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The following assignment for the module of Business Philosophy is about the two most famous economist in the world: Adam Smith and Karl Marx. Adam Smith was a Scottish economist who is also often considered as the father of capitalism. Karl Marx was a German philosopher and economist based on whose ideas were later developed Marxism and Communism. The assignment gives insight into detailed information about the theories of these philosophers by comparing and finding the similarities between them. Also, by adopting these theories to the present world to better understand the context and how the ideas might be helpful in today’s society.
A Wonderful World of Adam Smith
A worldly philosopher, a professor at Glasgow University, an economic and the father of capitalism Adam Smith was born in 1723 in the town named Kirkcaldy in Scotland. In the town with the population of almost fifteen hundred at that time the nails were still used as money by some locals. From the earliest adolescence, Smith was destined to teach and at the age of twenty-eight became the Chair of Logic at the University of Glasgow. That time the most brutal manners of working were used such as child labour and pregnant women working in the mines, lack of education and the lack of resources such as horses. A poverty and an unfairness were leading the world and Adam Smith started wondering about the human nature and self-interest which in the philosopher’s opinion could be transmuted to a higher plane by putting the individual in the position of an impartial observer (Heilbroner, 1999).
Thinking about the human nature and self-interest led Smith to write the first book named “The Theory of Moral Hands” which basically stated the idea about the invisible hand explained in the terms of free market when the market is depending on the healthy competition, supply and demand, and the self-interest. Besides this, the economist was arguing that despite the fact that people are oriented by self-interest, naturally helping others gives a feeling of relief. Moreover, Smith believed that in order for the company to create wealth it was necessary to understand the customers’ needs and wants to create the product and in the end, both parties would benefit: the company would get the financial profit and the customers would get the product they needed. Theoretically, Smith was saying that the private company was oriented by the self-interest to get profit but in order to get something the organisation wants, it is necessary to understand the market demand and create something which will be a guarantee for the peoples’ satisfaction. So, invisible hand helps people reveal self-interest and this way both parties are benefited.
An invisible hand is a core idea for the creation of capitalism which is explained as a market economy driven world. A capitalism system stands for no government intervention, goods and services are changed freely. However, there was a strong belief by Smith that both producers and consumers would start acting rationally, the producers in order to pursue self-interest create goods and services which are demanded on the market and the human beings purchase them in order to pursue their own self-interest. In these terms, all the parties start benefiting because of the rational self-interest either financially or intrinsically (Blenman, 2016).
The first idea as said above was about self-interest and invisible hand which later gave the birth to the capitalism. Adam Smith truly believed that people were able to think long-term and act in the terms of rational self-interest. Further, it would be led by growing wealth, investing in the capital and raising the standard of living.
Sooner, a new book was published called “The Wealth of the Nations” where the professor is giving more fundamental ideas and explanations to the concept of the capitalism. Adam Smith considered a wonderful economic world with no intervention of the government. The professor argued that the government should only be taking care of the education, national defence, legality and the crimes. Smith believed that if the market is dependent on the government the only party which would benefit would be the government.
Another idea which was generated by Smith was the division of the labour. By giving the example of producing the pins, the professor explained that ten men would do the tasks faster than one man.
In addition, Adam Smith became the first person who started talking about the free trade through the countries. Before this economist, the country’s economic growth was measured by the amount of the silver and gold was obtained. However, Smith stated about the free exchange trade and created the concept of GDP – gross domestic product. The philosopher was aware of mercantilism and disliked the idea that country’s wealth measurement by the silver and the gold. Smith started arguing that the country’s wealth should be measured by the production and commerce it has. Before Smith’s book was published countries did not use to trade with each other unless they really needed something. After the publishing, the necessity of free exporting became obvious (Blenman, 2017).
Adam Smith is seen as a critical and realist thinker whose thoughts were not utopian and the ideas the professor was giving were achievable by the people. This was the man whose beliefs gave the birth to the style of the market which is used by the western Europeans nowadays. The books the economist published were not only about the political economy, they also were analysing human nature and giving life-based examples to give a better understanding how the capitalism works.
An Inexorable System of Karl Marx
Another great philosopher, economist, historian and the journalist Karl Marx was born in 1818 in Prussia. At first, Marx was an ordinary student, then the economist got an education from the famous universities such as Bonn University, Berlin University and the University of Jena. After finishing the studies, Marx became a journalist and due to the socialist writing was expelled from the countries such as France, Germany, and Belgium. A philosopher dedicated the life to the studies of the socio-political theories (Biography.com Editors, 2017).
As described before, capitalism stands for private ownership of the means of production. The producers are giving goods and services at the lowest price so the entrepreneurs naturally want to pay very little for the labour. This gives insight into the fact that this movement can become antagonistic and at that moment Marx started believing that there was an urgent need of the proletariat which would replace the capitalism. Marx argued that the proletariat mode would replace capitalism and the world would start having collective ownership of the production rather than an individual. This movement was named communism.
