ADAM SMITH & CAPITALISM V.

KARL MARX & COMMUNISM

Instructions:
Use the attached videos and your research to complete the comparison T-Chart.
You should have at least six bullet points for each side.

COMPARING PHILOSOPHIES

KARL MARX ADAM SMITH

Communism Capitalism

1. Modern World is alienated; Marx believed that 1. Adam Smith believed that when people are
a person needs to see themselves in the objects free to trade and make decisions about what to
they created. Wanted to externalize their buy and sell, the economy grows naturally. He
contribution. He believed that people were not called this the "invisible hand" guiding markets
valued for their work because all the work was 2. He thought that when people work to improve
the same, which separated people their own lives or businesses, it can also help
2. Modern work is insecure; capitalism makes society. For example, a baker wants to make
every individual utterly expendable because money, but by selling bread, they also help
everyone does the same thing others eat
3. Workers get paid little while capitalists get 3. He believed that people and businesses should
rich; capitalists tried to increase the profit focus on what they do best. This makes work
margin by paying workers less, which made more efficient and leads to better products and
workers poor services
4. Capitalism is very unstable; capitalism is 4. Even though he supported free markets, Smith
always followed by series of crisis; they are believed the government should provide things
inevitable and never-ending. Crisis of like education, defense, and infrastructure that
abundance – few of us need to work because individuals or businesses might not handle on
the economy is so productive their own
(unemployement). 5. He thought people should trade goods and
5. Capitalism is bad for capitalists; marriage was services freely, but everyone should follow fair
actually an extension of business, with rules so no one gets cheated
everyone together in resentment and only for 6. Believed that a country’s wealth depends on
business, with only economic interests. This how much its people produce, not just how
led to commodity fetishism, making them not much gold or money it has. He focused on
value emotional relationships creating value through work and innovation
6. Believed in redistributing the money made to
everyone. He believed that capitalism forced
people to be competitive, politically compliant,
and always working
7. Believed in no inherited public wealth and
believed that everyone gets wealth because it
is redistributed. Women and man should have
time for leisure
Instructions:
1. Read through the excerpts.
2. Highlight the following document to help you best understand
where the document falls on the SPACE Model.
Significance, Purpose, Audience, Context, Editor
 3. At the end of the articles, respond to these FOCUS QUESTIONS:
Explain which socioeconomic system you believe to be the most realistic. Explain which one you believe is most
beneficial to the people.

Marx & the Communist Economy

“… communists can sum up their theory in the pithy phrase: the abolition of private
property.”
Karl Marx, Manifesto of the Communist Party, 1848.

Karl Marx wrote about Communism 75 years after Adam Smith proposed his theories. He
had observed capitalist industries in Europe and had concluded that they promoted a great
deal of inequality. The person who owned the pin factory (to take Adam Smith’s example)
gained from the increase in efficiency, not the people who made the pins. Marx felt this was
no better than the unfair feudal system of landlords and serfs that capitalism was supposed
to have replaced. Marx believed that if all property were owned in common, and each
member had an equal share, it would prevent the division of society into two classes: those
who produce and those who gain from the sale of those products.

Marx knew the rich would be unwilling to give up their privileges and power. Therefore, Marx
theorized that transitioning from a capitalist economy to a communist economy, where there
would be no private ownership, might necessitate a violent revolution. His idea was that if
the workers (the proletariat) organized, they could overthrow those in power. Then, they
could set up a provisional government that would facilitate a gradual move to communism.

Both Adam Smith and Karl Marx believed that the purpose of the economy is to provide for
society's material needs, and they assumed that, for the most part, humans acted in their
self-interest. Adam Smith’s system protects an individual's FREEDOM and says all individuals
seeking their interests can attain the common good. Karl Marx’s system provided EQUALITY
among individuals and relied on a strong central government to provide for the common
good, at least during the transition to the ideal communist society.

“The history of all hitherto existing society is the history of class struggles…. Our epoch, the
epoch of the bourgeoisie, possesses this distinct feature: it has simplified class antagonisms.
Society is increasingly splitting into two great hostile camps, into two great classes directly
facing each other -- bourgeoisie and proletariat…. But with the development of industry, the
proletariat not only increases in number; it becomes concentrated in greater masses, its
strength grows, and it feels that strength more…. All previous historical movements were
movements of minorities or in the interest of minorities. The proletarian movement is the
self-conscious, independent movement of the immense majority in the interest of the
immense majority…. The proletarians have nothing to lose but their chains. They have a
world to win. Proletarians of all countries, unite!”
Karl Marx and Friedrich Engels, The Communist Manifesto, 1848

Discussion Questions (Marx):

1. What did Marx react to when creating his idea for the communist society?
 Marx reacted to Adam Smith’s gain from selling pins, where Smith earned the profits whereas the people who
made the pins were left poor and marginalized. He believed that the industry and capitalism creates a greater
divide between the rich and the poor, concentrating the poor into one group, and that it increases inequality,
which the people wanted to eliminate by removing serfdoms. Marx knew that the rich won’t give up their
wealth for redistribution, hence he believed that the people should revolt against the leaders and restart the
government where everyone benefits.

