Marx vs Smith
Apr 29, 2015

I came upon a video explaining the Marxist view of use value and exchangeable value and immediately saw the difference between the values of Marx and those of Smith.

Use ValueUsefulness of an objectUsefulness of an object to a person
Exchangeable ValuePurely relative, intrinsic value of an object"(value) expressed in terms of something common to (all commodities)"  (Capital 1.1)Value of an object to society
"The power of purchasing other goods which the possession of that object conveys" (Book 1, Chap. 4)
Labour Theory of ValueValue based on mechanical human labour"human labour in the abstract" (Capital 1.1)Value based on pain or pleasure"toil and trouble"
TechniqueMaterialismPsychology, Metaphysics

By reading Marx's flow of ideas in Section 1 of Capital, I noticed that his mind seems to view every economic thing from the viewpoint of matter first, generaly disregarding the human mind or the perceiver of that matter. In contrast, Smith's mind in The Wealth of Nations sees everything from the viewpoint of the human mind first, by going into the interests of each sector of society.

Marx's mind jumps from physical matter to physical matter or effect to efect, while Smith's mind jumps from mind to mind or from cause to cause, a technique he explains in full in The Theory of Moral Sentiments, wherein he puts himself in the shoes of other people, or splits himself into two in order to view an action from different perspectives. In a nutshell, Marx takes the materialist approach, similar to Say and Malthus, while Smith takes the metaphysical approach, similar to Hume and Socrates. The dialectical method of Socrates of two or more people arguing about a thing is used by Smith in splitting himself to have mutliple perspectives about a thing.

The dialectics of Socrates, Smith, Kant, and Eastern philosophy are different from that of Hegel and Marx

So what's so bad with the materialist approach in Economics, or with ignoring the human aspect?

1. Limitations are created

Matter is immediately finite, mind is less finite.

In the lecture, Prof. Harvey correctly acknowledges that exchangeable value is the cause of the current economic problem. However, he is unable to create a clear, direct solution. This is partly because Marx defined exchangeable value as something assignable to all objects, and this something can only be money. Whereas Smith defines exchangeable value as rooted in the purchasing power of a product or service, which is then rooted in the toil and trouble saved or pleasure created by that product or service.

Materialism traps Marxist economics into money, which of course is the expertise of the rich or the bourgeoisie. Marx has no other way to solve this, so his ultimate solution is to eliminate exchangeable value altogether and use only use-value. However, without a means to exchange, rationing becomes the only way to circulate commodities in a society.

Rationing removes freedoms and puts immense burdens on the rationer, usually the government. The lack of freedom directly goes against the freedom espoused by socialism and communism, and later opens up possibilities of great injustice, as seen in North Korea and Venezuela, opposite of the social justice that those systems were meant to create. Any attempt to eliminate exchangeable value will only cause those with money to leave, who are usually the experts in industry or in producing goods and services. This then creates a bigger problem than the original when goods and services decline drastically, and is also the opposite of what Socialism and Communism intended.

Communism ends up with injustice and low production because its metaphysical base is matter, but human souls are not matter.

2. Without the factoring in the mind, economics becomes mechanical and real economic justice becomes non-existent

By focusing on the physical aspect of labour and removing its psychological aspect, Marx inadvertently turns humans and human economics into machines and machine economics. The same problem affects Capitalism when the human aspects are removed and only money is made important.

It's easy to ration or budget the fuel to a fleet of cars to keep them running, but no mathematical method can be used to fairly ration food or products to a nation's citizens since their needs and wants always change. Even if a country's whole resource allocation system were condensed into a precise formula, some people would merely play the system to get more resources, leaving more economic injustice to those incapable of playing. In the real world, this is seen in the rise in corruption in both Communist and Capitalist countries as people play the system and court the favour of the rulers.

Materialist economic systems such as Communism (above) and Capitalism (below) excel in mobilizing work by focusing on objective, material results without really asking why such results are needed. Capitalism outputs more work than Communism because it has a psychological element of freedom.

Materialism caused the problem, so it cannot possibly create the solution

The whole problem of unstable and unjust exchangeable value was created by negating psychology or the toil and trouble of society, in favor of either materialist production in Communism or profitable production in Capitalism. Thus, neither system, nor any materialist system that focuses on objective products distribution or objective price mechanisms, can provide the solution.

In fact, the likely solutions of Capitalism of Modern Monetary Theory and the Communist solution of eliminating exchangeable value, will only worsen the problem. Our Social Resource Allocation (SORA) system, derived directly from Smith's requirements in The Wealth of Nations, can solve the problem by focusing on the trade or agreement between the people themselves, instead of focusing on the objects that they are trading with. This system has the following components:

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