Introduction
Over time, the idea of political economy has gained multiple distinct meanings. In this case, the political economy, which emanated from moral philosophy, is viewed as the means to understand production and trade as they relate to laws and regulations, governments, practice, as well as sharing of national resources, income, and wealth. In the realm of political economy, a question may be raised concerning certain economic policies adopted by a government. For instance, what is the fuel that drives capitalism? This question can be effectively answered using capitalism as a model of political economy. This paper compares and contrasts Adam Smith’s and Karl Marx’s perspectives on capitalism. Specifically, the paper examines some of the key concepts (e.g. division of labor, mode of production, creative destruction, and gender oppression) and the underlying assumptions of each theorist concerning factors that drive capitalism in the 21st century. In this regard, the paper strives to show that these two theorists’ works have some inherent strengths and weaknesses. While these perspectives present diverse viewpoints, they continue to provide interesting insights for economists and scholars to understand market systems of political economy.
Capitalism
Capitalism, from an economic system perspective, is an economic and a political system in which private owners, rather than the state, control means of production and operations of profits. Capital accumulation, private property, wage labor, competitive markets, voluntary trade, and pricing are some of the major features of capitalism where owners who control factors of production solely undertake decision-making and capital investment. However, external factors, such as competition and location, tend to influence investors’ decisions.
The market economy is responsible for determining supply and demand in the common market. That is, no central planning is employed to run the economy. In its purest form, capitalism is recognized as laissez-faire capitalism. In this case, private individuals act freely to determine investments, production, selling, and prices with no controls and restrictions from governments. However, it is noted that many modern states practices various types of capitalism characterized by state controls and regulations to stabilize markets. Capitalism is considered as a model for overcoming challenges associated with the production and distribution of resources. As opposed to socialism, capitalism as a model of political economy is based on voluntary decisions and decentralized economic planning and activities.
Capitalism favors economic growth. It offers incentives for private individuals to direct resources in more productive areas of the economy rather than less profitable ones. The outcomes have been massive economic growth across the globe. Most societies realized sustained growth associated with capitalism after the 17th century. Major growths were only witnessed after the Industrial Revolution as opposed to predominant agricultural societies. In the following centuries, capitalism was responsible for increased investment and production. More products were cheaply and readily available to masses, leading to improved standards of living across the world. Consequently, many theorists have argued that the capitalist political economy is the most effective and efficient model of promoting exchange.
Adam Smith’s and Karl Marx’s Perspectives
Karl Marx wrote that “every society is built on an economic base” (Heilbroner, 1995, p. 82). The economic base in a capitalist society is driven by factors of production, including the division of labor. Over time, an increasingly intricate division of labor has been witnessed, and it is closely related to improvements in aggregate output and trade, the development of capitalism, and the involvement of industrialization processes. While others may claim that the division of labor is an ancient practice, it has strongly emerged in the 21st century to drive capitalism. In this regard, human capital is now a major factor in the modern economy, and it has become significantly critical for production in the last few decades. As witnessed today, human capital is now a prominent feature of the international division of labor.
It is widely acknowledged that the incessant division of labor leads to higher levels of productivity. A firm’s success, for instance, appears to depict principles of efficiency noted during practices in the 20th century. To this end, societies run on capitalism have grown wealthier as individuals seek to specialize in distinct fields. Also, the 21st century is characterized by even more narrowly defined jobs to ensure developments of complex skills, such as IT skills, which are now highly traded in the global labor market. According to Adam Smith, markets were responsible for economic efficiency vital for most aspects of economics. The ‘invisible hand’ is responsible for the efficient allocation of labor. He notes, “the private interests and passions of men” are led in the direction “which is most agreeable to the interest of the whole society” (Heilbroner, 1995). While the division of labor has resulted in significant achievements, one cannot ignore the unintended side effects, particularly on individual lives. Specifically, Karl Marx showed how capitalists acquired large profits from workers by manipulating work conditions. He noted that the fall in labor power would in turn result in a decline in production. That is, workers had to suffer low socially required labor time for production. As such, Marx (Capital, Volume One) states:
…this is impossible without an increase in the productivity of labour…by an alteration in his [the worker’s] tools or his mode of working or both. Hence the conditions of production of his labor, i.e. his mode of production, and the labor process itself must be revolutionized…to endow a given quantity of labor with the power of producing a greater quantity of use-value. (Marxists Internet Archive, n.d)
On this note, one can conclude that it is by enhancing labor productivity that the capitalists realize comparative surplus-value and as a result, profits. Capitalists have realized such profits by investing in various ways of production and transforming the productive stages using modern technologies and techniques.
