The Fundamentals of Marxism and Economic Liberalism Essay Example

Karl Marx identified substantial challenges within the production aspect of capitalism.

In capitalist society, the belief is that production methods favor wealthy mill owners while disadvantaging poor workers. The law is seen as a more efficient way of conducting business compared to relying on power. However, it should be remembered that this legal relation also applies to constitutional democracies, albeit in a different form.

Free Market: the Political Orientation of Liberalism

During the transition from feudal to capitalist society, economists from the classical school of economics emerged. They made significant efforts to determine how the new system could satisfy both the needs of manufacturers and consumers simultaneously.

Economic experts aimed to assist consumers in comprehending the feudal society, wherein individuals traded their labor for possessions possessed by barons. This transformation would allow people to possess property and ultimately attain individual freedom. Classical economists held varied viewpoints on natural prices, value theory, and monetary theory, all influenced by the shifting dynamics of capitalism. Adam Smith was born in 1723 (exact date uncertain) and pursued philosophy studies at both the University of Glasgow and Balliol College. He achieved renown as a itinerant lecturer and subsequently assumed a professorship encompassing logic, ethics, rhetoric, law, and political economy.

Adam Smith is not only the philosopher of the free market economic system, which the whole countries in this sphere owe to it, but also he was a moral philosopher. Adam Smith began writing on the importance of a free trade economic system while he lived in mercantilist England. Adam Smith realized with insight into his sense of economic, that Mercantilism is no longer working and their system has collapsed. He concluded that by the benefit

of the free market to individuals, by earning money and using that money to buy different goods or starting their own business by having a capital, individuals contribute to the overall wealth of the nation. In other words, by earning and spending money, the economy would be stimulated and thus grow. Similarly to Marx, Smith recognized the significance of production. According to Smith, production is the main key in the economy. In Smith's free trade society, individuals can start businesses without any control or intervention from the government, and consumers can buy from manufacturers at prices determined by supply and demand rules.

Smith claimed that the free market is governed by fundamental laws of supply and demand, enabling a natural and efficient flow of the economy. When left to operate independently, the market favors only the most competitive consumers and producers. Additionally, the free market is capable of rectifying its own errors. If there are shortages, the market will autonomously ensure that the economy eventually reaches equilibrium.

Contrary to Smith's belief that authorities should not intervene, the writer acknowledges the necessity of government intervention in preventing the escalation of a global economic crisis and fiscal issues. Countries like the USA and UK heavily rely on government intervention to address problems by injecting significant amounts of money into various sectors, starting with banks. However, the occurrence of the Great Depression in the late 1920s prompted a reevaluation of Adam Smith's theory and challenged his idea of the Invisible Hand. The crisis persisted for a decade, questioning Smith's notion that individuals in a free market are guided by an unseen force for their own benefit. As Smith states, "Every

individual necessarily labours to render the annual revenue of the society as great as he can."

Neither person has an intention to advance public involvement, nor do they know the extent to which they are advancing it. They only intend to benefit themselves, and in doing so, often unintentionally promote the interests of society more effectively than if that was their true intention. Smith's theory of the invisible hand explains how the economy is interconnected.

The author uses the example of the combined efforts of different industries and workers in the production of a wool coat. This includes the shepherd, spinster, and sailor who transports the finished coats. Each individual, in performing their own role, contributes to the economy through productivity. Adam Smith emphasizes the importance of economic growth in his book The Wealth of Nations. He believes that a developing capitalist system could benefit society overall. According to Smith's analysis, the economy has unlimited potential for upward growth. However, events did not support this hypothesis.

War and harvest failure hindered economic system development in Britain, leading subsequent economic experts to adopt a more skeptical stance towards the potential of the market. Following Smith's perspective, as consumers, we comprehend and empathize with the labor invested in the product, and thus acknowledge its deserving exchange value. Additionally, Smith believed that the natural price should compensate for the "time and efforts".

The possibility of failure accompanies the risk of achieving success.

Smith argues that the labor and effort put into producing an object determines its natural monetary value. However, in a competitive market, this natural value may not be the same as the market price. Smith believes that competition will eventually align

the market price with the natural value.

