A Tale of Two Economists

Adam Smith & Karl Marx

Key Terms

• Capitalism - an economic system in which the factors of productions are owned by private individuals (not the government)

• Socialism - an economic system wherein the factors of production are owned by the public and operate for the welfare of all;

• Communism - a form of complete socialism wherein the means of production are owned by the people

Laissez Fair Capitalism

• “Let the People do as they please”

• Individuals should be left free to pursue their own self-interests.

• The role of government in the economy should be very limited to promoting free trade.

Adam Smith

• A Scottish professor of logic at the University of Glasgow

• Considered “The Father of Modern Economics”

• The Wealth of Nations, 1776

Smith’s Main Ideas, cont.• The Invisible Hand - The forces that guide a

nation’s resources to their most efficient use and serve to regulate the economy.– Law of Self-Interest - People work for their own

good.– Law of Competition - Competition between

producers forces people to make better products– Law of Supply & Demand - Producers will

produce goods at the a price consumers are willing to pay

Adam Smith, cont.

• Smith’s ideas about capitalism led him to oppose:– Government efforts to help poor workers– Minimum wage laws– Laws requiring better working conditions

…because he thought this would disrupt the free market system.

Karl Marx

• Born in what is now Germany, 1818

• Relocated to England in 1849

• Communist Manifesto, 1848– Written with fellow

economist, Frederick Engels

Marx’s Philosophy

• “The history of all hitherto existing society is the history of class struggles”– The Haves vs. the Have-Nots

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

• Feudalism was replaced by Capitalism which will be replaced by Socialism and then Communism

Marx’s Philosophy cont.

• The Haves = Bourgeoisie, the people who own the means of production (employers);

• The Have-Nots - Proletariat, the workers (employees)

• Over time, the Bourgeoisie will become richer and richer while the Proletariat become poorer and poorer.

Marx’s Philosophy cont.

• REVOLUTION!! – Eventually, the Proletariat will revolt against the

Bourgeoisie and will seize control of the means of production.

– Violent revolution is inevitable and necessary.

• Dictatorship of the Proletariat (Socialism) - workers control the government

• Communism - The people will own the means of production collectively and private property will no longer exist - Everyone would be equal.

In the Words of Marx..

“The proletarians have nothing to loose but their chains. They have the world to gain. Workers of the world unite!”

Life After Marx• Factory workers began joining together to make

changes:– Labor Unions - a groups of workers from the same

industry who voluntarily join together to seek reform; • Strength in numbers

– Unions negotiated for: • Better working conditions• Better wages

• Governments soon stepped in to stop the abuses caused by industrialization