Capitalism : Adam Smiths Perspective

Adam Smith proposed that the free market, where producers are free to
produce as much as they want and charge consumers the prices they want,
would result in the most efficient and desirable economic outcome for
consumers and producers.
Consumers would only pay as much as or less than they would value the
benefit derived from a good, and producers would only sell for as much as or
higher than they would have spent on producing a good.
No surplus or deficit supply or demand; markets would always be in
equilibrium, and the benefits to consumers and producers alike would be
maximized.
There would be a limited role for the government in such an economic system.

Capitalism : Karl Critics Smith

Workers would be exploited by any capitalist, or factory owners, for the

capitalist system provides an inherent advantage to the already rich and a
disadvantage to the already poor segments of society.
The labor theory of value claims that the value of a good or service is directly
connected to the amount of labor required for its production.
Marx posited that the two classes in a society the bourgeoisie and the
proletariat will forever remain stuck in their respective classes because of the
very nature of capitalism.
Karl Marxs view, was for the proletariat to revolt and create a new social order
where there would be no distinction between segments of society; there would
be no classes as such. Collective ownership of all capital for production would
ensure, Marx suggested, an equitable distribution of wealth.
Karl Marx theorized that capitalism is intrinsically linked to an inequitable
society where the segmentation of society according to class would be
permanent and rigid. The rich become richer, the poor become poorer.

Marx identified the four-part economic process, production,

distribution, exchange, and consumption, in this way:
Production creates the objects which correspond to the
given needs; distribution divides them up according to social
laws; exchange further parcels out the already divided
shares in accord with individual needs; and finally, in
consumption, the product steps outside this social
movement and becomes a direct object and servant of
individual need, and satisfies it in being consumed.
Production is very much related to consumption in that
consumption is an end product of production and the act of

production itself is an act of consumption. According to Marx,

production is twofold consumption, subjective and
objective: the individual not only develops his abilities in
production, but also expends them, uses them up in the act
of production, just as natural procreation is a consumption of
life forces. Secondly: consumption of the means of
production, which become worn out through use, and are
partly . . .dissolved into their elements again. Likewise,
consumption of the raw material, which loses its natural form
and composition by being used up. The act of production is
therefore in all its moments also an act of consumption. The
acts of production and consumption, for Marx, exist in a
circular relationship. In order for an object to be produced,
raw materials and resources must be consumed, consumed
in this case meaning put to use in the act of production; in
order for an object to be consumed, it must first be
produced. The cycle is continuous. Marx identified a threefold relationship between production and consumption. The
first is immediate identity: this relationship merely
examines the fact that production is consumption and
consumption is production. In Marxs own words,
Consumptive Production and Productive Consumption.
The second is mutual dependence: consumption and
production are related but external to each other. An object
is consumed in order to produce something; an object is
consumed after it was produced. Third is each supplies the
other with its object: production creates the object to be
consumed, while consumption creates the object to be
produced . Production does not occur unless producers
acquire the materials necessary to produce; consumption
does not occur unless there is an object to consume.
Author Jonathan Wolff points out five central ideas that Marx
disliked in Capitalism:
1. Under Capitalism, the wages of the workers are literally
minimal. This is a consequence of the fact that the capitalist
is in, by far, the better bargaining position and to avoid
starving the worker must be prepared to accept the very low
wage that will be on offer: a wage just sufficient to keep the
worker and family alive.

2. Work is Punishing. For the same reason the worker must

accept appalling conditions, leading to overwork and early
death.
3. Labor is degraded and one-sided. As the division of labour
becomes more advanced, labour becomes more machine-like
...
4. Labour has become a commodity. It is bought and sold on
the market like any other commodity.
5. The workers life has become subject to alien forces. The
demand on which the workers life depends is founded on
the desires of the wealthy and the capitalists. In order to
understand these issues, it must be understood that working
conditions during the time of Marxs writings were much
different than todays.
Capitalism : CRITIQUE

The seeking and earning of profit by the capitalist led Marx

to believe that the entire system of capitalism led to greed
and inequality and would eventually crumble to the
revolutionary proletariat. He believed there existed internal
contradictions in the capitalist system that doomed it from
the start:
1. Competition . . . implies winners and losers . . . causes the
rise of monopoly capitalism.
2. The lack of centralized planning . . . results in the
overproduction of some goods and the underproduction of
others . . . causing . . . inflation and depression.
3. The control of the state by the wealthy.
4.Creates social problems because of the great gap between
the rich and the poor.

THE DIFFERENT : Capitalism and Free Market

Capitalism and Free market economy are somewhat entwined as one is an integral
part of the other. However, in their true definitions they differ .While capitalism
refers more to the production of wealth, the term free market dwells more on the
exchange of wealth in various methods. Capital is an essential basic element for both
capitalism and free market economies. However, free competition is not an essential
element of capitalism but of free markets. This is because in capitalism, capital
owners have a lot of dominance over the means of production and as such may yield
unfair influence.
Other Sources :
http://provocativefuture.blogspot.de/2009/12/difference-betweencapitalism-and-free.html
Capitalism is defined as a system of ownership of the means of production, specifically
the non-labor means of production, which includes factories, tools, equipment, etc. In a
capitalistic organization, these means of production are privately owned. Labor is paid a
wage for their efforts, and any profits go to the owners of the capital.
A free market system is simply defined as one in which everyone is able to freely sell
their goods and services with prices determined by supply and demand.
It is possible to have capitalism without a free market in specific situations. Examples
include organizations that have an effective monopoly on a market they can prevent
competition from entering the market and can set prices to maximize their own profits
instead of being restricted by supply and demand. Another example is the awarding of
government no-bid contracts to capitalistic organizations.

PRESENTATION STRUCTURE

1. FREE MARKET CONCEPT by Adam Smith

Smith realized the importance of production. Smith
contended that production was the key to a growing
economy. In Smiths ideal, free trade society, average
persons could start businesses, free from government
intervention, and consumers would purchase from these
producers at a price determined by the laws of supply and
demand. Smith asserted that the innate function of the free
market was determined by the simple laws of supply and
demand. For example, if there is an increase in demand for
product A, and a decrease in demand for product B, the price
of product A will increase. The increase will occur because as
consumers flock to producers to purchase A, the supply will
become limited. This higher prices caused by the limited
supply allows only the consumers, who are most willing and
able to pay, to purchase the product.
2. CAPITALISM

a. Distinction between Free Market and Capitalism

Free Market : Production and consumption. People freely produce
and sell what they want, and people freely buy what they need. Supply
and demand will meet equilibrium in market.
Capitalism : Free market is base form of Capitalism. the production
of wealth, the term free market dwells more on the exchange of wealth
in various methods. Capital is an essential basic element for both
capitalism and free market economies. However, free competition is not
an essential element of capitalism but of free markets. This is because
in capitalism, capital owners have a lot of dominance over the means of
production and as such may yield unfair influence.
b. Capitalism in Adam Smiths Perpective
(Human nature, wealth of nation and Invisible hand)
c. Karl Marx Critique Adam Smiths perspective

3. Karl Marx : Circuit of Money-Capital ( M C C M )

3 stages : https://www.marxists.org/archive/marx/works/1885-c2/ch01.htm

4. Globalisation :

How free market and capitalism leads to globalisation and Karl Marx was true
about his critiques and theory of capital ?

5. Conclusion :
Economics of Country cannot be fully capitalist, it leads to Inequality and will
result Economy Crisis. Country still need government role to make economy
balance.