Brothers of Another Color: Smith, Marx, and the Operation of Free Markets

Brothers of Another Color

Smith, Marx, and the Operation of Free Markets

Tarnell S. Brown

Liberty University

Abstract

Radical departures from normative conventions are noteworthy even when they have no lasting historical impact. Such revolutions as are truly groundbreaking are even more worthy of attention. Most such departures have their genesis in principles that are already extant; rarer still l are those that are conceived almost entirely in the mind of their originator. The conception of free markets is such a convention. In assessing the impact of this construct, the names of Adam Smith and Karl Marx appear most regularly. While others nominally predated Smith's theories, and still others further developed them, it was he who gave them a solid foundation. Although it is the contention of this author that the opposite is true, to many, Marx stands as the antithesis of these principles. This paper attempts to assess the impact of Smith's innovative principles, as well as clarify Marx' view of the proper venue for the operation of free markets.

Brothers of Another Color: Smith, Marx and the Operation of Free Markets

In assessing the impact of the pioneering thinkers collectively referred to as the classical economists (Adam Smith, David Ricardo, J.S. Mill, Karl Marx; subsequently referred to as the "Classicals"), it is natural to attempt to answer the question concerning what is their most enduring legacy. Although many of their principles and suppositions have been found to be rudimentary, or even wrong, this is the effect of several generations of those who have had the benefit of observing history through the lense of the framework that these pioneers erected. The Classicals, as it were, posited such revolutionary ideas as overproduction as the cause of economic crises, a labor theory of value (and its Marxian evolution, a surplus theory of value), diminishing returns and the effect of savings on a nation's growth prospects. As innovative as these ideas were, none of them individually was as groundbreaking as the notion that the context of the Classicals' work presupposed; the free market. A definition of this revolution in thought follows.

Smith and the Meaning of Wealth

While the notion of a free market is in many ways an accepted fact of life in many of today's Western nations, it would have been inconceivable to many of Smith's day. The dominant economic theory of the day was mercantilism, which LaHaye (2008) defines as "the system of political economy that sought to enrich the country by restraining imports and encouraging exports" (para. 1) Wealth was thought of in terms of the amount of gold and silver that nations accumulated. The main goal of mercantilism was achieving a favorable balance of trade, with nations that exported more than their neighbors achieving wealth at the expense of those neighbors.

As Sowell (2006) notes, "not only an export surplus, but a repression of wages, the promotion of imperialism and even slavery could be seen as the natural corollaries the pursuit of wealth by the propertied classes that constituted the nation" (p. 6).This system required several inputs to be successful. In order to maintain an export surplus, it necessitated an ever increasing pool of labor at increasingly lower wages so as to be able to undersell foreign competitors. The economies of scale needed to maintain this multiplying level of manufactories required extensive government controls, and a protected class of merchants (thus, mercantilism) to oversee the minutiae of trade. Further, the need for new sources of raw material necessitated the annexation of foreign states.

The Classicals, beginning with Smith, rejected any such notions. According to Winch (1997), Smith, who was as much a moralist as he was an economist, concluded "preventing those whose only property resided in the product of their labor from exercising their natural rights to make the best use of it' without injury to his neighbor' is a plain violation of this most sacred property" (p. 389, 390). Much like Locke and David Hume (of whom Smith was a nominal disciple), Smith postulated "historical connections between commerce and liberty" (p. 390). A free market, then, was the antithesis of the mercantilist paradigm. Government intervention in the workings of the market, including sponsorship and protection of favored merchants (i.e. the granting of monopolies) was taboo in this new order. Artificial repression of wages was to be done away with, as wealth was measured as an output of labor. Inefficient and expensive colonies were to be divested of, and overproduction of unwanted goods was to cease. Competition between private entities that controlled the means of production was to dictate where resources were allocated, as dictated by natural consumer demand.

To the charge that this all seemed to depend upon the whims of the individual, Smith would answer in the affirmative. Smith (1776) noted, "No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable" (p. 64) This was just the situation mercantilism created According to Strauss and Cropsey (1987), Smith believed that society's natural goal was " a free, reasonable, comfortable and tolerant life for the whole species" (p. 649). This could not be found in the government controlled paradigm of mercantilism, which violated the very reason that man agreed to form civil societies in the first place; the mutual protection of the fruit of each man's labor.

As man has entered into civil society to mutually protect each other from the threat of unjust appropriation, it is implied that he must first have something necessitating protection from appropriation. This is the product of his labor. In order to enjoy the product of his labor, he must have leave to pursue his own interests in order to produce. This is the basis of Smith's free market; an interdependent platform of men making decisions on labor, purchasing and selling that they believed to be in their own interest. As Smith et al. observes, "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 own interest" (p. 12). It is my desire to build a hotel; I believe that it will be profitable for me. I care nothing for your needs, but the contractor's desire to increase his revenue, the architects