Smith and Marx: Vision and Analysis

In his History of Economic Analysis, Schumpeter distinguished between a view of the world (‘vision’) and an analytic toolbox in order to describe the stringent relation between scientists’ contributions and the evolution of their own science. Economists and economics are not an exception. Every economist has his own vision, which is influenced by the historical and cultural framework of his time, and he adopts specific analytical instruments that are commonly shared within the scientific community. According to Schumpeter, a science is grounded in its own analytical principles. The evolution of its own analytical toolbox represents its history, albeit vision is important to understand this process. The history of economics is the history of its analytic aspects.

In the 1870s, the founders of marginalism, Jevons, Menger, and Walras, published their works: respectively The Theory of Political Economy (1871), Grundsätze der Volkwirthschaftslehre (1871), and Éléments d’économie politique pure, ou théorie de la richesse sociale (1874). Marginalism overtook the classical school of political economy precisely because the classical school analytical toolbox was replaced by the marginalist one. This is the way any science evolves. As Kuhn explained (1962): when anomalies are discovered in the analytical core of a scientific discipline, a new paradigm emerges and replaces the previous one. In Kuhn’s terms this process is a scientific revolution, but for Schumpeter it is more like an evolution. The major anomaly of the classical school of economics was a wrong or incomplete theory of value. While for the classical school value comes from the supply side and equals the cost of production, intended either as the cost of the inputs which includes labor (as in Smith) or simply as labor (as in Ricardo and Marx); for marginalists, value comes from the demand side and it entirely depends on individual utility and the notion of scarcity.

When some historians of economic thought present Adam Smith and Karl Marx as strictly connected, they do not intend to say that the founder of political economy and the founder of modern socialism shared the same vision (and if they do, they are wrong). Rather they point out that Smith and Marx adopted the same analytical toolbox, like the majority of other classical political economists who lived and worked during the timespan between the publication of An Inquiry into the Nature and Causes of the Wealth of Nations (1776) and the publication of the first volume of Das Kapital (1867). And this is a crucial point.

It is undeniable that Smith and Marx considered the supply-side theory of value deeply influential on inquiring the origin and the causes of the wealth of a nation as well as on explaining the connection between capitalism and growth. Both Smith and Marx regarded the accumulation of capital and the division of labor as the origin of the enrichment in the modernity. Like many other classical school economists, both Smith and Marx rejected a notion of wealth based on the continuous addition of money in the State Treasure, as promoted by the protectionist commercial system typical of the French mercantilism. Nonetheless, they disagreed about who took advantage of this dramatic increase in the overall wealth. According to Smith, it was the nation as a whole; according to Marx, a particular class, i.e. capitalists. Smith saw the relation between capitalism and growth in terms of progress while Marx saw it in terms of class exploitation. Why? Because they did not share the same vision.

Smith was a classical liberal philosopher, mainly influenced by the 18th century Scottish Enlightenment. He argued that competition and cooperation, respectively based on the human attitude to trading and on the innate sympathy amongst humans, allowed institutions, such as the market, to emerge and to make exchange possible. In countries where the political and social framework is shaped by the Rule of Law, individual liberty is guaranteed and social institutions work properly. This virtuous combination permitted the middle class to overcome the ancient regime, as it happened in Great Britain during the First Industrial Revolution when the division of labor and the accumulation of capital built up the industrial system that enlarged both capitalists’ profits and the lower class’s income, and consequently it increased the wealth of the nation.

Marx had an opposite vision: he was a Hegelian scholar, totally influenced by the 19th century German Idealism. By following Hegel, for whom individuals are servants of the Spirit, which manifests its cunning in History, Marx denied any dignity to individuals especially during the capitalistic phase of history (the modern age) when they alienate their human essence in the labor-force. His vision, rooted on historical materialism, led him to consider history as a sequence of class struggles and exploitation as the only way for the new dominant class to get the power, which in fact requires a revolution, as it successfully happened in Great Britain (1649) and during the first phase of the French Revolution (1789-93). In both cases, the bourgeoisie overthrew the ancient regime. Marx presented history as a series of material economic structures bound to end up in a post-revolutionary socialist order where wealth will be produced and redistributed “from each according to his ability, to each according to his needs” ([1875] 1890-91).

In the 1890s, the story of the fortune of Marx and Smith within the history of economic thought intertwined again and finally diverged for good. On one side, in the posthumous third volume of Das Kapital (1894), Marx failed to demonstrate the transformation of labor-value into prices as well as the conversion of surplus value into profits. Nobody cared though: the majority of marginalist economists of the time had already denied any credit to Marx’s economic theory as well as the majority of Marxian scholars and leaders were completely focused on the political aspect of Marx’s doctrine without any clue for the theoretical fiasco of the third volume of Das Kapital. On the other side, Alfred Marshall (1890) successfully combined the Smithian theory of value with the marginalist one, by introducing the well-known metaphor of value as a scissor whose two blades are respectively the cost of production and the utility, and consequently equilibrium price occurs when the upward supply curve equals the downward demand curve. The vision of the founder father of economic liberalism and free market perfectly fitted the new analytical toolbox of economics.

References:

Kuhn T. (1962) The Structure of Scientific Revolutions. Chicago: University of Chicago Press.
Marshall A. (1890) Principles of economics. London: Macmillan.
Marx K. (1867) Das Kapital: Kritik der politischen Ökonomie: Der Produktionsprozess des Kapitals. Vol. 1. Hamburg: Verlag von Otto Meissner.
Marx K. ([1875] 1890-91) Die Kritik des Gothaer Programms. Die Neue Zeit. Vol. 18:1.
Marx K. (1894) Das Kapital: Kritik der politischen Ökonomie; herausgegeben von Friedrich Engels. Der Gesamtprozess der kapitalistischen Produktion. Vol. 3. Hamburg: Verlag von Otto Meissner.
Schumpeter J.A. (1954) History of Economic Analysis. New York: Oxford University Press.
Smith A. ([1776] 1981) An Inquiry into the Nature and Causes of the Wealth of Nations. Edited by R.H. Campbell and A.S. Skinner. 2 vols. Indianapolis: Liberty Fund.

Related Links:

What Karl Marx Did and Did Not See in Adam Smith
Econlib Biography, Karl Marx
Should Karl Marx Be Cancelled?