Adam Smith and Karl Marx

On Quora (a social website), sent to me by a Lost Legacy reader: HERE
“Was there something fundamentally different between 1776 and 1867 in the world that led to Adam Smith's and Karl Marx's books being so different?”

‘I'm asking about Wealth of Nations and Kapital”:

To which question, Lawrence Kurnarsky, director, writer - doctorscreenplay.com, contributes an answer:

“Adam Smith foresaw a world that was very much in harmony. He envisioned, as did most of the intellectual founders of the American experiment, humanity bathed in light, arguably divine light. Smith believed that freedom was the natural condition of man and envisioned a society modeled on a natural ecology. If allowed, that society based on farming and village life, with a few shining cities on the hill, would keep itself in balance perpetuating a world in which natural forces acted beneficently on human beings so that they would be happy and thrive. If society was properly ordered, with merit, good will, mutuality, fair play, and free competition, the good life would usher forth like cordial rains. As in Jefferson's beloved garden, the societal garden, well tended, would be bountiful. Adam Smith argued well for his vision but Marx argued better for his.

Marx saw a world that was very much in disharmony. He did not believe that nature was beneficent but neither did he believe it was malevolent, Similarly, he did not believe that the basic nature of human beings was good. He believed that Nature was nature, and that human nature was plastic and molded by the forces acting upon it. Karl Marx saw the mills and smoke belching factories in which men and woman were mercilessly worked to death. He saw the workhouses in which entire families languished for generations. All of this was so that a small number of greedy, unscrupulous, wealthy men could become wealthier.

Marx saw exploitation and class war as the way of the world, yet, he too, was no pessimist. Marx shared with Smith the vision of a better world. Like Smith, Marx believed in progress and human liberty. Like Smith, Marx was well intentioned. You could call both men humanitarians. But Marx believed that for the potential of humanity to blossom, more than rational discourse was necessary. The class war needed to be fought and won by what he viewed was the most progressive of social classes, the class of people who did not live by exploitation.”

Comment
Adam Smith was not given to predicting the future. He seldom commented on anything but the 18th-century present and the past. Associating him with ‘harmony” misreads his moral philosophy and political economy.

I do not recognize Adam Smith in the assertions:

“that society based on farming and village life, with a few shining cities on the hill, would keep itself in balance perpetuating a world in which natural forces acted beneficently on human beings so that they would be happy and thrive. If society was properly ordered, with merit, good will, mutuality, fair play, and free competition, the good life would usher forth like cordial rains”.

Sounds more like a campaign speech by an aspirant US President (or Hollywood scriptwriter).

The only specific prediction that Smith made appears to be his comment in Wealth Of Nations that the (about-to-be former) British colonies in North America in about a hundred years time would be more significant economically than Great Britain (WN IV.vii.e: 625).

He added, over the page, when discussing the “discovery of America”, and the “passage to the East Indies by the Cape of Good Hope”, as "the two greatest and most important events recorded in the history of mankind”, his approach to predictions of the future:

“What benefits or what misfortunes to mankind may hereafter result from those great events no human wisdom can foresee” (WN IV.vii.e: 626).

And that was his approach to the future.

As I understand of Karl Marx’s biography, it is doubtful if he ever visited any actual “mills of smoke belching factories”. We know that Engels did – he owned one.

“Karl Marx saw the mills and smoke belching factories in which men and woman were mercilessly worked to death.”

Yes, there was mass deprivation and dreadful conditions in factories and mines. For perspective consider the records of Egyptian, Babylonian, and Chinese Emperors and Kings, feudal landlords, and slave-masters (Arab and American) which were not much different in spreading 'shortgevity' and misery among those under their control.

A founding member of what was eventually to become Heriot-Watt University, Leonard Horner, became the first UK appointed Factory Inspector and fought valiant battles to bring such practices to an end. Legislation and common practice was eventually successful, paid for by the highest living standards the world had, and still has, ever experienced.

