Friday, October 28, 2005

The Relevance of Adam Smith vs the Irrelevance of Karl Marx

V. Sundaram writes in News Today, India, an article explaining “Why I am Not a Marxist” (

“In these days of globalisation and privatisation, Karl Marx is as irrelevant as Adam Smith. The great capitalist barons of the past have no counterparts today. The real owners of our public limited companies and giant corporations, the millions of stock-holders, play no roles in managing these oligopolies. The big firms are in the hands of professional managers and technical experts whose names most stock-holders would not recognise if they heard them. Although on top levels the pay of some executives may be large, yet the principal motive is to keep the company alive and growing. They maximise profits not for themselves but for stock-holders, for those whom Galbraith described as 'the unknown, anonymous and powerless persons who do not have the slightest notion of whether their profits are, in fact, being maximised'.

There is no way to eliminate these impersonal behemoths unless you also wish to eliminate such things as cars, telephones and cell phones, television, air-conditioners, washing machines, airplanes, and modern weapons of war. And there is no way that the techno-structure can function without managing prices well enough to avoid the chaotic short-term effects of numerous parameters that are inescapable aspects of the real world. Yes, monopoly competition of a sort still prevails aluminium vs. steel, wood and glass vs. plastics, one brand vs. another brand in the world of consumer durables and so on and classical competition is still vigorous on lower levels of the economy but within the techno-structure the picture is a far cry from the simple free-market capitalism of Adam Smith.”

The rest of the article is about what Sundaram asserts was wrong with Karl Marx and Vladimir Lenin ,and their modern representatives among the various Indian Communist Parties, one of which in government does not appear to be very sympathetic to other communists trying to induce high-tech workers into trade unions in case they frighten away foreign investment!

For “Lost legacy” our concern is with what he says about Adam Smith. His opening line that “Karl Marx is as irrelevant as Adam Smith” is intriguing. In terms of the reduction of mass poverty in India, I would have thought Smith’s critique of mercantile policies, such as import and export duties, overly bureaucratic regulations, red tape and licences, would make him very relevant. The degree to which Smith’s free market policies have been adopted within India is directly related to the upsurge in growth rates and the reduction of poverty by bringing hundreds of thousands of workers families into paid employment.

Again, this is a sign of the relevance of Smith. That even communist managed states in India are vying for inward investment (sans trade unions) suggests Smith is replacing Marx as their guide to economics.

As Smith knew nothing about capitalism as it developed in Britain and elsewhere in the 19th century the reference to the “simple free-market capitalism of Adam Smith” is irrelevant, but Smith’s simple market economics of a commercial society is highly relevant.


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