In the early writing, Marx was stating that labour is losing identity under the mechanism of capitalism. The people are producing goods and services which do not even belong to their names. This fact leads the members of the society to the process of losing individualism. Human creatures become producer machines and this is the thought which led Marx to create something that would be able to replace capitalism.
An inspiration for the economist became German ideologist Hegel who was also evaluating human’s mind in the theories. However, the difference between Marx and Hegel was that Marx was a true materialistic. Marx was looking at the history in the terms of economy trying to understand how the human nature could satisfy the materialistic needs (Sparknotes, 2017)
The materialism was opposing idealism and arguing that the structure of the economy and wealth production is giving the world the ideas who should be an employer or who should be the labour and not the ideas.
“The Communist Manifesto” was a work done by Karl Marx and Engel which is analysing the human nature and politics. This theory was the first attempt by the philosopher to explain that the capitalism was unsuitable for the human nature and was given the understanding that capitalism would be eventually replaced by socialism.
Another work which was solely done by the philosopher was called “Das Capital” giving the explanation to the labour market and the division of labour. Basically, the book was criticising capitalism and giving the reasons why the system had flaws. Marx started stating that without monopolies and the unions there would be no special benefits for anyone. The price for the commodity would be the value which is given to commodity by taking into consideration the number of the labour and the effort taken into producing. That was a completely new understanding of the value and that is on what was based socialism.
Karl Marx was critical towards capitalism and believed that that system was exploiting the workers. Marx was stating that in a world of capitalism entrepreneurs are getting richer by giving the labours less money. Moreover, the economist was claiming that in a wonderful world of capitalism the labours were the victims of unfairness. In fact, Marx was even arguing that in the past during a feudal system when the man was producing for himself had more freedom as the human was developing and not degrading as Marx thought was happening in the system of capitalism. Later the term was also called surplus value when the man gets the wage for the hours he is working (Heilbroner, 1999).
In Marx’s opinion, the labour was alienated in many several ways. One of the most important was the fact that a person under the capitalism was no more able to live the life he would naturally have.
After having the following thoughts Marx came to the result that revolution would definitely happen. A philosopher believed that one day the group of workers and labour would go against the working class of capitalism and bring a fair system. Marx was thinking about something radically different than was communism or the states which emerged based on Marxism Soviet Union, North Korea and etc. Marx was stating that the new system should have been democratic and the decision-making process should have been collective as well (Pennybaker, n.d.).
Marx believed that every person should contribute to the society based on the abilities and get in return what their nature needs. This can sound like the fair system, however, while adapting Marxism as a system countries such as the Soviet Union did not succeed in.
In Marx’s works the collapse of capitalism is described in details. The philosopher predicted a lot of things such as rising wages which would be eaten by the profits or the unemployment which would be caused by the machinery development.
Adam Smith VS Karl Marx
Adam Smith, frequently mentioned as the father of capitalism and Karl Marx, the father of socialism, were both economic philosophers and developed the ideas about the theories which have some core similar ideas and a lot of differences. Both of the individuals have in common the fact that had the same aim: to achieve a stable economy, however, the ideologies which were generated by the philosophers alter in many ways. Moreover, both of the thinkers were aiming to create a middle class by reducing the tension between the ranges of the people and a fair government system.
However, the economist thoughts about the human nature varied. Adam Smith was a strong believer that every individual was selfish and every person has a strong willpower to achieve the needs and the wants they obey. This is how the philosopher came up with the idea of self-interest. But Adam Smith also argued that a man can benefit the lower class by contributing and investing. An economist used a terminology of the invisible hand to describe the process of how a self-interest can turn resources into a nation’s economy. In contrast, Karl Marx was an idealist who was a strong believer that people work for greater life and prefer to be dependent on a government and have free education, free healthcare, and free housing rather than the market driven economy. Marx was predicting the collapse of capitalism due to fact that the structure would cause tensions through the working class and the system would change in a revolutionary manner.
In the wonderful world of Adam Smith, based on the theory of free market, producers had a free will to create goods and services and give the values which market was proposing at the appropriate time. The idea was rational as Smith was stating that each individual would start thinking about how to get benefit which would create a market equilibrium, the understanding of the fact that there would never be a surplus or deficit of the supply and demand. In order to achieve this result, the system had to be completely free from the government and there should have been no intervention from the state. Marx was disagreeing with the following idea by saying that the government should take the responsibility the control of the market.
Marx argued that capitalism is unfair and is exploiting the labour. The economist believed that capitalist employers were not paying the appropriate wages to the people. The philosopher had a different understanding of how the value should be given to the goods or services. In fact, the economist believed that the value of something should be given by considering the amount of labour and effort. Marx stated that capitalism would make a rich richer and the lower class would never benefit.
Adam Smith was trying to adapt the laws of the market and let those rules regulate the nation’s economy, however, after ninety years Marx created “law of motion” and described the process how capitalism could slowly and quietly go the whole way to Valhalla (Heilbroner, 1999).
