12. Smith and Marx

12. Smith and Marx - Locate: Adam Smith: The Wealth of...

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Locate: Adam Smith: The Wealth of Nations Definition: The wealth of nations has been called the bible of capitalism – free enterprise and the competitive economic system as well as neo-liberalism and globalization Smith attacked the prevailing economic system of his day – mercantilism – which asserted that there was a finite/limited amount of gold and silver in the world and the nation that could accumulate most of it would win since gold and silver were regarded as the basis for a nation’s wealth Smith argued that labor – particularly the labor undertaken by the middle class entrepreneurs or businessmen – was the basis of the wealth of a nation Secondly, mercantilism was based on the government control, regulation and even monopolies of the economy Instead, Smith promoted the idea of laissez-faire capitalism, that is minimal (if any_ government intervention, control , regulation or monopolies through ‘the invisible hand’. This is also known as neo-liberalism The Wealth of Nations Book I: The division of labor, value and distribution: Excerpt in the Knoebel textbook is this chapter Rather than the accumulation of gold and silver, the key to the Wealth of Nations is labor, rent, wages, and profits, if used effectively and efficiently through productive processes like the ‘division of labor’ or ‘specialization’ Other sources are investments and profits by entrepreneurs and bartering surpluses of goods and labor for money Natural vs market price The basic ‘natural price’ of a commodity included the costs of labor, raw materials, processing raw materials into a finished product, storage, sales, distribution, promotion and profit. Profit was legitimate, good and necessary for the individual entrepreneur and beneficial to society. The ‘market price’ was influenced by the law of supply and demand “Natural” and “market” price fluctuated up or down depending on the law of supply and demand – as did labor (jobs), wages, profits and rents. Smith described the natural conflict between ‘masters’ (entrepreneurs) and the workers, noting that the “masters” had the advantage because they were able to influence government policies that outlawed combinations (unions) and work stoppages (strikes by workers) And “masters” could legally combine against the workers by using their political influence to get the government to put down the strikes Book II: Capital, savings and investments: The nature and accumulation of stock (capital or money) Private voluntary savings by entrepreneurs, which Smith called ‘parsimony’, was the key source for their investments which increased the amount of stock (capital)
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These savings came from profits, which were good, necessary and justifiable. No profit, no production or productivity.
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12. Smith and Marx - Locate: Adam Smith: The Wealth of...

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