Adam Smith and Karl Marx

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Adam Smith, the father of economics, published The Wealth of Nations in 1776. Although it made little impact in its time, it conceptualised the economy in a radical new way: in terms of individual agents, acting out of self-interest. From an individualist perspective, he argued that people produced goods in order to make money, and made money in order to purchase goods they valued most. The exchange takes place in a market, where prices are set according to costs and the demand for the good. This was a self-regulating system which he described it as being controlled "as if by an invisible hand". In his system, labour was the final measure of value—wages (a cost) based on the needs of the worker, and rent on the productivity of land. The market acted as a communicator and coordinator (via prices), and a motivator for individuals, such that general welfare was achieved. Another important observation was that the division of labour into specialised functions allowed for far greater production than a single worker creating the entire product from start to finish (his example was from observing produciton in a pin factory). As a consequence, he saw taxes as a distortion of prices, and thus an obstruction to the general welfare that the market could provide, if unhindered. At the same time, he allowed that there were things for which the market couldn't accomodate for (roads, sanitation, known as public goods), and which a minimal government should provide. Later economists built on this idea that there may be goods with externalities (positive or negative), that is side effects from their consumption or production. Next, we have Karl Marx, who conceived of history as a struggle between different types of class. Class was defined according to the relations in the forces of production—those in a higher position could exploit those lower. In the feudal mode of production, the lords did not directly control the tools or lands of the peasant, but had control over the...
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