The rise of capitalism in the 21st century is largely credited to changes in the mode of production. Capitalism now controls global trade. The overall goal of the capitalist mode of production, based on competitive practices, is to optimize net profits by reducing costs of production, increasing sales, and gaining a market monopoly. It also focuses on capital accumulation for the acquisition of both productive and ideal assets and privatization of supply and consumption of goods and services. In this case, labor is extremely important for capitalists. Any excess product of labor has to be reinvested in production to increase output and capital accumulation. Capitalists understand that the mode of production requires investments in terms of money to drive both labor and other modes of production for commodity creation. Capitalists then sell commodities in free markets for profits. Profits are then reinvested into the business as a larger component of the capital required for increased production of commodities. According to Marx, transformations in forms of exploitation are associated with developments in modes of production. It is precisely observed that such changes lead to new production methods that spread across the world. As such, for capitalism to grow further in the 21st century, there should be a separation of means of production from the producer. That is, a free labor market is required to ensure that capitalists can maximize profits. Marx argued that cooperation was vital for workers in the production process, and it was responsible for driving modes of production. On this note, Marx envisages transformation in the mode of production to facilitate growth (Capital, Volume One):
Capitalist production only then begins, as we have already seen, when each capital employs simultaneously a comparatively large number of laborers; when consequently the labor-process is carried on an extensive scale and yields, relatively, large quantities of products. (Marxists Internet Archive, n.d)
Adam Smith sees mode of production through market mechanisms, and he supports Marx’s viewpoints on changes. “Society will have changed the allocation of its elements of production to fit its new desires” (Heilbroner, 1995, p. 35). On this note, the mode of production in a capitalist economy is driven by emerging needs and desires.
In the current capitalist political economy, it is believed that creative destruction will drive growth. That is, constant industrial changes would constantly transform economic structures from within and eliminate old ones while creating new ones. For most economists, more compelling evidence suggests that creative destruction would drive productivity and growth across many countries. In other words, modern innovations are constituents of creative destruction. The most interesting fact about capitalism in the last three centuries has been enormous growth that innovation has brought about to many states. In the 21st century, therefore, it is necessary to construct economic policy to facilitate and shape innovation for global economies and perhaps strategies to mitigate its outcomes. States that have demonstrated their capabilities to advance innovation have been able to improve the living standards of the public. One may, therefore, claim that the next wave of capitalism innovation would eventually lead to consumer engagement in various processes in the design and production of commodities.
Creative destruction, however, has some unfavorable consequences. That is, winners and losers are created in the economic process because workers are most likely to lose their jobs while some investments become obsolete due to technological advancement. Today, many workers fear that robots or technologies would eventually replace them. Marx and Engels observed that capitalism had some crisis tendencies related to “enforced destruction of a mass of productive forces …. In these crises, a great part not only of existing products but also of previously created productive forces, are periodically destroyed” (Marxists Internet Archive, n.d). In modern capitalist economies, losers are all workers as employment declines and wages become stagnant, creating ‘squeezed middle class’. On the other hand, skilled workers with the right expertise have gained from creative destruction. While workers may respond by attempts to resist forces of creative destruction, it is senseless to resist innovation because it supports economic growth and offers higher rewards resulting from improved productivity.
The solution in capitalism is to revamp and radically improve innovation, distribute gains as much as possible, and create enabling environments to assist workers in transit from old practices to innovative solutions. This approach involves rethinking to enhance social security for workers. Moreover, capitalists should strive to profile innovation more aggressively. Evolutionary political scientists and economists have long acknowledged that innovation is the means to advance economic activities for enhanced productivity. As such, Adam Smith supports creative destruction. Capitalists improve production using advanced techniques that create more productive workers. Firms that fail to be competitive and offer what customers want eventually disappear. The ‘invisible hand’ of the market argues for the transfer of factors of production from deteriorating sectors to sectors that are more productive where workers, capital, and inputs would yield optimal returns. Overall, capitalism as “the perennial gale of creative destruction” has to turn out to be the driving force for contemporary thinking on how economies grow.
On gender oppression, one can observe that capitalism has improved the status of women in society as they begin to take new roles in the economic arena. Developments noted in gender relations since the 20th century have been among the most rapid, deep social changes in the history of humanity. For over 7,000 years, male domination has always been felt throughout gender relations. Even today, men and women are still seen as holding diverse positions in society, albeit with changes toward more women’s involvement in economic affairs. Nevertheless, a significant minority of individuals still hold the notion that women should be of lesser ranks relative to men. Although all kinds of gender inequalities are observed in the current political economies, and some appear too difficult to change, they are generally observed in disparate contexts of cultural, political, social, and institutional relations. Male domination still exists and continues to define gender relations in the 21st-century political economy.
One must acknowledge that Karl Marx presented profound insights on gender relations, specifically focusing on the need for a complete change of society that would significantly advance novel relations between men and women, notwithstanding some challenges. Adam Smith is accused of failing to recognize the role of women in economic activities in the Wealth of a Nation. However, Smith did point that society was responsible for determining the social importance of observed differences. As society advances, Smith noted that physical strength grows less relevant. Hence, transformation in economic activities would eventually lead to better positions for women in the economic sphere for new gender relations. Smith also observed that the principle self-interest advanced by men who made laws that were unfair to women. Smith, however, did not refute the lawful domination of women.
Conclusion
This political economy paper has explored capitalism concerning specific factors that drive it. It has explored these factors by comparing and contrasting Adam Smith’s and Karl Marx’s perspectives on capitalism. By examining vital concepts, such as division of labor, mode of production, creative destruction, and gender oppression, it is revealed that capitalism continues to gain strength. Karl Marx and Adam Smith appear to hold diverse views on some of these subjects, but they seem to agree on issues that concentrate on the exploitation of workers and economic transformations. Economic concepts introduced by these two economists and moral philosophers have continued to shape the 21st-century practices. Overall, capitalism continues to grow stronger as many states are now more advanced under this political economy compared to other previous political economy models.
References
Heilbroner, R. L. (1995). The worldly philosophers. New York, NY: Simon & Schuster Inc.
Marxists Internet Archive. (n.d). Political economy. Web.