‘Political economy Essay Example

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Political economy is the study of how political decisions affect the economic affairs of individuals in the society (Mosco 2009, p. 23). In practice, political economy draws on the principles of economics, sociology, and other social sciences to explain the interaction between social and economic factors within the society. Karl Marx and Adam Smith had important ideas that have shaped the world’s political economy over time. The ideas proposed by the two individuals are essentially at opposite ends of the debate on the political economy, with Adam Smith advocating for capitalism and Karl Marx being a proponent of communism. This essay will discuss the ideas proposed by the two individuals as part of the political economy debate.

To understand the central role that the views of Karl Marx and Adam Smith play in shaping the subject of political economy is important to comprehend the essential aspects of the subject of political economy in the first place. Political economy is based on the impact of the interaction between economics and politics in the lives of individuals within the society (Beasly 2004, p. 2). The basis of the subject of political economy is that the political decisions that are made in any given society are based on economic principles and that this shapes the lives of individuals (Salavrakos 2012, p. 79). Therefore, scholars attempt to develop systems that they believe can be efficient in organising the socio-political aspects of the society.

Classical economics is a distinctive school of political economy that is characterised by the emergence of the works of leading economists such as Ricardo, Sismondi, Marx and Smith between mid 17th century and in the early 1800s (Sowell 2007, p. 100). The most important aspect is that classical economic thought emerged as a result of an attempt by the economists of the time to provide a comprehensive analysis of how the society ought to be organised. Hence, classical economics, which occurred during the time when the society was transitioning from a feudal system, was the first modern school of economic thought (Milonakis& Fine 2009, p. 94).

By far, Adam Smith and Karl Marx were two distinctive thinkers within the classical economics school of thought. These two scholars played a vital role in developing theories to explain how the socio-economic system was functioning during their respective times and what could be done to improve the system. Interestingly, the ideas of Adam Smith and Karl Marx were completely different on aspects such as labour, production, income distribution and others.

The political and economic thoughts of Adam Smith were developed in ‘The Wealth of Nations.’ Mostly, Adam Smith explained the nature of the market economy, how the market economy works and what is needed to maintain stability in the market economy (McCreadie 2009, p. 2). According to Smith, the essence of the free market economy is the work of the invisible hand (Schumacher 2012, p. 58). Smith observed that in a free market economy, individuals are motivated by the need to meet their needs, and in so doing, end up benefiting the entire economy (Schumacher 2012, p. 58). Therefore, it is the work of the invisible hand that individuals actively participate in economic activity in the society.

The second defining aspect of the ideas of Adam Smith is the manner in which production and labour occur in an open economy and how this process is essential for the effective functioning of the economy. Adam Smith, using the labour theory of value, postulated that goods and services in a free market economy have an exchange value because individuals invest labour in producing the goods (Sen 2010, p. 52). The labour theory of value is based on the observation that the intrinsic value of a product is a sum of the time and other resources that are consumed in producing it, rather than what consumers are willing to pay for it. Therefore, consumers are obliged to accept the exchange value of goods in a free market economy because the consumers sympathise with the labour that was invested in producing the good (Sen 2010, p. 52).

Smith further stated that the natural price of goods and services in a free market economy is supposed to match the input of producing the goods and services (Samuels & Medema 2005, p. 225). In other words, the natural price of goods and services should reflect the amount of effort that producers invest in the process of producing the goods and services. However, given the nature of the free market economy, the natural price may vary from the prevailing price of the goods and services in the market (Kurz 2015, p. 7). To correct this discrepancy, Smith argued that competition is an essential force that works to stabilise the market. In essence, Adam Smith argued that a capitalist system is foremost the best answer to the question of how the society should be organised. He argued that a capitalist system, defined by its free market enterprise, helps all individuals in the society to own resources privately. Thus, competition contributes to create opportunities for producers and consumers to better their economic situation in the society.

Karl Marx and Adam Smith both had sought to analyse the relationship between production and consumption in the society and how these factors could be organised for the betterment of the society. The political-economic thoughts of Karl Marx are contained in work titled ‘Das Kapital.’ In this work, Marx argued that production and consumption are intertwined. Hence, production is, in reality, a process of use and consumption only occurs as a consequence of production (Ilegbinosa 2012, p. 2).

A central idea in the work of Marx was that the capitalist system was exploitative in nature. Marx pointed out that the capitalist system led to the alienation of labourers in that the wages remain low while workers are required to work for extended hours (Heinrich 2012, p. 82). Therefore, Marx observed that labour is like any other commodity, was being traded in the market, much to the detriment of workers (Carl et al. 2012, p. 21). Furthermore, Marx saw that the capitalist society created two classes of people in the society: the bourgeoisie and the proletariat (Ritzer & Ryan 2011, p. 41). Members of the bourgeoisie class are the individuals who own the means of production while the proletariat refers to the individuals who provide the labour needed for the production of goods and services (Ritzer & Ryan 2011, p. 41, p. 79). As much as the bourgeoisie strive to maximise their profits, members of the proletariat class suffer as a result of poor wages that do not match the intrinsic value of the labour that the workers provide. Based on the theory of surplus value, Marx argued that profits are only possible because of the difference between the value that labour creates in the final products and the amount of money that owners of the means of production pay the workers for labour (Carl et al. 2012, p. 21). Hence, according to Marx, capitalism created greed and inequality as a result of the desire by capitalist owners to make more profit while exploiting workers (Andersen & Taylor 2008, p. 216).

