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Adam Smith and Karl Max Perspectives on Capitalism

Adam Smith’s Perspective on Capitalism

Adam Smith’s perspective on the labor market is depicted as a place where the workers and their employers gain from each other hence they are able to enjoy a mutual relationship. Therefore, the employees have to work hard to support their employers while the employer has to ensure that the workers are protected and provided for hence their contribution to the labor market is not compromised (North, 1990).

 Adam Smith’s perspective on the specialization of labor entails incorporation of division of labor so as to create avenues for specialization. This has contributed to high levels of competency and efficiency in the labor market as each worker is given a chance to specialize in only one area. This increased the value of labor and participants in the labor market were able to prove their competence in specific areas (North, 1990).

 According to Adam Smith, capital accumulation is defined as the ability of a country or government to accumulate as much gold and silver as possible. This accumulation of the two precious stones is one way through which the wealth and capital of a country could be accumulated (North, 1990).

 Profits in a capitalist world are obtained from the subsequent exchange of goods especially the gold and silver such that instead of accumulating them they are sold to make more profits. Consequently, the ability of a capitalist economy to have its consumers requesting for certain goods and the producers competing to provide them is the key towards attainment of profits (North, 1990).

 Self-interest though a selfish way of fulfilling ones needs is beneficial to society as it provides avenues for the individual to be innovative as a way of pursuing their self-interests. This freedom to chase personal goals is significant towards achieving the common good as it promotes healthy competition (North, 1990).

 Capitalism according to Karl Max

According to Karl Max, the labor market is a self-destructing arena where the class difference causes unending conflicts among workers and their employers. This is because the workers make themselves vulnerable to their employers by freeing their services for sale while their employers do not have to expose this vulnerability (North, 1990).

 Consequently, Karl Max does not consider specialization of labor as vital component of capitalism as the interconnections during teamwork are bound to provide better results as employees learn from each other hence efficiency is enhanced. Specialization is seen as a cause of dissatisfaction and destruction in Karl Max’s capitalist world as workers are detached from others, as well as, from products they are helping produce (North, 1990).

 Similarly, Karl Max described capital accumulation as the process through which a government is able to improve its economy by incorporation of machinery or equipment that is highly efficient. Therefore, labor will be sufficient to produce more products hence overall growth of the economy is evidenced (North, 1990).

 As the process of capital accumulation takes time, the profits which are reaped from the venture are delayed until a peak is reached by the economy in the course of time. This calls for patience as there are several recession periods in the expansion of an economy thus the employer has to learn to be patient as time is the key determinant of the expansion results (North, 1990).

 Self-interest in Karl Max’s perspective does not have a place in the capitalist world as every activity benefits the employer, as well as, the employee (North, 1990).


North, Douglass C. Institutions, Institutional Change and Economic Performance. Cambridge University Press 1990


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