Political Science Grade 12

Q1W4 Classwork

Adam Smith and The Wealth of Nations

Adam Smith was the author of a book entitled, An Inquiry into the Nature and Causes of the Wealth of
Nations, which appeared in 1776. It was very well received and popular, and Smith became famous.

When The Wealth of Nations was written, there was a strong sentiment for free trade in both Britain and
America. This new feeling had been born out of the economic hardships and poverty caused by the war.
However, at the time of publication, not everybody was immediately convinced of the advantages of free
trade: the British public and Parliament still clung to the old system of mercantilism for many years to
come.

The Wealth of Nations also rejects the emphasis on the importance of land; instead, Smith believed labor
was more important, and that a division of labor, or specialization of labor, would create a great increase in
production ability. Nations was so successful, in fact, that it led to the abandonment of earlier economic
schools, and later economists focused on refining Smith's theory into what is now known as classical
economics. Today’s modern economics evolved from this.

One of the main points of The Wealth of Nations is that the free market, while it seems chaotic and
unrestrained, is actually guided to produce the right amount and variety of goods by a so- called invisible
hand. If a product shortage occurs, for instance, its price rises, creating a profit margin that creates an
incentive for others to enter production, eventually curing the shortage. If too many producers enter the
market, the increased competition among manufacturers and increased supply would lower the price of the
product to its production cost.

Smith believed that while human motives are often selfish and greedy, competition in the free market would
tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide
variety of goods and services.

Smith felt that no one should interfere with this natural balance between supply and demand. Smith was
truly against anything that gave one person and unfair advantage over another. The idea that the government
should keep its hand out of the trade situation is known as “laissez- faire.” According to this ideology,
government should not make laws or rules that dictate how the economy is to be run. Adam Smith’s book
The Wealth of Nations argued that this was the best way to run the economy.

Unfortunately, harsh working conditions developed because of “laissez-faire” economics. The employers
fought hard against laws being created that would control the conditions and employee worked in and
wages, which an employee was paid. So for obvious reasons “laissez- faire” was more popular with the
employers than the employees.

Karl Marx and The Communist Manifesto

Q1W4 Classwork

Robert Engels began contributing pieces of writing to a radical journal that was being edited by Karl Marx.
Later that year Engels met Marx and the two men became close friends. Engels and Marx's shared the same
views on capitalism and after their first meeting, he wrote that there was virtually "complete agreement in
all theoretical fields." The two men decided to work together and it was a good partnership. Engels had the
ability to write for a mass audience, while Marx was the great thinker who developed all of the major ideas.

At the meeting, a decision was made to the overthrow “the bourgeoisie, the domination of the proletariat,
the abolition of the old bourgeois society based on class antagonisms, and the establishment of a new
society without classes and without private property".

The two men started writing a pamphlet that was only 12,000 words, finishing in six weeks. Based on
Engels’ previous work, “Principles of Communism”, this pamphlet was a shorter and more accessible
method of spreading the ideology of communism, written in terminology that the mass audience could
understand. The Communist Manifesto summarized a revolution that was to come soon and describe the
communist society that would be developed by the proletariat (the average working class).

The Communist Manifesto starts with the idea that "the history of all hitherto existing society is the history
of class struggles.” Marx and Engels argued that if you are to understand human history you must see it as
the story of the struggle between social classes. They explained that social classes had changed over time,
but in the 19th century, the most important classes were the bourgeoisie and the proletariat. Marx and
Engels said the term ‘bourgeoisie’ meant the owners of the factories and the raw materials which are
processed in them. The proletariat, in contrast, owned very little and had to sell their labor to the capitalists.

Marx, like Adam Smith, believed that capitalism led people to pursue their own self- interest. But unlike
Smith, Marx believed that this pursuit led to the unfair exploitation of proletariat workers by the capitalist
bourgeoisie, paying them far less than they were worth, and essentially stealing profits that should be shared
with the workers.

The belief that these two classes were not only different from each other but their interests were different as
well underscored the conflict between classes. This struggle, Marx believed, was inevitable in every society,
forcing a revolution. Both men felt that the bourgeoisie would wither away, and the proletariat would win,
ultimately transitioning every capitalist economy into a communist one.

.
The month after The Communist Manifesto was published in 1848, Engels and Marx were thrown out of
Belgium. Before moving to Cologne, the two men visited Paris and founded a radical newspaper that they
used to encourage the revolutionary atmosphere the two witnessed in Paris.