Therefore, according to Marx, the socio-economic system should be based on communism – a system under which property is held communally. Marx advocated for an entirely stateless society (Heinrich 2012, p. 83). This contrasts with what Smith proposed in the form of the role of the state, institutions and the free market in creating and sustaining an efficient society. While Smith argued that the state is required to regulate free markets, Marx claimed that the society can function perfectly under central planning and without an open market. This means that Smith advocated for a free market economy with the government only being involved to ensure that the necessary business environment prevails (McCreadie 2009, p. 2), while Marx was for an economic system in which the government plays the role of planning the economy and making all decisions regarding resource allocation (Heinrich 2012, p. 83).

In conclusion, apparent differences are seen between the thinking of Adam Smith and that of Karl Marx regarding the systems that the two individuals prescribed for the society. Whereas Adam Smith advocated for a capitalist system that is anchored on the power of the free market and regulation by the state, Karl Marx advocated for a communist system. In Marx’s view, a communist system brought about by revolution could address the inherent weaknesses of the capitalist system. These two views – capitalism and communism – are on the opposite ends of the political-economic spectrum. Therefore, the nature of the political economy can be said to be shaped to a great extent by the debate that is based on ideas that were proposed by Adam Smith and Karl Marx.


Andersen, ML & Taylor, HF 2008, Sociology: understanding a diverse society, 4thedn, Thomson Higher Education, Belmont, CA.I looked for this reference and I did not find it I found the second one below are they the same or is it just the style and the edition because my uni wants Harvard only. Thankyou .This is how a source is referenced in Harvard. It is okay if you have you have a different style. Here is the link to access the book: https://books.google.co.ke/books?id=bUcGAAAAQBAJ&printsec=frontcover&dq=Sociology:+understanding+a+diverse+society,&hl=en&sa=X&redir_esc=y#v=onepage&q=Sociology%3A%20understanding%20a%20diverse%20society%2C&f=false. You will see that the book was published in 2008. If you have another version, that is still fine.

Andersen, M.L. and Taylor, H.F., 2007. Sociology: Understanding a Diverse Society, Updated. Cengage Learning.

Beasly, T 2004, ‘The new political economy,’ viewed28th November, 2016 via, <http://econ.lse.ac.uk/staff/tbesley/papers/keyneslecturetext.pdf>.

Carl, J, Baker, S, Robards, B, Scott, J, Hillman, W & Lawrence, G 2012,Think sociology, Pearson Australia, Frenchs Forest NSW.

Heinrich, M. and Locascio, A., 2012. An introduction to the three volumes of Karl Marx’s Capital. NYU Press.

Ilegbinosa, A.I., 2012. An Analysis of Karl Marx’s Theory of Value on the Contemporary Capitalist Economy. Journal of Economics and Sustainable Development, 3(5), pp.1-6.

Kurz, HD 2015, ‘Adam Smith on markets, competition and violations of natural liberty,’ Cambridge Journal of Economics (advance access), pp. 1- 24. This is the one that I have access to.

Kurz, H.D., 2016. Adam Smith on markets, competition and violations of natural liberty. Cambridge Journal of Economics, 40(2), pp.615-638.

McCreadie, K. and Smith, A., 2009. Adam Smith’s The Wealth of Nations: A modern-day interpretation of an economic classic. Infinite Ideas.

Milonakis, D. and Fine, B., 2009. From political economy to economics: Method, the social and the historical in the evolution of economic theory. Routledge.

Mosco, V 2009, The political economy of communication, 2nd edn, SAGE Publications Ltd, London.

Ritzer, G & Ryan JM (eds) 2011, The concise encyclopedia of sociology, Blackwell Publishing Ltd, West Sussex.

Salavrakos, I.D., 2012. Political Economy, Theories of the State and Economic Crisis. International Journal of Business and Social Science, 3(20), pp.79-98.

Samuels, W.J. and Medema, S.G., 2005. Freeing Smith from the ‘Free Market’: On the misperception of Adam Smith on the economic role of government. History of Political Economy, 37(2), pp.219-226.

Schumacher, R., 2012. Adam Smith’s theory of absolute advantage and the use of doxography in the history of economics. Erasmus Journal for Philosophy and Economics, 5(2), pp.54-80.

Sen, A., 2010. Adam Smith and the contemporary world. Erasmus Journal for Philosophy and Economics, 3(1), pp.50-67.

Sowell, T., 2007, On classical economics, Yale University Press, Yale.