But through all this misery, per capita living standards gradually rose at historically impressive rates from 1800 until they reached today’s unprecedented levels (see Deirdre McCloskey’s ‘Bourgeois Dignity: why economics can’t explain the modern world’, 2010, Chicago). And these increases in real incomes have never gone back to pre-1800 rates, or anything like the rates common across the world since the Age of Hunting commenced about 200 millennia ago, or the Ages of Shepherding and Farming, about 11 millennia ago. No wonder that even Marx lauded the achievements of the commercial and, later, the capitalist century. It was not all doom and gloom.

There was a fundamental difference between Adam Smith and Karl Marx. Smith saw the role of the philosopher to “do nothing and observe everything”; Marx saw the philosopher’s role as not to “understand but to change” the world. Be careful for what you wish for!

In their different approaches, we see the roots of the inevitable tragedy bound up with what Smith described as the fallacy of the view of people regarded like wooden pieces on a chessboard, as easily moved by “men of system”, “wise in their own conceit” when in fact ever single man has a “principle of motion of their own”, which, if recognized, society would “go on harmoniously” and not “miserably” and would avoid the ‘highest degree of disorder” (TMS VI.ii,2.17 234).

A Marxist the Invisible Hand and Capitalism

It was bound to happen – the myth of the invisible hand has given comfort to modern economists and to legislators and those who influence them, but it also become a hostage to fortune for neoclassical economists, because sooner of later the alleged powers of the metaphor would be found wanting in practice and they would be clobbered, where not mocked, by those who believed what they had been told about the invisible hand (a fairly predictable experience in the recent crisis).

Moreover, those few of us who have read what Adam Smith actually wrote and then contrasted with what has been claimed by some modern economists (Nobel Prizes winners among them). Lost Legacy has been plugging away trying to right the wrong done to Adam Smith’s legacy.

Below, is the comfort expressed by a self-declared Marxist (David Ruccio) who uses my academic case against the myth of the invisible hand to clobber capitalism, predictably. HERE:
http://anticap.wordpress.com/2010/08/25/the-metaphor-of-the-invisible-hand/

DR: Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to modern economic thought.

Much of the rest of Smith is discarded or simply ignored. The labor theory of value. The role of trust and sympathy in allowing markets to operate. The need for public education in a world in which labor is often reduced to drudgery. And so much more.
But the invisible hand remains. The problem is, the invisible hand is an idea that Smith only invokes twice in his main texts—once in the Wealth of Nations, and once in the Theory of Moral Sentiments.

And, as Gavin Kennedy has been arguing, the invisible hand is a metaphor was not about markets, regulated of otherwise and in none of the three cases that he uses it was it about markets. The belief that he did refer to markets is a wholly invented myth by modern economists from the 1950s. [The third example Kennedy refers to is in Smith's Astronomy.]
Why does it matter? According to Kennedy:

GK: “If you insist that the ‘invisible hand’ is real, actual, or has content, you take on a wholly fictitious metaphysical idea (‘the hand of God’ or such like construction), which is theology not economics.

“My assertion that the metaphor was not used by Adam Smith in relation to markets is based on the close reading of his uses of it. Samuelson and others asserted that it was elated to markets, without a scrap of textual evidence – its is not mentioned in Books I and II of WN, which deal in detail with the workings of markets. Also, his use of it was hardly mentioned by political economists, while Smith was alive, nor for long after he died. Strange for a cardinal principle?”

“And that’s what we’ve been getting in recent years: a theology of free markets, justified by a powerful metaphor—the invisible hand—for which neoclassical economists have worked to invent a tradition beginning with Adam Smith.”

Comment
This is part of my beef with invisible hand myth. It erects a wholly unsupportable expectation on a very thin reed, which was bound to disappoint its true believers and those innocents who relied on its supposed benefits (no wonder the metaphor is appropriated regularly by theologians).

That a Marxist is hostile to the myth is not surprising; the myth obscures the real power of bottom-up markets which have done more good for humanity than all the top-down state-sponsored tyrannies that have existed since ancient times.

