Consider the wisdom of Western colonization and imperialism, which tried to spread capitalism as an economic system all over the world. This leads us to wonder about the dangers of capitalism itself—the economic philosophy popularized by Adam Smith that suggested we should adopt what’s known as the laissez-faire approach—which literally means “allow to do,” but colloquially is understood as “just let it be.”
Smith’s View of Economy
The economy should be driven, in this view, by personal choices rather than by the government because competition in competitive markets drives innovation, creates jobs, lowers prices, and thus leads to more societal wealth—what Smith called “universal opulence.” It’s as if the process is guided by a beneficent invisible hand, and government economic engineering just gets in its way.
Of course, in practice, it doesn’t restrict all government involvement—and the choices that drive the economy come from corporations just as much as they do actual people. Indeed, capitalism motivated industrialization itself, which produced giant factories and industries and created the very concept of “wage labor,” “consumer goods”, and “private property”.
To a large extent, Smith was right, and the adoption of capitalism had the economic benefits he projected and was responsible for the creation of the middle class. But it had a number of negative effects as well. And these are what concerned communists.
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The Rapid Industrialization
While Smith’s capitalism was superior to the mercantilist government-controlled economy it replaced, it also led to industrialization.
Industrialization did produce more and cheaper goods, but because the labor force was abundant, and factory work didn’t need high skill levels, factory owners ended up paying their employees pennies a day—and skipped out on things like safety inspections, vacation time, breaks, and days off. So instead of the “universal opulence” Smith had promised, under capitalism, people slaved away on subsistence wages, unable to feed their families, working in conditions that often killed them.
The Concerns of the Communists
The concerns of communists were most famously articulated by the intellectual father of communism, Karl Marx: worries about the oppression and exploitation of workers under a capitalist system. Marx was especially concerned about what he called “worker alienation”. The factory jobs in industry were a far cry from the jobs of old-style artisans, who crafted goods by hand. Factory workers would perform the same mundane task on a factory line, over and over.
This, Marx argued, was dehumanizing, making them just a part of a machine. And because the work was divorced from the final product, it came with no sense of accomplishment. Indeed, since the workers are simply executing the orders of the factory owner, they are not even the director of their own actions.
Learn more about the influence of Karl Marx.
Smith’s Solution to Worker Alienation
Indeed, Adam Smith was just as worried about worker alienation as Karl Marx. His solution was simply different. Instead of a workers’ revolt that would eventually eliminate social classes and private ownership and distribute all goods equally, Smith suggested that worker alienation could and should be combated by public-funded education.
A truly educated person, Smith thought, was the kind of person that had the mental fortitude to survive working in a factory. In fact, Smith recognized many shortcomings of capitalism and recommended what today would be called “socialistic” solutions—socialism being the suggestion that the government should provide certain services and control specific industries instead of the free market.
Smith’s Solutions to the Dangers of Capitalism
Smith recognized that capitalism would inevitably lead to price-controlling monopolies. So, he argued, the government should break up banks and private companies once they got too big. He also recognized that a military and police force run for profit would only protect those who could afford it—and so suggested the government should provide them instead.
The same holds for the legal system; all utilities and infrastructure—water, roads, rails—today, he’d probably include electricity and the internet. According to Smith, anything necessary for the functioning of business should not only be regulated but should be provided by the government. And how should this all be paid for? A progressive tax system, Smith said, where the more wealth a person has, the higher percentage of it they would pay in taxes.
Learn more about Adam Smith, the influential economic thinker in history.
Which One Is Better?
If we lay out the economic theories of Smith and Marx, we could argue that the best economic system is a kind of compromise between the two that lies in the middle ground. It would rely on capitalism to provide competition, economic growth, and opportunity but then rectify the shortcomings of capitalism with government intervention.
To make this argument, let’s cite the economist John Maynard Keynes, who realized that capitalism was the best way to generate wealth but also recognized the evils that capitalism generated. Keynes was especially worried about capitalism’s inevitable market crashes—like the Great Depression of the 1930s, which Keynes, and many others at the time, feared might be permanent.
To solve this problem, Keynes argued, the government must redistribute some wealth. The government should tax the rich and then invest that money in infrastructure and other projects that create jobs for the poor. The goal was not complete wealth equality, of course.
But in his view, the Depression was a result of the fact that production had outstripped demand—there were too many products that people couldn’t afford to buy. Getting the poor enough money to buy those products would create more demand and then set the economy back on track. Many consider government spending on the war effort in the 40s, which did exactly that and lifted us out of the Great Depression, to have vindicated Keynes’s theory.
Common Questions about Karl Marx and Adam Smith on the Dangers of Capitalism
Karl Marx argued that the factory jobs were dehumanizing, made the workers just a part of a machine. The work was divorced from the final product, so it came with no sense of accomplishment. Since the workers were simply executing the orders of the factory owner, they were not even the director of their own actions.
Adam Smith suggested that people should be educated. A truly educated person, Smith thought, was the kind of person that had the mental fortitude to survive working in a factory.
Adam Smith proposed the concept of progressive tax system, where the more wealth a person has, the higher percentage of it they would pay in taxes.