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Adam Smith and Karl Marx

Two economist strongly effected our study of economics. These individuals were the first to write about economic theory.  A theory (or model) is a simplified description of a real situation, in this case an economy. It is from their writings that the first descriptions and characteristics of different types of economic structures were published.  Adam Smith writing in the 18th century and Karl Marx in the 19th century provided the two very different basic economic structures.

Adam Smith was an Englishman and one of the founders of free-market capitalism with government guaranteeing competition.  His book The Wealth of Nations was the first major economic work that defined the characteristics of a free market economy.  Smith discussed the invisible hand, the incentive that guides individuals to choose in the best interest of society by pursuing their own self-interest.  Smith believed that individuals pursued their own interests but in the end promote the public interest.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-interest.  We address ourselves not to humanity, but to their self-love and never talk to them of our necessities but of their advantages. (Smith, A.  An Inquiry into the Nature of the Causes of the Wealth of Nations)

Karl Marx provided the ideological foundation for communism. Marx wrote of the philosophy of socialism and social decision making. His writings in the Communist Manifesto in 1848 described his views that society (the State) should own the factors of production and make decisions about production and distribution of wealth.  Marx openly advocated the violent revolution of the working class (proletariat) to overthrow the capitalist ruling class (bourgeoisie).  The description of a the command economy in The Communist Manifesto and further defined in Das Kapital give the basis for the socialist philosophy and described the basic characteristics of a command economy.

This page was updated on:  04/10/02