James Otteson on Karl Marx v. Adam Smith

James Otteson conducts a lesson for students on Adam Smith and Karl Marx HERE

James Otteson's lecture/tutorial was at the 2010 FEE Home School Debate Tournament on "Karl Marx v. Adam Smith"

Follow the link and watch the video for a lively seminar for students.

It's not meant to be deep and authoritative and links explicit details of the experiences of Soviet socialism and the dreadful crimes against humanity practised in the former and current socialist/marxist states, a methodology with which I am not too comfortable intellectually. As a first pass it's OK, but the ideas of Marx and Engels are not linked directly to ideas as interpreted by people decades after the founders of Marxism had died, anymore than the ideas ascribed to 'Jesus' are represented by the pageantry and wealth of the main Christian Churches centuries later. However, that's a quibble.

Otteson's account of Smith's ideas is fair enough (except for the his nuanced mythology of the "invisible hand'!) and his listeners appear enthusiastic in response to his enthusiasm (always a necessary aspect of lecturing).

Jim Otteson is an original contributor to Adam Smith studies: see his Adam Smith’s Market Place of Life, 2002, Cambridge University press.

Adam Smith Included Among Unproductive Labour

Nate Hawthorne, writes on Marx’s Capital in What in the hell… Blog (HERE)

“Marx quotes Eden, “It is not the possession of land, or of money, but the command of labour which distinguishes the opulent from the labouring part of the community.” (766.) Here’s a funny bit in the extended footnote that runs from 766-768. “Parson Thomas Chalmers was inclined to suspect that Adam Smith invented the category of ‘unproductive labourers’ out of pure malice, so that he could put the Protestant parsons in it” (768).

Comment
As my copy of Marx’s Capital is in storage, I cannot check the footnote reference, though I think Thomas Chalmers (1780-1847), is the most famous Scottish Presbyterian Church minister next to John Knox. He taught moral philosophy at St Andrews University and The Works of Thomas Chalmers, (Glasgow: William Collins, 1836 –1842) went to 25 volumes.

However, Karl Marx, from memory, was more than critical of the distinction that Adam Smith made between productive and unproductive labour. The former was associated with revenue spent on producing output sold at a price sufficient to cover costs (available for re-investment) and a profit available for growth (frugality); and the latter were regarded as unproductive (household servants, and generaly associated with prodigality).

Marx didn’t buy this idea and was given to picking holes in it, especially in the examples given by Smith and from his labour theory of value and his theory of surplus value. Much misunderstanding, and not just among Marxists -has always followed Smith’s distinction – somewhat carelessly expressed, it must be agreed.

For example, it had nothing to do with the social value of the employment; soldiers and seamen are unproductive – they do not normally generate a revenue – but those employed in manufacturing their weapons and supplies, which are sold by manufacturers to the government, do generate revenue and therefore are productive.

Domestic servants in a household are unproductive – their employers do not re-sell the wine in the bottles they open and serve to their dinner guests and, therefore, they are unproductive for their employers. But as menial servants in a hotel or inn, their employers who re-sell their services to paying customers and do receive a revenues to cover their costs and make a profit. (Likewise for Marx's example of a brothel keeper and the prostitutes who earn income plus a profit for the owner.)

For the record, I think it doubtful that Adam Smith picked on ‘Protestant parsons’ (doesn’t sound very Scottish) in his designation of unproductive labour. Any way, that is besides the point: it’s not their value or importance to society, but whether they generate revenue to continue at their employment in subsequent years:

“The sovereign, for example, with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers. They are the servants of the public, and are maintained by a part of the annual produce of the industry of other people. Their service, how honourable, how useful, or how necessary soever, produces nothing for which an equal quantity of service can afterwards be procured. The protection, security, and defence of the commonwealth, the effect of their labour this year will not purchase its protection, security, and defence for the year to come. In the same class must be ranked, some both of the gravest and most important, and some of the most frivolous professions: churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers, &c. The labour of the meanest of these has a certain value, regulated by the very same principles which regulate that of every other sort of labour; and that of the noblest and most useful, produces nothing which could afterwards purchase or procure an equal quantity of labour. Like the declamation of the actor, the harangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of its production” (WN II.iii.2: 330-31).

