Smith Vs. Smith's Reactions Between The States And The Economy

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It has become clear that by studying the interactions between the states and the market but the two have some hold on each other. While Smith argues that the role of economy is to self regulate and promote competition and the role of the state is to protect the public stay removed from the market system, Marx believes that the states should act as a mediator in the markets where the market is dependent on the aggregate household behavior. Keynes argues that a free market without any intervention by the state fails in several aspects such as employment and distribution of wealth. He believes that the state should have some influence on the market, though minimal. With all these competing ideas it is difficult to discertain which method is correct, …show more content…
The market was to be it 's bone entity and would control prices through competition between firms. This idea is known as the invisible hand of the market where competing firms drive the price down in order to gain access to more household. Given that households, assuming perfect knowledge of the economy, will buy at the lowest price, the firm with the lowest price will have the most business. Assuming this interaction, there is no need for the state to get involved as the economy will regulate itself and there will be no monopolies or trusts controlling a commodity or service. The state instead will focus solely on non-economic pursuits. These ideas lead to a capitalistic economy where money is the ultimate determinant of power and status. In this capitalistic economy, the consumption by households is due to a pursuit of self interest where the ultimate determinant of what is consumed how much is individual households. To be able to consume, households must have some way to produce a medium of exchange. In current society this medium is money that is received in return for fictitious commodities such as labor, land, or money. These are considered fictitious commodities by Polanyi because they do not have any material substance and instead intangible in nature and were never used as a medium of exchange in pre-capitalist societies. This need for a medium of …show more content…
Instead of having a separate market and state, Marx argued that the market will not self-regulate and instead need a directing force so monopolies and trusts are avoid. If they are not avoided, monopolies and trusts will drive down competition in the market to the point where an entire commodity or service is controlled by a single firm. Marx consider the free market a state of anarchy within the economy where instead of benefiting households, the firms would attempts to gain complete control as to avoid any competition. Instead, Marx argued that if the state had control in regulating the market system, it would be doing its job of protecting the citizens by preventing monopolization of the economy. In this state of economy, Marx believed that the market would allocate labor and resources instead of the individual like in Smith’s capitalism. Instead of the individuals determining production and consumption, society as a whole, the aggregate household behavior, determined what was made and how much of it. Instead of division of labor being dependent on the individual, it is instead dependent on the market and what is needed at the moment. The market will always try to remain at equilibrium with required division of labor and the actual division of labor. With the market

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