2. What might be sacrificed in Marx's economy to achieve more equality?

In Marx’s economic theory, the ideology of meritocracy would be sacrificed because people wouldn’t be
rewarded for their hard work as people who didn’t work and people who did work got the same amount of
money and privileges, which wouldn’t be fair for those who worked hard, which would lead to dissatisfaction
and inequality. Additionally, if nobody owns any property, that would fundamentally challenge the trade
system, and can eventually lead to tyranny in those who are currently in power.

3. Is creating a more equal society where individuals still have much freedom and self-determination
possible?
No, it is not possible because someone will always be dissatisfied because it already implies that their is
strict regulation, and that means that one cannot be free. Instead, meritocracy should be considered the
most important because it promotes fair treatment to those who work.

Adam Smith & the Capitalist Economy

“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 interest. We address ourselves, not to their humanity
but to their self-love”.
Adam Smith, The Wealth of Nations, 1776

Adam Smith was the ‘forefather’ of capitalist thinking. He assumed that humans were
self-serving by nature but that as long as every individual were to seek the fulfillment of
his/her self-interest, the material needs of the whole society would be met.

This could only be true, he believed, if there were no monopolies so that competition could
operate unrestricted. So, for instance, if one baker in your neighborhood decided to charge
ten dollars for a loaf of bread, he would stay with it as long as another baker was willing to
sell his bread for a more reasonable price. You, acting self-interested, would go to the
cheaper baker (competition). If, however, one person owned all of the bakeries in your
neighborhood (monopoly) and he raised the price, you would have no choice and would have
to pay or go without bread.

This tendency for competition keeps product prices in line with consumers' needs. Adam
Smith called this theory the “invisible hand.” The invisible hand of the market, said Adam
Smith, will allow each individual's self-interest to provide for society's overall interest.

Adam Smith also describes the idea of the division of labor. Efficiency is important in a
capitalist economy. Adam Smith observed one day in a pin factory that pins could be
produced more efficiently if “one man draws out the wire, another straightens it, a third cuts
it, a fourth pins it...” and so on. More pins could be produced this way than if one person
made the whole pin each time. This was the birth of the modern-day industry.
 According to Smith, the foundations most appropriate for a period of commercial
interdependence would provide for the governing authority to pursue a laissez-faire (let
alone) policy about the economy. Smith supported this by arguing that people, through using
their talents and resources to help produce the things possible buyers wanted, looked to
earn money. Under laissez-faire, individuals, acting in their self-interest as economic buyers,
would tend to contribute to economic activities that gave them the greatest reward in terms
of income, wages, rent, or profit. Smith showed that by giving themselves to such enriching
economic activities in their self-interest, people would also be improving the financial
well-being of society.

Smith saw people as economic representatives guided by an "invisible hand" (a term first
used in his Theory of Moral Sentiments). High prices (regarding a "natural" price related to
production costs) of any good or service would automatically persuade people to occupy in
its production. Increased production would lead to a more excellent supply and lower prices.
As buyers, people would get more of what they wanted more cheaply. People, as producers,
tend to earn enhanced wages because they produce formerly high-priced goods or services.
A problem with the argument would see "low" priced items falling away in terms of their
production.

Smith saw in the separation of labor and the growth of markets almost limitless possibilities
for society to expand its wealth through manufacture and trade. Wealth consists of the
goods that all the people of society consume; note all - this is a democratic, and then
drastic, philosophy of wealth. Gone is the notion of gold, treasures, and kingly heaps of
wealth; gone are the rights of merchants or farmers or working unions. We are in the
modern world where everyone consumes the flow of goods and services, constituting the
ultimate aim and end of economic life.

Although Economics has moved on in many ways from the outlook and policies endorsed in
the Wealth of Nations, essential books remain perhaps the most famous economics books of
all time. Governments searching for strengthening their government through economic
policy and many individuals seeking personal gain have all drawn lessons from its pages.
Powerful movements that led to the start of Modern Capitalism were primarily based on
Smith's work. He deserves to be regarded as one of the most influential Enlightenment
Thinkers and writers of modern times.

Discussion Questions (Smith:

1. According to Adam Smith, what is the main thing individuals should be concerned about to make society
run smoothly?

Adam Smith said people should focus on their own work and take care of themselves and their families. By doing this,
they create goods and services that help everyone in society.

2. Do you agree that people act mainly in their interest? Do you think this is human nature?

Yes, most people do things that benefit themselves, like working to earn money or studying to get a good job. It is part
of human nature to care about ourselves first, but we also help others sometimes because we care about them too.

3. In your own words, what is the “invisible hand”? Do you think this theory is relevant? Give examples.
The "invisible hand" is Adam Smith's idea that when people act in their own interest, it can accidentally help society.
For example: A farmer grows food to make money, but the food also helps people eat. A store owner wants to earn
profit, so they sell products people need. This idea is still relevant today. For example: Tech companies create apps to
make money, but these apps also make life easier for people. A bakery sells cakes to make a profit, but it also gives the
neighborhood fresh treats.

PROMPT: Explain which socioeconomic system you believe to be the most realistic. Explain which one
you feel is most beneficial to the people.

Capitalism is more realistic because it matches how people naturally behave. Most people want to work hard, earn
money, and improve their lives. In capitalism: People are free to own businesses and decide what to sell, workers get
paid for their skills and effort, companies compete to make better products or lower prices, which benefits customers.
It’s based on self-interest and merit, and since most people care about their own success, this system works naturally.
Capitalism rewards hard work and creativity, gives people the freedom to choose what they want to do or buy, and
encourages competition that leads to better products and services.