Adam Smith was the person who started talking about the freedom and private ownership and giving the understanding that free market would lead people to liberty, however, Karl Marx disagreed with this idea as well. Marx believed that private ownership leads people to inequality rather than liberty because Marx considered that the nature of capitalism was to have two classes: the bourgeoisie and the proletariat. Moreover, the bourgeoisie who own the properly also have a power to control the media, government, educational schools, bureaucracy and were able to manipulate with the lower class. This is the reason why Marx was suggesting a new system of socialism which considered collective ownership and no segmentation of the society. The idea behind collectivism ownership was to have an equal distribution of the wealth (S., 2017).
To take into account all said above, the core ideas which the economists had were same but those thoughts altered in some ways. Both of the economists wanted to have a stable economy but the ways to achieve that differed. Adam Smith preferred peace and peaceful achievement of the free market-driven economy while Karl Marx was suggesting the revolution of the working class to have an equal distribution of the wealth. In a Marx’s ideal world the central authority would direct the process of producing goods and services and have the distribution of wealth and resources according to needs and demands of the people. According to Marx, in a capitalist system, people would lose the appreciation of the labour and become a profit-seeking self-driven society.
Despite the fact that it has been centuries after Adam Smith and Karl Marx developed theories and ideas, they are still valid in today’s world. Adam Smith was a fundamental of capitalism and Karl Marx had an idealistic world on which later was based communism.
Nowadays, the biggest capitalist countries are the USA and Germany. A capitalism is mostly found in the institutions such as banking system and education. Those countries are the homelands of the biggest multinational companies such as Apple, Mars, Adidas and etc. however, Marx was once saying the in capitalism people would become profit seekers and start exploiting the labour. Child labour is the biggest problem of these famous brands (Reddy, 2017). Multinationals such as Apple, an American company, and Adidas, a German brand, have been accused of using child labour many times. Of course, these brands are always denying but because the media is very developed it’s harder to hide that kind of terrifying news. Moreover, the companies not only use child labour but also get the children punished if something goes wrong.
In addition to devaluing the labour, there are several problems with wealth distribution as well. For instance, the USA is struggling with this problem. According to statistics of 2016, lower income families which are the 50% of American population own 1.1% of the wealth while just 1% of top earners are in charge of 35% of the wealth (Statista, 2017). Those numbers indicate that the idea of a wonderful world which was created by Adam Smith has a lot of flaws and Marx was right when predicted unequal wealth distribution and exploitation of the labour.
Marx was also making assumptions that the Media would take over people’s mind and eventually society would lose free willpower of buying goods and services and become the slaves of the others. In fact, the advertisement industry has grown rapidly first by inventing TV and then by inventing Social Media. The ads are everywhere and the idea of manipulating with peoples’ mind has also become easier.
In addition, Marx was taking into consideration the development of machinery. In 2017 the first Humanoid a robot Sophia was launched which also has Saudi Arabian citizenship and whose intelligence level is higher than any human being. Now the scientists have started discussing a new race “Robo sapiens” which in fact may replace Homo sapiens (Weller, 2017).
However, not only capitalism has shown the negative aspects. Based on Marx ideas was developed the movement of Marxism and Communism which were later adopted by Russia in the sense of Soviet Union and which still exists in countries such as China or North Korea.
A capitalist president of the USA Ronal Reagan publicly called the Soviet Union “Evil Empire” in 1983 because society there did not have any freedom, no choice of government, society physically could not own any kind of property (HISTORY, 2017). Every person was a middle class, however, there were not enough supplies of food and resources. The government was interfering not only into the economy but also in population’s private lives. The borders to the outside of the world were closed and if someone dared to leave the country they would be arrested for the accusation of being country’s betrayer later given the death penalty. The Soviet Union succeeded in having equal society but that society was equally poor.
So the first try of adapting Marx’s ideas by the Soviet Union experienced a huge fiasco. However, the results for China are radically different. The economists are already saying that China has surpassed the USA and has become the world’s leading economic power (Smith, 2017). However, the system is still unequal to the society. According to Financial Times, China is among the list of world’s worst countries for the wealth distribution because the gap between the salaries of poor and rich is huge.
Moreover, both capitalist and communist countries such as USA and China are the biggest weapon seller nowadays. Those countries are indirectly invading the countries rich in oil and trying to get the resources to enrich their economies. None of the systems have shown positive aspects and this is not the way Smith or Marx could imagine in their predictions. As said before, both of the economists wanted stable economy and piece in a world but in fact, there is no stable economy or peace not in capitalist countries and nor in communist ones as well.
To conclude and take into account all said above, both philosophers’’ ideas sound promising and fair enough to be adopted by the countries however by the examples given in the last paragraph it is obvious that in practice, despite the fact of countries having largest economic powers, there is still an unequal wealth distribution, exploitation of the labour, machinery taking over humanity, social media manipulating minds. There are a lot of problems rising with these two systems and none of it is as perfect as Adam Smith or Karl Marx described.
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