Adam Smith & Karl Marx

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 Political Science Grade 12

Q1W4 Classwork

After you have completed reading the passages above, answer the 12 following questions.

1. According to Smith, which factor of production is most important? Explain how specialization plays
a role with this factor.

According to Smith, labor is the most important factor of production. He believes that a division or
specialization of labor would significantly boost production capacity.

2. According to the theory of the invisible hand, how would a producer know what to make?

According to the theory of the invisible hand, a producer can know what to make through the natural
balance between supply and demand. Smith stated that “If a product shortage occurs, for instance, its price
rises, creating a profit margin that creates an incentive for others to enter production, eventually curing the
shortage. If too many producers enter the market, the increased competition among manufacturers and
increased supply would lower the price of the product to its production cost.”; therefore, he believes that no
one should interfere in that natural balance as the competitive nature of the people will be enough to
maintain it.

3. According to the theory of the invisible hand, how would an increase in the number of producers
affect the price of a good?

According to the theory of the invisible hand, an increase in producers will lead to an increase in the
competition among them and an increase in the supply which will lead to a decrease in the prices of the
goods to their production cost.

4. How could the self-interest and greed of producers actually benefit consumers?

Despite the fact that human motivations are frequently selfish and greedy, Smith felt that the free market's
competitive environment will typically benefit society as a whole by maintaining low prices while still
providing an incentive for a wide range of goods and services.

5. According to Smith, what is the role of the government in trade?

Laissez-faire is the concept that the government should refrain from interfering in trade affairs. This
philosophy holds that the government should not enact laws or regulations that specify how the economy
should be run. This was suggested as the ideal method for managing the economy in Adam Smith's book
The Wealth of Nations.

6. Why would laissez-faire economics be more popular with employers than employees?

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Q1W4 Classwork

 Laissez-faire economics led to the emergence of unfavorable working conditions. The creation of rules that
would regulate the working conditions and wages of employees was fiercely opposed by employers.
Therefore, it was more popular with employers than employees.

7. During the meeting with Marx and Engels, what two concepts, in particular, were meant to be
eliminated in society?

A decision to eliminate "the bourgeoisie, the proletariat's dominance, the abolishment of the old bourgeois
society based on class antagonisms, and the establishment of a new society without classes and without
private property" was reached during the meeting. So, the two main concepts that Marx and Eagles meant to
eliminate were social classes and private property.

8. How was The Communist Manifesto designed to appeal to the masses?

In just six weeks, the two men began and finished a pamphlet with only 12,000 words. This pamphlet,
which was based on Engels' earlier work, "Principles of Communism," was a more concise and
approachable way to promote the communist philosophy, presented in a language that the general public
could comprehend as it used simple terminology.

9. Explain the two classes described by The Communist Manifesto.

The proletariats are members of the working class, while the bourgeoisie are those who own the means of
production in a capitalist society. Marx shared Adam Smith's view that capitalism encouraged individuals to
pursue their own interests. But unlike Smith, Marx thought that this pursuit resulted in the capitalist
bourgeoisie unfairly exploiting proletarian workers, paying them considerably less than they were worth,
and thus robbing the workers of profits that should have been shared with them. The idea that these two
groups were not only distinct from one another but that they also had different interests, highlighted the
class struggle.

10. Marx and Smith agreed that capitalism leads to acting in one’s own self-interest. In what way did
they disagree about the effect of self-interest?

Marx shared Adam Smith's view that capitalism encouraged individuals to pursue their own interests. But
unlike Smith, Marx thought that this pursuit resulted in the capitalist bourgeoisie unfairly exploiting
proletarian workers.

11. According to Marx, how do capitalists exploit their workers?

Marx believed that they exploit them by Paying them significantly less than they were worth and thus
robbing the workers of earnings that should’ve been shared with them.

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education for the mind, spirit and body using state-of-the-art methodologies while fostering intercultural awareness, and lifelong
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Q1W4 Classwork

12. According to Marx and Engel’s theory, how does capitalism inevitably lead to communism over
time?

The idea that these two classes (Bourgeoisie and Proletariat) weren't just different from one another
but also had distinct interests underlined the conflict between them. According to Marx, this conflict
would eventually lead to a revolution in every society. Both individuals believed that the proletariat
would win, the bourgeoisie would wither away, and every capitalist economy would eventually turn
into a communist one.

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Our mission is to empower our students to utilize their potential in a diverse and challenging world. We provide outstanding
education for the mind, spirit and body using state-of-the-art methodologies while fostering intercultural awareness, and lifelong
learning.