Adam Smith and Karl Marx Economic Theories Essay

Adam Smith and Karl Marx Economic Theories - Essay Example Most of the theories in economics today are based on the ideas of Smith as well as Marx and Keynes. These individuals have different ideas on how the economy works and the best economic system that would ensure the good of all people in the society. They also differ on the role the government is supposed to take to drive the economy to prosperity. All these differences are prompted by the views held by different theorists regarding human nature and this will be the subject of our discussion in the next section but emphasis on the role of human nature in economic theories of Smith and Marx. Adam Smith (1723-1790) As stated earlier, Smith is regarded as the father of modern economics and capitalism. According to him, human beings are social and as such they have a tendency to care for each other. They are also driven by self-interest but this does not deter them from empathizing with and help each other (Skousen, 11). This is the basis of his economic theory written in his book An inqu iry into the nature and causes of the wealth of nations or what is commonly referred as Wealth of Nations in 1776 (Das Kapital). This brought about industrial revolution and emergence of capitalism as the dominant mode of production (Hall). The capitalist economy is based on the mechanism of free markets whereby Smith believed that individuals driven by self-interest and not infringing on the rights of others can in the process benefit the whole society (Hall). The market is driven by the ‘invisible hand’ whereby producers produce goods and services and take to market where they meet buyers who are in need of such goods for consumption. In this case, the buyer and seller only meet when exchanging products and do not negotiate on the quantity to be produced or bought (Skousen, 10). Individuals are assumed to self-regulate themselves in this economy and as such there is no need for government intervention unless to provide public goods such as infrastructure and make sure people adhere to contracts. There is thus free movement of labour, capital and goods (11). Smith’s economic theory is also based on economic independence. Natural liberty according to smith is a fundamental human right thus individuals are given freedom to do what they want (Hall). They produce what they want, at a price they want but the principle of justice must be withheld, that is, there is freedom of production and exchange. As such, all the actors in the economy (workers, landlords and capitalists) work in harmony; there is no conflict of interest (Skousen, 27). In such case, Smith assumes that human beings are honest, just according to societal rules. They can therefore, pursues self-interest without offending or ignoring the needs of others but for the benefit of all. Smith did not envision greed and egotism in human nature. Furthermore, capitalists have to consider the interests of consumers if they want to make profit. Human beings are competitive in nature. This a ccording to Smith was not a negative thing but affected the economy positively, that is, is led to economic growth (Hall). Man should therefore â€Å"bring his industriousness and capital into competition with those of others to create harmony† (Skousen, 27). Competition leads to determination of prices in the market thus the market is always in the equilibrium. The producer is able to get profit for his produce and the consumer benefits from low prices as well as improved quality (to lower prices, manufacturers improve technology thus produce quality goods at low cost). As such economic prosperity is achieved through economic independence. Karl Marx (1818-1883) Smith and Marx had very different views regarding human nature and as such