If you talk about Adam Smith and the Wealth of Nations, there are two things you must talk about. The first is the concept of the “invisible hand,” where spontaneous order seems to come out of nowhere. Now we talk about equilibrium and clearing of markets as there is an equal amount of supply and demand at that equilibrium point. On a rough gloss, this has been taken to be an open and free advocation for these market effects. No matter that it is used as a metaphor only once in the book that is the Smithian legacy (Cypher 125). Image for a minute Smith coming back and seeing institutes in his name, forgetting that there was this other, first book that he worked on perfecting throughout his life as well. We will not think about that too much because we have to cite that phrase early on in book one of the Wealth of Nations, where “it is not from the benevolence of the butcher, the brewer, or the baker that we expect or dinner, but from their regard to their own self-interest” (Smith Quoted in Cypher 126). What we often do not hear about is the more complex Smith, warning “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” (Smith). That is just to say that Smith was not the free-market absolutist he is painted to be, “Laissez-faire” a term available to him from the physiocrats, but not showing up in my index.
On the flip side, Marx recognized the great creative power of capitalism. He was not the full-throated hater of the system, recognizing “[capitalism] has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former Exoduses of nations and crusades” (Marx 16). What is important to remember is that both authors are working in the same tradition but have different evidence available to them and divergent frameworks of the social and economic system.
For Adam Smith, the two key pieces of development are the division of labor and the law of capital accumulation as what determines “The wealth of nation” (Cypher 127). What Smith was able to see was that the rise of the factory system in England was concurrent with peasants being forced out of their home fields and pushed into the cities with the rise of the enclosure acts which denied people access to the commons. Instead of working from a home through all the processes of production, the worker was responsible for one part of the productive process (Cypher 127). This is highlighted in a famous passage in the Wealth of Nations where Smith describes a pin factory and the increased output that results from the division of labor. Productivity increases meant that raw materials were turned into finished goods at a much greater rate and were thus available for trade on the world market — a world market that the English crown helped grow through colonialism and the power of its navy. For Smith, specialization had a snowball effect, and more specialization led to more specialization, and thus this should be the most productive state for world affairs, as all nations specialized and were opened to trade of all nations (Cypher 127–8). This created incentive for constant improvement of industrial processes, as profit-making opportunities were opened for individual entrepreneurs. For Cypher, Smith’s emphasis on expanding markets and the division of labor make him one of the most “optimistic of all the classical economists” (129), thinking that this was all that was needed to spread worldwide prosperity.
The Marxian world-view was a little less optimistic about the ultimate redeeming power of capitalism in the Smithian vein, as there were a couple of generations between the time of Smith’s writing. These were generations where industrial capitalism rose, and the great cities Engels described grew into slums — people from the countryside continued to seed subsistence wages in the cities as well as people from the near abroad as their own nations were ravaged by colonialism and famine. As Cypher notes, the role of technology was downplayed in the Smithian paradigm (128), but the great factories had a huge influence on how Marx saw the economic system. For Marx, wealth of nations was based more on the creation and circulation commodities, goods meant to be sold in the market. The rise of capitalism came on top of the circuits of money being exchange and lent at interest in a monetary loop, as well as a circuit of goods being bought and sold elsewhere at a profit, in a commodity circuit. What Marx saw was this creation of commodities in a production process, one that needed raw materials, often from the colonies, and the machines with labor aid converted these into higher-value products (Cypher 147). This process centered capital and technology so that the capitalist needed to keep growing and improving their processes through the nightmare logic of the system where all are slaves to it, even those who have the greatest absolute benefits from the system. This also cements the roles of other nations. If they are not at the center, they can easily be stuck down on the ladder of value unless they can import the know-how and thus grow their own markets (Cypher 148).
Overall, both Smith and Marx were able to see the dynamic system that capitalism is and remains to be. Aside from the centrality of technology in Marx and the ignorance in it of Smith, the real difference is that they are not diametrically opposed, but Smith is much more optimistic about how the productive system will play out. Marx can look at the great productive aspect of Capitalism, but through his method of interrogating the world, Marx sees both the positive and the dark side. It is in recognition of this dark side, and the ultimate negative effects of the productive process upon these people at the face of the machine, that lends Marx the mantle of the adversary of capitalism.
Cypher, J. M. (2014). The process of economic development. London: Routledge, Taylor & Francis Group.
Marx, Karl, and Friedrich Engels. Manifesto of the Communist Party. Marx/Engels Selected Works, Vol. One, Progress Publishers, Moscow, 1969
Smith, Adam. Wealth of Nations, www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book01/ch10b.htm.