Marx vs Adam Smith

Adam Smith’s work provides a grounding for pre-industrial capitalism to take form within,
addressing the natural virtue of markets. Karl Marx’s work provides an insight into the
relationship between the working and owning class, a division particularly characterized by
industrial capitalism. Both of these economicist’s ideas help explain some of the internal
struggles, divisions, and liberties that arise within capitalism. Marx’s work provides a more
comprehensive understanding of the capitalist economy by providing commentary on the
implications of capitalism, ultimately providing ideas that allow for the system to change in the
face of conflict.
Capitalism is an ever-changing system, it requires change as it requires continuous growth.
Because capitalism is an ever-changing system the most comprehensive understanding would be
one that can consistently provide an accurate explanation for its modern implications. Marx’s
approach towards capitalism does not facilitate change, instead predicting an eventual end due to
the static nature (continuation) of the business cycle. Adam’s approach applies a notion of
fluctuations in the market being negligible as inevitably the market will correct itself. Both of
these economists share the notion that there is something inevitable about capitalism. Whether or
not either economist foresaw the most glaring implications of capitalism, it is safe to say neither
foresaw its malleability.
Marx and Smith’s works exhibited some similarities, exhibiting shared notions of capitalism and
society as a whole. Crucial to both economist’s most revered works is the notion that social and
economic progress is an ongoing, and continuous process. This manifests for Smith through
widespread self-interest, and for Marx through his historical theory of conflict. Furthermore this
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notion is reflected by both Smith and Marx recognizing continuous growth as a crucial element
to capitalism. An additional element incorporated in both of these individual’s works is the
potential power that big businesses could maintain over small businesses. Furthermore, both
economists agreed on labour being a fundamental form of value, importantly incorporating the
idea into their concepts of the economy as a whole.
Although sharing some similarities in the formation of their worldviews, Marx and Smith
belonged to respectively different worlds and as such exhibited quite varied focuses. Smith’s
world featured market exchange and individual enterprise that characterized itself distinctively
from the preceding system of feudalism but still contained systems of influence from it such as
royal power and pronounced classes. Smith’s application of reason in providing a replacement
for mercantilism that promoted the welfare of people as a whole encouraged a radical step
towards individual liberty. Smith’s focus in this came from his idea of the economy fitting
together as many interacted, individual parts of a whole.
This conceptualization of Smith’s of the economy was based on the notions of the unadulterated
market and widespread self-interest in economic affairs. The notions that affixed the two
together were that self-interest serves as the driving force for economic activity and that the
decentralized market would bring order to everyone’s self-interest in the form of collective
welfare (an overall benefit). The idea of the levelling out of self-interests within the free market
is known as the invisible hand, which hinges on the continued existence of competition. As
aforementioned, Smith believed socioeconomic progress was ongoing and that capitalism
requires ongoing growth. Smith pictured this growth as productivity, stemming from both
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specialization and accumulation. The elements of self-interest, the decentralized market, and
productivity culminate in a reflection of Smith’s focus within his discussion of capitalism.
It’s within the respective focuses of Marx and Smith that a difference within the core elements of
capitalism of which they focus on is explained. Marx’s focus differs from Smith’s in that it
centrally features the ownership of the means of production, and what implications come from
this. Marx employed his philosophical stance of dialectical materialism, which takes the
approach that ideas come from the material world, with the conflicts that occur within class
structures being due to changes in technology. How the means of production are owned in a
society forms the mode of production. From this notion, Marx’s historical theory of conflict is
developed, stating that historical change is largely the movement from one mode to the next.
What is unique to Marx’s approach in comparison to Smith’s is the witnessing of the
implications of industrial capitalism.
Within this, arises important attributes of capitalism that Smith failed, or was unable, to address.
There were no suggestions within Smith’s work as to why the capitalist economy seemed to be
unstable in its frequent booms and busts that came to be known as the business cycle. Smith’s
model relied on both surpluses and shortages balancing out due to the pressure of the “invisible
hand”. The notion suggests that intervention shouldn’t be needed to remedy the booms and busts
that had become characteristic of capitalism. As was the opinion of many economists during the
Great Depression, if the invisible hand has alleviated previous discrepancies without government
intervention, then it should not be intervened with now as it would denounce one of the
fundamental notions of capitalism.
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Alternatively, Marx’s work reflects a keen focus on capitalism being a progressive force that
necessitated growth. Within this assessment, Marx recognized that a realization crisis, in which
the owning class innovates tech to cut down on wages, then employment goes down and the
working class can’t buy things, could reach such extremities that the economy could not easily
recover. Marx predicted that these booms and busts would grow in extremity until it would bear
too much of a weight for capitalism to give a solution.
Ultimately, Marx’s premonition of Capitalism rendering itself insoluble was inaccurate, yet his
idea of the booms and busts of capitalism getting to such extremes that a realization crises could
not be reversed was an accurate reading. This took form through the Great Depression, and
Keynesianism (using monetary and fiscal policy to slow down excessive growth and stimulate
the economy during depression) was the solution eventually adopted. Keynesianism crucially
defies the notion of intervention in the economy being anti-capitalist, as advanced capitalist
societies adapted the policies whilst maintaining their capitalist system. Furthermore,
Keynesianism can not exist without an initial focus towards the extremities of the business cycle.
This is an instance in which Marx failed to provide a solution, but where his ideas were used to
understand the implications of capitalism. Furthemore, this is an instance in which Smith’s
cumulative work failed to provide honed focus. It was Keynes’ ideas that formed the welfare
state and reversed some of the effects of the depression but Keynesian economics is based on
curbing booms and cushioning busts, addressing the volatile extremes that were brought forward
by Marx, an act that is arguably impossible without his works.
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Marx used dialectical materialism in giving him the inaccurate prediction of identity stemming
from class position, so much so that it would be binding over national interests. Marx wasn’t
necessarily wrong in assuming crucial aspects (ideas) of identity will be decided by subsidiary
elements, he was just wrong to assume class divisions would be so binding. In reality, national
conflicts such as war reflect how ideas on identity are gained by economic conditions and class
structure. Some working class Americans fought in Vietnam under the pretense of preserving
capitalism, yet many enlist in the army out of economic necessity.
Although not clear cut on what communist life would look like, Marx was focused on the
condition of mental health experienced by the working class as a result of being alienated from
the means of production, being left with only their labour. The idea of this condition is furthered
by the notion of production in general. Capitalism creates a disconnect between the worker and
their work as they are making something that the capitalist owns, in order to ensure further
profits for the capitalist. Ultimately the effect is a widespread demeaning characteristic of labour.
The effects of this attribute have become more apparent modernly with mental health’s
importance being regularly addressed by businesses. This is an additional attribute that Marx
brought forward that has newfound relevance.
The newfound relevance of Marx’s ideas allows for a cohesive backdrop of critique that
(although alluding to the end of capitalism) ultimately allows for as in depth of an understanding
of capitalism’s harsh downfalls and implications as Smith’s work allows for a rooted
understanding of the inherent attributes that form the basis of capitalism. Marx’s ideas are
required for understanding the advanced stage that economics has taken since the 18th century.
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Even though Marx’s ideas are not directly represented by any body of government, his areas of
focus opened possibilities for economic thought that allowed for capitalism to change, ultimately
providing us with a more comprehensive understanding of capitalism than John Smith’s.
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Works Cited
Scott L. Montgomery and Daniel Chirot, The Shape of the New, Four Big Ideas and How They
Made the Modern World (Princeton University Press, 2015)
John Isbister, Lectures 2-5 (Ryerson University, 2021)