Karl Marx and Adam Smith on the Dangers of Capitalism

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.”

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.

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.

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.

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.