Also note, Smith includes himself in the category of “unproductive” in respect of “men of letters”, though I expect he also included himself among those unproductive labourers who were to be “ranked” among “both of the gravest and most important” of the unproductive. Though depending on whether his income from writing his books was sufficient to pay for subsequent editorial and new work in the new editions of each is an empirial question.

Adam Smith and Capitalism

Paul Martin writes 'It isn't capitalism, it's greed' for Revolution Radio HERE:

“What we have is a bunch of greedy people who we, the people, have elected to office. Keep in mind that Adam Smith who created the capitalist system (just as Karl Marx created the socialist and communist systems that redistribute wealth) said that capitalism was a profit-motivated form of economics. He made it very clear that when greed became the driving factor behind an economy, it was not capitalism at work. It was greed.”

Comment
Much as I admire the life’s work of Adam Smith, to describe him as the person ‘who created the capitalist system’ is, well, breathtaking in its sheer ignorance, much as a teenager, or younger, looks in awe at favourite celebrities.

Smith observed and described, with more than a few conceptual flourishes of great merit, but he in no way at all ‘created the capitalist system’.

Indeed, he never knew anything of ‘capitalism’, a word invented in English for the first time in 1854 (Smith died in 1790).

Philosophers do not ‘invent’ systems and nobody invented ‘capitalism’ or the ‘commercial society’ which Smith described, and which had been around since long before he was born in 1723.

It follows that Smith did not make ‘it very clear that when greed became the driving factor behind an economy, it was not capitalism at work. It was greed’.

Of the two men mentioned, Adam Smith and Karl Marx, it may surprise some readers to realise that Adam Smith was far more condemnatory of ‘merchants and manufactures’ for their monopolising behaviours, out-right scheming against the public interest, and their corruption of the legislature, than Karl Marx was of 19th-century capitalists.

Adam Smith on Exchangeable Value

Art Carden, assistant professor at Rhodes College, who teaches, inter alia, 'Classical and Marxian economics', and posts today on “David Harvey on Karl Marx”, on the authoritative and excellent economics blog, Division of Labour, HERE:

Less interested in Karl Marx, I noted this interesting paragraph:

“In fairness to Marx, he derived his erroneous value theory from Adam Smith and David Ricardo, but in fairness to the classical economists, they did not try to build an entire theory of history and social change on so sandy a foundation as the proposition that labor alone is the source of value. As I read Adam Smith, his endorsement of the "obvious and simple system of natural liberty" does not derive from his value theory".

Comment
In this statement we see the drift in meaning that led to both the Ricardo-Marx error, which was picked up by the modern economists on its own terms and continued the drift, until we are no longer talking about the same things.

Smith’s ‘exchangeable value’ became ‘value’, as if the two are synonymous and value is something ‘intrinsic’ (a misreading that even Oscar Wilde didn’t realise).

Admittedly, Smith wrote a muddled presentation of his basic ideas and it takes some effort to disentangle them. I have a draft paper on my disentanglement which I must finish sometime soon.

The idea of ‘exchange value’ is central to Adam Smith’s analysis of commercial society and how it evolved from the time when humans were predominantly, even exclusively, gatherer-hunter/scavengers. There was no idea of property except in the ability of humans to ‘pick fruit’ (which Smith erroneously dismissed as ‘hardly imployment’ in his Lectures on Jurisprudence, 1762-3) and to track and kill animals, in the forest and open land owned by nobody. There were no landlords or stock holders, or tax collectors, with whom they shared the fruits of their gathering or hunting.

Smith looked for a basis by which the products of the labour of people could be exchanged freely among them (summarized in his ‘beaver and deer’ parable in Lectures on Jurisprudence 1762-3, and reproduced in Wealth Of Nations, 1776).

