November 2025, Economic Theory Part II

Disclaimer: These words are the author’s personal views and do not reflect the Labor Guild’s opinion.

Last month we talked about the different economic models and where the idea for the Conservative model originated. This month we will explore the Liberal model and how it came into being.The radical (liberal) view comes from the theories of Karl Marx (1813-1883) and Fredrik Engels, son of a textile manufacturer (1823-1895). Marx believed the basic human nature of man was good and that the average person believed in the welfare of a society before the individual. It is not until man is put into a competitive situation for his sustenance that he becomes “mean, brutish and nasty” as Hobbes had stated. They lived during a time when the waterwheels were spinning, and textiles were flourishing, and mass production was in full motion for its day. They were witnessing the effects of unrestrained capital and believed the economic system could be structured in a more humane way. They believe not in a market system but rather in a planned economy. Where, acquiring capital (wealth) is replaced by the productiveness of individuals for the benefit of society and public service rather than for individual profit motivation.

The two believed conservative economic policy would cause class hatred. The need to accumulate wealth would lead to a concentration of wealth for only a few in a population. That wealth would then be used to own and control the means of production. What remains is the worker, who must sell his/her labor for the going market rate, just as they would any other commodity. They also feared, a large reserve labor force created under capitalism will force workers to compete for lower paying jobs. It would also cause higher unemployment which would solidify the further creation of low wage workers, which creates a division of class into two categories: property owners and workers. The unequal share of the profits for the finished product, causes a disparity and imbalance of wealth, and causes class conflict between workers and property owners. Marx identifies this conflict as “dialectic materialism” and will be the vehicle he claims will overthrow capitalism.

Because these two “thesis and anti-theses” (capital and labor) are in constant conflict there will eventually be changes to the system which is how true socialism will finally be achieved. It is this class conflict that will lead to revolution. The difference between what a product costs to produce, and what it is ultimately sold for, is the root of the issue and the basis of class conflict. And that, is the essence of workers’ struggle. How those profits are shared and who owns and controls the means of production provides the thesis and anti-thesis Marx and Engels speak about. In essence, if workers and the bulk of the populace can’t get enough money and decent working conditions to live, they simply revolt.

The Role of Government for each of these models: Conservatives believe in a hands-off policy or “lasses faire” (pronounced Lay-zay fair) is French for “allowed to do. A place where the market can secure sacred status and requires no government intervention.  

Left to its own, the market will make any changes needed and achieve its own balance (or equilibrium). Every person in society chooses whether or not they want to improve their own economic well-being by working, spending and owning property. If individuals choose not to participate, it remains their option. Government is not obligated to spend tax dollars on improving such people’s status if they have no desire to change it themselves. If people do not take the initiative to help themselves, then, no amount of government handouts, will help.

Tax dollars that are spent should be spent on securing the environment for the market system to thrive, such as: strong defense, maintaining good foreign relations for trade and securing the political environment to encourage production and commerce but most of all:

This conservative economic model depends on the enforcement of strong property rights law in order to protect their structure, maintain business contractual agreements and maintain the societal rule regarding commerce.

The Role of government for Socialism: Socialists, the radical theory, believe the economy is structurally deficient. Property interests have too much influence into matters which concern them, such as, lobbying efforts to change laws and regulations in their favor. The ability to generate legislation and influence the appointment of friendly judges to their cause is a basic malfunction inherent to the capitalist structure. An economic system that is fair to workers and gives more power to the greatest number of people is necessary. And that people are basically good and capable of forming their own society and can enjoy life, their work, and pride in the skills they develop in doing their labor. People should own the means of production and distribute equally the total fruits of their labor as well as just laws, health care, education and a strong defense.

Both Smith and Marx wrote these major works during a time when trading company capitalist models were declining, and the industrial era was emerging. In relating to this time, Smith viewed capitalism in his book Wealth of a Nation as: “a decrepit and ill- conceived institution, a remnant of medieval privilege, prone to mismanagement and useful to only a few”. Marx was noted for his belief in self-alienation due to capitalism and the use of the assembly line. He believed that capitalism forces such efficiencies in manufacturing that it causes alienation from the product a craftsman once made from beginning to end. Because mass production breaks down complicated tasks through a series of multiple simple modules, one becomes alienated from the work process because he is not involved in the end product. Alienation from other workers because you are so busy performing your mundane task there is no time to converse and curtails natural social activity. Alienation of self because you once developed pride and self-worth from your craft and craftsmanship; now your craft has been dissected into small modules leaving you with an altered identity.  

Just as Adam Smith could not fathom governments allowing unbridled capitalism to repeat itself like it had in the past, so too did Marx not fathom the difficulty in establishing a market out of a planned economy based on social functionality. Nor could he ever imagine the effects of wanted consumer goods in the marketplace. Where the demand for consumer goods is infinite; Marx would never have found a place for such things as flex seal spray, so you can float on your screen door, in a planned economy. Under pure socialism, the workers own the means of production, and each worker is rewarded for the efforts of his labor. However, he thought communism, where the government owns the means of production, would give everyone an equal share no matter whether they contributed (worked) or not. He believed communism was the vehicle that could provide true socialism. However, under Communism, once the State took over the means of production, they were not about to surrender it. They were both right and wrong. Both sides believed that government needed to play a major role in balancing the economic process. The Conservatives needed government to keep the system functioning and to keep it from collapse. To protect people from themselves like Calvin said. As Thomas Hobbes believed, the only way to stop people from destroying their own self-interest was to create a large, powerful monarch (leviathan) to maintain order and promote personal self-interest of the populace. Smith believed a strong government presence was needed to keep balance within the system. Marx and Engels needed government to develop products for the population in a social society, and to give the power of the means of production to the workers.

That’s it for now. You have enough to digest and think about the pros and cons of these models and to see how the premises of each of the models are present in our economy today. Social intervention, Marx spoke of, made its way to public education and Social Security as well as an excess workforce that cause lower wages and unemployment. The conservative model unrestricted capital and unregulated markets produced the development of the industrial age and American growth. Both models, however, needed economic stability, infrastructure for commerce and a strong legal system to protect the models, which only the government can ensure.

I will get into that as we go forward. Next month I will talk about how these models were implemented and how they grew and developed.