Adam Smith\'s the Wealth of Nations

ADAM SMITH'S FREE MARKET CAPITALISM

Adam Smith's upheld the concept of free market capitalism at a time when the world did not trade in such complex environment. Each state was economically independent of the other. In saying that market capitalism could remain unregulated stem from the fact that at the time governments were too keen on taxing its nations. During the Gold system, a nation depended on the free flow of coinage to be able to trade. A stoppage in the free flow would mean there is hindrance to trade and hence a slump in the economy. On the adverse side if government provides free flow of the coinage system even to "foreigner" then it would mean to cut down barriers to trade and allow foreigners to trade freely with the local market thereby increasing competition to the level that local market would become suffocated. His rationale for this was that competition was important for the local industry to come up to par with industrial standards. Of course, Smith was speaking in context with the industrial revolution where the flow of the economy was very much in the hand of the government.

A free market capitalism cannot exist in the face of the new economy because, the world have changed in both economical and social systems. The new social system does not allow the existence of free market capitalism because it proves too threatening to the local government. IN maintaining a free market capitalism, it would mean to give up all authority to the market so that there is free competition among traders. Provided that there is perfect competition, Smith's free market cannot achieve perfection unless there is a balance between demand and supply. This is not possible and hence his market capitalism cannot exist on its own.

SOCIAL CRITIQUE

To enumerate his theory, later economists like Karl Marx and John Maynard Keynes came up with their own theories. Starting from the socialist point-of-view, Marx upheld that market capitalism always have a tendency of boom and slumps because it is subjected to demand and supply. In the modern economic system, there is no fixed system that is either totally capitalist or totally feudal. There must be a mixed economic system in order to maintain productivity. The social critique also enumerates that in times of tough competition and military conflicts aggregate demand and supply tend to waver drastically. Even if a nation follows a free market capitalism, it cannot survive because there would be too much concentration of supply or demand. Here Marx was referring to the World Wars when the unique productivity level decreased drastically to endanger the status of free market capitalism in many of the European States and Britain. As a result of this the state had to protect its own interest by regulating it. [Wood, 1999].

Using the Communist Manifesto, together with Engels, Marx explained the consideration for geopolitical and military conditions of the world. For instance Britain have enough wealth to maintain a capitalist state but countries like France and Germany cannot do so because the productive forces depend on external pressure to drive them to produce. Here the role of the government is crucial in transmitting trade and creating competitive environment [Wood, 1999].

Hence, in Marx's economic analysis, there is an intrinsic link between the society and the economy. Any kind of commodities, exchange, money, capital or labor power will need to take place in capitalist firms, where most products will exchange hands in the market and that this system is regulated by the labor wage.

Essentially, "the relationship of capital to wage-labor determines the whole character of the mode of production" [Marx 1981, 1019]. Marx's aim is not to analyze any specific variety of capitalism but capitalism in general. The dynamism of capitalism is attributed to its general relations and structures rather than to national or cultural specificities. Cultural and structural variation is recognized by Marx, but it does not play a core analytic role in Capital" [Hodgson, 1995].

LIBERAL CRITIQUE

Since Marx's explanation of the market capitalism concept were irregular, it is now imperative to take a liberal view of the situation to what actually prevails in most economies. Using Jean-Baptiste Say's concept of market, Thomas Malthus objected to capitalism because he explains the world market in terms of the supply and demand of food. To Malthus, the world is run by the need to consume [food]. If there is scarcity then suppliers will anticipate this need and increase the level of supply. However, there will come a time when there will be a scarcity of supply which will increase the level of unemployment because the supply will outrun the demand [UCHITELLE, 1998].