preview

Essay about : Adam Smith and Karl Mark: Contrasting Views of Capitalism

Decent Essays
The theory of capitalism describes the essential features of capitalism and how it functions. Adam Smith focused his theories on the role of enlightened self-interest "led by an invisible hand" or incorrectly "the invisible guiding hand", and the role of specialisation in promoting the efficiency of capital accumulation. Some proponents of capitalism emphasize the role of free markets, which, they claim, promote freedom and democracy. For many, capitalism hinges on the extension into a global dimension of an economic system in which goods and services are traded with others and capital goods belong to private ownership. To Karl Marx defined capitalism by the creation of a labor market in which most people have to sell their labor in order…show more content…
He described his own preferred economic system as "the system of natural liberty." However, Smith defined "capital" as stock, and "profit" as the just expectation of retaining the revenue from improvements made to that stock. Smith also viewed capital improvement as being the proper central aim of the economic and political system.
A major difference between Adam Smith's view of economics and that of present day capitalist theory is that Adam Smith viewed value as a product of labor, and thus operated under the Labor Theory of Value, which was used by basically all economists until the Labor Theory of Value became central to Marxism.
According to Marx, the treatment of labor as a commodity led to people valuing things more in terms of their price rather than their usefulness, and hence to an expansion of the system of commodities. Marx also observed that some people bought commodities in order to use them, while others bought them in order to sell them on at a profit.
Marx defines "capital" as money and "capitalist production" as the use of money to denominate wealth in money terms; these labels refer to John Stuart Mill's definition of value in a market economy as being the going price for a good or service.
Marx expanded on the Labor Theory of Value to show that according to the Labor Theory of Value, which was the theory of value that was used by Adam Smith,
Get Access