A Tale of Two Economists

Adam Smith & Karl Marx

Adam Smith• A Scottish professor of

logic at the University of Glasgow

• Described as the typical absent minded professor

• Often cited as “The Father of Modern Economics”

• The Wealth of Nations, 1776

Main Ideas

• Division of Labor - Dividing production into many steps and allowing workers to specialize in one single step increases overall productivity.

• Laissez Fair - Individuals should be left free to pursue their own self-interests. – “Let it be” – hands off!– The role of government in the economy should

be very limited!!

Main Ideas, cont.

• The Invisible Hand - The forces that guide a nation’s resources to their most efficient use and serve to regulate the market.– Self-Interest - the motivating force– Competition – the regulating force

Characteristics of Modern Capitalism

• Private ownership and control of property

• Free enterprise - Government stays out of the market

• Competition among businesses

• Producers driven by possibility of profits

• Consumers have freedom of choice

According to Smith…

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Karl Marx

• Born in what is now Germany, 1818

• Relocated to England in 1849

• Communist Manifesto, 1848– Written with fellow

economist, Frederick Engels

• Das Capital, 1867– Edited by Engels

Marx’s Philosophy

• “The history of all hitherto existing society is the history of class struggles”

• Internal tensions within the Capitalist system will eventually lead to its destruction.

• Feudalism is replaced by Capitalism which will eventually be replaced by Communism

Marx’s Philosophy cont.

• Class struggle between the few who own the means of production (Bourgeois) and those who sell their labor (Proletariat)

• Wealth becomes more concentrated– Rich become richer, while the poor become poorer

• Proletarian Revolution!– The means of production will be taken from the

Bourgeois and redistributed equally throughout society;

– Violent revolution is inevitable and necessary

Marx’s Philosophy cont.

• The Dictatorship of the Proletariat will govern for a short time period of time while society is reordered and wealth redistributed.

• Eventually, the people will own the means of production collectively.

In the Words of Marx..

“The development of Modern Industry, therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie, therefore, produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.”

Marx Today

• Socialism - refers mainly to the belief that democratic means should be used to redistribute wealth.

• Communism - Characterized by a centrally planned economy and authoritarian government.