DIVID RICARDO- Theory of Comparative Advantage

In Europe during the Enlightenment period, there was a growing economy where countries reduced export taxes and imposed import taxes to increase national wealth. Ricardo builds on Smith's ideas about a free market by introducing his theory of comparative advantage. This theory suggests that each country should focus its capital and labor on industries that benefit them most. Ricardo specifically criticizes the Corn Laws for burdening the agricultural economy, leading to artificially high food prices and excessive rental rates.

Ricardo, while in parliament, was against the Corn Laws and other government interventions. His economic viewpoint aligns with Adam Smith's teachings on limited market interference. However, Ricardo differed from Smith in his doubt concerning the market. Adam Smith and his book "The Wealth of Nations," which established capitalism, had a significant influence before the great depression.

Adam Smith, an influential economist, advocated for individuals maximizing their involvement in economic activities to boost overall productivity and progress. He opposed government intervention in the economy, believing that human nature would naturally lead to maximizing gains.

In contrast, John Maynard Keynes, an English economist born in 1883 and died in 1946, presented a different perspective. In his book "The General Theory Of Operation, Interest and Monet" published in 1936, Keynes challenged the classical theory.

Keynes' theory gained prominence during the Great Depression and called for government intervention through fiscal and monetary policies to regulate the economic cycle. The government can stimulate development by controlling spending and taxes within the community. For example, they can increase spending or lower taxes (or both) to stimulate the economy and reduce unemployment rates for societal benefit.

Additionally, central bank regulations can be employed as monetary policies to control money supply and demand.

The capitalist system has embraced the Keynesian economic theoretical model since the mid-1930s till present day—spanning approximately 70 years.

For the past 70 years, Keynesian economic theory has remained unchanged without any significant events prompting reflection or reevaluation. At the same time, socialism gained popularity worldwide through Karl Marx's ideas. Born in 1818 and died in 1883, Marx developed scientific socialist concepts that advocated state control of production and public ownership. Marxism emerged as an intermediate approach between Adam Smith's theories and Keynesian economics.

The Soviet Union adopted Marx's socialist model when it was established in 1922 until its collapse in 1991. This model emphasized state ownership through nationalization and propelled the Soviet Union to become a global economic superpower, second only to the United States of America.

Poverty, hunger, corruption, and dwindling confidence in the socialist system primarily caused the collapse of the Soviet Union. Amidst protests, Boris Yeltsin assumed power in Russia while riding atop a tank. The fall also impacted other socialist governments globally, leaving only China, North Korea, and Cuba adhering to this model.

In an interview with THE ATLANTIC reporter, Fidel Castro admitted that the Cuban model no longer functions effectively. This sentiment is supported by Cuba's current state of economy.

The Cuban Government maintains its socialist rule in developing its collectivist economic system. The majority of production agencies are owned and operated by the authorities. According to official data, the economic output has remained below pre-1990 levels by at least 35%, primarily due to inefficiencies in the centrally controlled economy. This decline was also caused by the loss of

billions of dollars in annual Soviet trade and subsides, the ongoing deterioration of plants, equipment, and the transportation system, as well as continued poor performance in the sugar sector, telecommunications system, and electrical infrastructure. Additionally, it greatly impacted export earnings.

What is the secret behind China's success?

Henceforth, based on this information, it can be deduced that the Great Depression in 1929 marked a decline in Adam Smith's capitalist theory and an increase in Keynes's theory. Similarly, following socialism's collapse in 1991, Keynesianism remains unchallenged until today.

The economic transformations in 2010 had a significant impact, largely due to crises like fiscal meltdowns. The United States faced a major fiscal crisis caused by economic errors and political factors, resulting in the mortgage crisis, bankruptcy of financial institutions, and a recognized credit shortage that affected the global economy. To tackle these challenges, capitalist states such as the United States intervened by nationalizing financial companies and providing assistance and liquidity to the financial system. However, these interventions came after unsuccessful attempts to solve the problems using Keynesian theory, tax reductions, and increased government spending. Moreover, the Federal Reserve's strategy of frequently and rapidly reducing interest rates from 5.25% to 1.5% did not effectively resolve the economic crisis.