He deduced exchange value as being the labour time taken to acquire products for exchange. It was in exchange that products acquired their exchangeable value; outside exchange, products did not have value in any intrinsic sense. The word ‘exchangeable’ is important because it defines value related to the act of exchange, and not to some notion of common views of their ‘intrinsic’ value. That was the extent of his pure theory of exchange value in the first age of mankind.

But beyond the forest, when humans settled in permanent locations and when ‘herding’ wild animals and gathering plant food in relative abundance from accidentally or deliberately farming the land, property was extended from the labour of people to the ‘ownership’ of land and all that was on it. With property human life changed for ever.

It did not matter whether property was held in common by the band or larger tribe, or ‘nation’ of tribes, or by the head of a family, or by private individuals. Property was held by the ‘what we have, we hold against all comers’ basis, which became the first ‘law’ of human society, enforced by those strong enough to enforce it.

In those parts of the world where property emerged in land and resources, separate from the labour of producing them, about 11,000 years ago initially, and then spread, the new property relations set the necessary conditions for permanent settlements with their growing populations able to reap (unequally) the benefits of growing productivity through exchange relationships fostered by specialisation and divisions of labour.

The singular characteristic of these early property-based societies was that the products of labour were shared among those who laboured and those who owned property. Smith acknowledges this important difference between the beaver-and-deer hunters’ parable, with which he opened his analysis of exchangeable value. The beaver hunters, etc., now had to share the exchange value of their prey with the owner of the land on which the beaver were found, and the owner of the wherewithal by which he sustained himself and his family by the necessary subsistence and tools, themselves extracted from somebody’s, or some tribe’s, claim to the ownership of land and natural resources.

Unfortunately, in jumping from one mode of subsistence (primitive hunting in the ‘open’ land) to another (property in labour, land and resources), a process that took millennia, not decades) to get underway, and more millennia to spread across Europe ad the Near East, and those other parts of the world, though not necessarily contiguous in either time or territory, Smith, without the basic knowledge common today in an Anthropology 101 class or text, in compressing the process, he constantly gets into a muddled exposition, switching back and forwards between what we now know were different periods with their much varied local circumstances.

Hence, Wealth Of Nations on exchangeable value is a challenge to disentangle, much like primitive, ancient maps of the world, where imagination often informed their authors, but which are barely recognizable to a modern eye, familiar with maps of the entire planet in different forms of projection, and which are embedded in instantly recognizable shapes and proportions when shown North to South.

Smith’s exchangeable value for commercial society specifically includes the requirement that the (much higher) product of labour is shared between the three owners with their claims to their shares: the labourer, the owner of land, and the owner of stock (formed from resources for subsistence and tools). From this point on, for these people, but not for those who stayed as hunter-gatherer-scavengers, labour alone ceased to have the sole claim of the (lower) product of labour.

Smith’s clear acknowledgement of the significance of these changes, and, what was in effect, if not stated too clearly, his repudiation of the labour theory of early exchange value, became and remains one of the most enduring misreading of Wealth Of Nations since it was published in 1776 (and of much older vintage than the modern myth of the ‘invisible hand’, which only dates from the 1950s).

This problem today was prompted too by the misreading of Smith’s statement about ‘toil and trouble’ being the 'real cost' (or value to the indvidual)of anything, which can be read as a return to labour as the source of exchange value (clearly is demarked elsewhere in Wealth Of Nations as determined by Market prices, which may coincide or be close to Natural prices), when in fact it relates to one of the benefits of the division of labour, namely that by acquiring products through exchange, the receivers save themselves the ‘toil and trouble’ of making those products themselves. In short, it is a psychological advantage of a commercial economy from the plethora of products to which people have access, should they choose to pay (or have) the market (money) price for them. It was not a labour theory of value!

