The Market and Commodification in Smith and Marx

Both Smith and Marx were primarily concerned with the structure and effects of what we now call market capitalism, the economic system based on free trade, competition and the division of labour. They are usually thought of as holding diametrically opposing views. Smith saw the market as a self-regulating system of exchange, whose "invisible hand" ensured the most efficient allocation of resources and the optimum wellbeing of society. Marx considered the market to be an instrument of economic oppression of workers by the owners of the means of production, which would inevitably result in the alienation of workers from the benefits of their labour, increasing inequality between classes, and eventual revolution. These differences are the result of their different views of what Marx pejoratively termed "commodification", the market function of turning all resources and products into tradable commodities whose exchange values are determined by the market.

In this essay I shall first compare Smith's and Marx's ideas about the characteristics of the market system, focussing on the division of labour and its implications. I shall then look at their theories of value, and discuss their opposing ideas of whether the market provides the best possible reflection of the true value of commodities. Finally I shall examine their different views of the effects of the market and commodification on society and consider the middle ground between their ideologies.

Smith saw the propensity to trade as a universal human instinct (Smith, 1776: p.21). It is this instinct that is the basis for the market system. It is also the principle that gives rise to the division of labour, as it allows individuals to specialise in one type of production, as they can then trade their produce for other things they need. According to Smith, "the division of labour is limited by the extent of the market" (Smith, 1776: p.26). The growth of industrial society and trading routes causes expansion of the market, allowing increasing levels of specialisation. This allows division of labour within the production processes of goods, with each stage of the process allocated to a different worker.

Like his contemporary Ferguson, who declared that "by the separation of arts and professions, the sources of wealth are laid open" (Ferguson, 1767: IV:I), Smith saw that this system of cooperation causes "the greatest improvement in the productive powers of labour" (Smith, 1776: p.11). It allows each worker to become more practised at his specific task, to develop machines to speed the process further, and to save time that was previously wasted in changing between activities. Smith demonstrated this increased productivity resulting from the division of labour using the example of a pin factory (Smith, 1776: p.12). Smith believed that this increase in productivity would lead to increased prosperity for all.

Marx, however, had many reservations about the social effect of the division of labour. He believed that self-realization was essential for a human being to live a fulfilling life. This meant that each person should be able to develop and use his full range of talents and abilities. Limiting him to one monotonous and robotic task would prevent him from developing to his full potential and cause him to become alienated from his true nature (Elster, 1986: p.43).

Smith was not blind to these potential consequences of the division of labour. He stated that "the man whose life is spent in performing a few simple operations... generally becomes as stupid and ignorant as it is possible for a human creature to become" (Smith quoted in West, 1996: p.3). However, unlike Marx, Smith saw the benefits of the division of labour as greater than the potential harm and believed that the mechanism of the market could usually be trusted to ensure that all of society benefitted from the resulting increased productivity. This difference of opinion between the two men was due to their different views of how value is determined by the market.

Both Smith and Marx believed in a labour theory of value. In Smith's words, goods are worth the "toil and trouble" of getting them, i.e. the labour expended in their production (Smith, 1776: p.36). Marx believed that the true value of a product was its utility, or use-value, and that the best measure of this was "the quantity of value-creating substance, the labour, contained in the article" (Marx in McLellan, 1977: p.423). Where Smith and Marx differed was in their faith in the ability of the market to reflect this true value of products, and to fairly distribute the benefits accrued from the increased productivity caused by the division of labour.

Smith distinguished between the "natural price" and the "market price" of products. The "natural price" he defined as "what it really costs the person who brings it to market" (Smith, 1776: p.53). This should cover the cost of renting the land on which it was produced, the wages for the labourers, and a profit for the capitalist who invested in it by originally paying for the land, resources and labour. The profit should be enough for him to subsist on and to reinvest in continued production. Profit was the incentive for capitalists to continue investing, and therefore for production to continue.

The "market price" is the price in money of a product, or its exchange value. Smith saw money as a necessary tool to facilitate the system of exchange (Smith, 1776: p.31-33). In the market system, everything that has an exchange value is a commodity, which can be traded and used to create profit. The market price is determined by "the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity" (Smith, quoted in Hollander, 1973: p.117). If supply outstrips demand, capitalists are forced to sell the commodity at below its natural price to get rid of their excess stock. This represents a reduction in their profit, a reduction in the incentive to produce the commodity, and a resulting contraction of supply until supply and demand equalise. Similarly, if demand exceeds supply then the market price rises above the natural price, the resulting increase in profit raises the incentive to produce the commodity, so supply expands until it equals demand. In this way Smith believed that, although the market price might periodically vary from the natural price, the two would always equalise over time (Smith, 1776: p.56). He saw the market as a self-regulating system, whose natural long-run equilibrium was best ensured by competition, free trade and a lack of government interference.

Smith saw self-interest as the driving force behind the market system. Every producer is looking