In terms of economics from an Islamic perspective, it is viewed as a comprehensive and holistic system based on principles derived from Islam that prioritize perfection and completeness. According to the Quran (Surat Al-Maida), faith has been perfected for believers. The Islamic approach aims to provide both religious and material security for all individuals while also promoting community-focused institutions that cater to various life needs. An example illustrating this concept is Corporation Quraish Lilavhm

which operates year-round to supply essential provisions for worshipers while ensuring their well-being and safety (Surah Quraish, 1-4).The system emphasizes the importance of consistency in various aspects of faith, such as worship, religious practices, ethics, and morals. It also considers human nature and aims to meet the needs of the entire community. From an Islamic standpoint, both capitalism's limitations and socialism's Keynesian approach are deemed insufficient when addressing global economic matters.

The Islamic economic system, which is inspired by the Islamic Shariah, provides a solution to the global quandary. The West has started implementing this system, despite not fully understanding it. The system emphasizes important principles such as the participation of both public and private sectors, as well as partnerships between the private sector and individuals. This principle allows for the sharing of profits and losses, which counters the negative effects of forbidden banking practices that have led to greed in modern capitalism. Additionally, the system promotes investments in tangible assets rather than complex financial products that have caused significant losses. Furthermore, the prohibition of certain sales in the Islamic faith has been linked to the mortgage crisis and financial sector crisis that have affected numerous countries worldwide. While the Islamic economic system restricts some funding benefits, it allows for funding through various forms.

Western states, representing the modern capitalist economic system, have typically provided assistance to struggling banks and companies. However, this support did not have tangible effects on the economy because institutions hesitated to take on high-interest loans, fearing that it would worsen their losses over time. This hesitation was seen in the case of AIG, the largest insurance company in America, which did not

accept a $85 billion government bailout at an interest rate of 11%. Investors recognized that such a high interest rate would further impact the company's future losses. The United States decided to nationalize Fannie Mae and Freddie Mac, the largest housing lending companies in the country, while Britain nationalized Northern Rock and Bradford, two major mortgage companies. European countries also moved towards nationalizing banks and financial institutions. However, these measures did not effectively resolve the problems in the global financial system. The crisis took a major turn when capitalist states announced their intention to bail out failing banks in order to restore confidence among the public. It was understood that providing support through loans would exacerbate the problems faced by these banks.The United States has initiated a participatory procedure to allocate $250 billion in fiscal relief to support banks. In return, they are seeking preferable shares in these banks. This approach is being followed by European countries such as Germany, Britain, and France. As a result, Western capitalist economies are slowly moving away from traditional capitalist principles and embracing elements of Islamic economics. It is important to reflect on the theories of Adam Smith, who advocated for a free market and emphasized the role of supply and demand. On the other hand, Karl Marx's socialism and his Communist Manifesto highlighted the class conflicts and the need for a revolution to uplift the poor in society. Without production and consumption, economic activities would not be possible.

In order to produce anything, one must gather various items and follow specific procedures to reach the final outcome. This process involves assembling these items alongside people, and once completed, people

will begin to purchase the final product. This functioning method is similar to communism and can be compared to a capitalist society. However, when examining each theory individually, it becomes apparent that neither can provide us with ideal and content societies. For instance, the Soviet Union's collapse illustrates the shortcomings of Marxism theory, while Western nations like America, which adopt a capitalist economy and Adam Smith's theory of free market, are currently facing major crises. The free market, which used to be regulated by invisible forces, is now encountering challenges.Unlocking and allowing the market to operate freely and reducing the role of the state in protecting and securing the open economy has led to the emergence of a capitalist economy, where parasites control and manage the direction without concern for market competition. This has allowed for monopolies and the imposition of terms that have further widened the wealth gap, resulting in increased poverty and wealth disparities. In contrast, a socialist economic system places the economy under strict control, hindering its growth and innovation by equalizing different groups and limiting competition. According to the author's perspective, combining both theories while incorporating an Islamic approach can result in a society that benefits from the positive aspects of each theory, achieving perfection and happiness.