A last point where Art Carden is right: Adam Smith’s ‘endorsement of the "obvious and simple system of natural liberty" does not derive from his value theory’. Theories of Natural Liberty come from the philosophical theory of ‘Natural Law’, from such philosophers as Grotius, Pufendorf, Carmichael, and Hutcheson, which Smith learned while a student at Glasgow University, where Natural Law jurisprudence was taught to him and which his writings are sprinkled with throughout. In turn, these ideas are often confused with laissez-faire, but that's another story...

The Language of Marxism

‘Roger Gatham’ writes Limited, Inc. HERE:

“Marx and the devil 2”

“What Adam Smith, in the true eighteenth-century manner, puts in the prehistoric period, the period preceding history, is rather a product of history.”

Comment
A classic example of Marxist mystical prose that means different things depending on how how you read it. Capital is full of them – see Surplus Value, Labour Theory of Value – and it creates the semi-religious feel throughout his writings. Cod intellectualism at its worst; discussed endlessly by graduate thesis writers – to be fair, Roger Gatham comments on the phenomenon in his piece - impressing others with the evidence that they understand Marx's thinking and the listeners stare in bewilderment, and if impressionable, with adoration.

Adam Smith Did NOT Have a Labour Theory of Value Outside Hunting

‘CLS’ posts on Classically Liberal Blog (HERE):

"Marxism wasn't all wrong but when they were...."

"The Marxists were right --- sort of. Actually it would be remarkable if they were consistently wrong. But Marxism is not consistently wrong. But, often when it is wrong, it is wrong in astoundingly gigantic ways. The clearest example of that is Marx’s labor theory of value. I don’t blame Marx too much for that error, after all he borrowed it from Adam Smith and David Ricardo”

Comment
I am not sure exactly what ‘CLS’ is getting at but I am sure that he does not understand Adam Smith on the so-called labour theory of value (LTV).

First, ‘CLS’ is wrong to name Adam Smith as the originator of what became known as LTV. It was a fairly common view among philosophers before Smith presented his framework (John Locke was prominent exponent long before Adam Smith). And Marx in the so-called fourth volume of Capital, ‘Theories of Surplus Value’ in which he lists all the earlier authors (including Adam Smith) from the 16th century onwards who influenced him in the 19th century (in his view) by getting their LTV wrong.

I have argued for some years now (I even have a draft paper, to which I intend to return) that Adam Smith did not have a LTV at all, except for the hunter/ scavenger – gatherer, first age of mankind.

It is quite clear that when the hunter or gatherer goes out into the bush to collect food for sustenance, animal skins for warmth, and wood to make shelter, that as it is his (or her) own labour that provides these resources, that these items belong to the labourer; he is the sole source of labour and therefore the sole owner of what he labours to produce. In that principle, in conformity with what Adam Smith understood as Natural Law (from Samuel von Pufendorf, the Natural Law jurist, he was perfectly consistent and right.

Smith makes it clear in Wealth Of Nations (I shall add references later as I am about to leave for a seasonal house party at my daughter’s) that with the appearance of property (shepherding, agriculture, and commerce), the labourer of the forest was no long the sole source of products desired by humans; it was not just his labour alone that made it possible to provide sustenance, clothing, and shelter (later the ‘annual output of the necessities, conveniences, and amusements of life).

The land was no long ‘free’; somebody else ‘owned’ it and charged for its use or exploitation; the means of subsistence (capital stock or the ‘grub stake’ until products were available) were contributed by others, who made what they owned available for use by the labourers. These other owners required a share in the output produced by whomsoever sought access or use of what they owned. The labourer’s labour was not longer the sole input; it was one of several inputs owned by others.

At this point the LTV dropped out of Adam Smith’s reckoning. He says so several times. But because this part of Wealth Of Nations is ‘badly’ explained and muddled it is not clear to fast readers, or readers of isolated quotations, or third-hand, off the cuff, remarks by tutors, media commentators, or the politically inclined, the myth has grown up that Adam Smith had a LTV for commercial (and by extension, capitalist) economies had a LTV and Karl Marx developed into his theory of surplus value.

Marx’s theory is quite different. The ‘surplus’ is the contribution of the other owners of inputs. He simply appropriates it from the other contributors!