11/22/2023 0 Comments Adam smith invisible hand diagramAccording to Smith, the benefits to an individual economic agent would be enjoyed by many other members of society through a “trickle effect” as the original worker would spend money, which would be earned by some other producer of goods or services, which would allow the second economic agent to earn and then spend money, and the cycle would continue which would help the economy multiple times more than what it may appear at first sight. When a worker would purchase goods and services, it would then lead to profits for some other economic agent – a producer or a consumer of economic goods or services – and further boost economic activity. He believed that in a free market economy, an individual would be able to earn and spend in a market freely, and it would allow a worker to act as a consumer as well. Smith elaborated on how a person could reap economic benefits commensurate to his effort and thus add to an economy’s aggregate wealth. Smith did not put the spotlight on the land holdings or the riches of the aristocracy like Marx. Communism offered the best model – both political and economic – with its collectivist ownership, production and central planning features intended to distribute wealth equitably and eliminate the distinctions between the bourgeoisie and the proletariat altogether, according to Marx. Inherent to the idea of competition is greed, opined Karl Marx, which would cause inherent instability and injustice in a society. Marx strongly adhered to the idea that capitalism leads to greed and inequality. Adam Smith also opposed the idea of revolution to restore justice for the masses because he valued order and stability over relief from oppression. While Adam Smith contended that the most ideal economic system is capitalism, Karl Marx thought otherwise. Collective ownership of all capital for production would ensure, Marx suggested, an equitable distribution of wealth. The remedy for this trouble, in Karl Marx’s view, was for the proletariat to revolt and create a new social order where there would be no distinction between segments of society there would be no classes as such. In contrast, the poor, working class, or the proletariat, lacks any effective means of having just recompense for their hard labor. The wealthy capital-owning bourgeoisie not only owns the factories but dominates the media, universities, government, bureaucracy, and, hence, their grip on an elevated social status is unchangeable. Marx posited that the two classes in a society – the bourgeoisie and the proletariat – will forever remain stuck in their respective classes because of the very nature of capitalism. Interestingly, Karl Marx also had his own drastic, political ideas that were far away from those of Adam Smith’s. One of his notable and more contentious theories – the labor theory of value – claims that the value of a good or service is directly connected to the amount of labor required for its production. Furthermore, the “capitalist” is always in a better position to negotiate a low wage for his workers, he argued. The rich would get richer and the poor would get poorer. In contrast, Karl Marx in his Das Kapital reasoned that workers would be exploited by any capitalist, or factory owners, for the capitalist system provides an inherent advantage to the already rich and a disadvantage to the already poor segments of society. There would be a limited role for the government in such an economic system. In his idealistic economy, there would be no surplus or deficit supply or demand markets would always be in equilibrium, and the benefits to consumers and producers alike would be maximized. In doing so, consumers would only pay as much as or less than they would value the benefit derived from a good, and producers would only sell for as much as or higher than they would have spent on producing a good. In his watershed Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith proposed that the free market, where producers are free to produce as much as they want and charge consumers the prices they want, would result in the most efficient and desirable economic outcome for consumers and producers alike due to the “Invisible Hand.” The rationale for his proposal was that each individual would try to maximize his own benefit. Amongst the most influential and prominent economists of the last few centuries, Adam Smith and Karl Marx, are noted for their distinct theoretical contributions.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |