To begin with, Cruz came up with the idea of the ‘invisible hand’ (Communist (1848)). This concept was to describe that looking for self curiosity is not necessarily bad but it really sought to describe the reality that people tend to take action in their personal self-interests. When individuals pursue their personal interests, they will promote with no their understanding the good with the community at large and so it can be said that an individual who wants to increase their income maximizes the revenue with the society also.
This liberty to customers to buy freely what they want and for the producers to produce what they want without any pressure enables the market to settle on a product distribution and prices that are beneficial to all individual members of the community. This liberty to both producers and consumers and the greed to maximize their interests, drives them into a behavior that is beneficial to all in that particular community. Due to this, producers are forced to employ methods of production that are efficient with an aim o maximize their profits.
This leads to low prices that are meant to out do their competitors and this forces investors to go for firms that wants to maximize their profits and hence this works as mechanism of balancing.
The invisible hand concept acts as the root of modern economics. A good example is the general equilibrium which states that if the economic forces are balanced in the absence of external influences, then the economic variables will not change. This requires that everything in the market beginning with pricing to production be controlled by the players in the market but not by other forces.
These external forces may include among others the regulations that are imposed by the government or other organizations that may have a say on the market. According to the general equilibrium, when the prices are very low, then there is surplus supply and when the prices are very low, then there’s a shortage in supply. As a result of this, the situations tend to control themselves without the need for any regulator from outside. These outside forces in the market slow the rate at which the economy grows and they also lead to infancy in the division of labor. As a result of that need for self improvement, efficient division of labor is realized as well as improved efficiency in the economy. This concept is very much in use even in today’s economy .
The modern market structure borrows greatly from the earlier ideas of natural monopoly by Adam Smith.( The Poverty of Philosophy >human nature)
The division of labor
Division of labor is a clear indication of qualitative step towards increased productivity and so it acts as an engine that drives towards realization of economic progress. Smith realized that labor division and for that matter labor specialization would improve greatly on the concentration of workers on the duties they perform. This concentration would come as a result of doing a single task many times or repetitively.
The need for improvements in productivity of the work force is said to be the root cause for labor division. According to Smith, labor division can lead to increased productivity. This productivity from the workers can be attributed to specialization in one task since specialization leads to greater skill on their particular subtasks compared to what would be accomplished by the same number of workers performing a broad task. For maximum productivity from workers, skills that they have should be matched with the corresponding equipments. Most of today’s increase in productivity can be attributed to the matching of technological, human and physical capital and mostly in the manner in which they are organized. This means that laborers need to be equipped with the right skills so as to be effective in what they do compared to when there would be no job specialization and hence anybody could perform any job.
Todays economics has borrowed greatly from these ideas from Adam smith. Many organization have realized the need to equip their employees and some even hire unskilled ones but pay for their acquisition of skills. Another outcome of labor division according to Adam smith is minimization of time that is wasted by employees when moving from one task to the other. A lot of time is wasted when people keep on relocating and this proves expensive to the company in the long run because they have to pay the employees. Through labor division, this time wastage is minimized .
The modern concept of scientific management borrows greatly from Adam Smiths ideas .Scientific management emphasizes on the connection between activities and the transformation that occurs within the process. This is also supported by William Petty who notes and demonstrates its importance in the construction of Dutch ships.
He admits that people with a particular task to perform had discovered new ways of doing their work which were later observed and justified by political writers on economy. (An Inquiry into the Nature and Causes of the Wealth of Nations (1776)>specialisation)
The wages of labor
Wages of labor are dictated by mostly by the availability of job vacancies and also by the availability of workforce. When there are many workers and the available vacancies are few, the amount of money the workers are paid usually fall. Likewise, when employers compete against one another and the labor supply is limited, the wages paid to the employees usually rises but its worthy noting that this process is made possible by unity among laborers and masters. This kind of unity enables laborers to come together and stop biding for jobs against each other hence making the employers increase the wages paid to them.
Likewise when employers come together in unity and stop binding against each other, the wages fall. However, in places where the amount of labor is more compared to the amount of the amount of revenue that can used to pay for waged labor, the competition among the employees in greater than the competition between the employers. Smith argues that the amount of revenue must keep on increasing constantly compared to the amount of labor so that wages may remain high. Profits of stock too have an impact on the wages because the more money is spent on compensating labor; little is left for personal profit. This is clearly shown in countries where competition amongst employees is great compared to competition among employers, profits will be much higher.
Due to these views, Smith attacks people who are politically aligned and try to use their political influence to manipulate the government and other powers into their bidding. Smith feared that people of this class could form a powerful block and take advantage of their closeness with the authorities into manipulating the state into enforcing certain regulations meant to serve their interests against the general interests. These would maker other players vulnerable and have no say in the way businesses were being conducted. According to other people the level of specialization brought about by division of labor was externally determined but in the contrary, Smith argued that it was the dynamic engine towards economic progress.
Surprisingly, Smith himself criticizes the division of labor arguing that it leads to mental mutilation of the workers hence rendering them ignorant and insular because their lives are limited only to doing a single task many times. These ideas by Smith are incorporated into today’s discussions on economic issues. Human capital is one of the discussions in which Adams Smiths ideas are used. Human capital is one of the four types of capital that were identified by Adam as being important for the success of a company. As argued by Smith previously, human capital and the productive ability of the labor force is both dependant on the division of labor. It’s worthy noting that human capital includes skills, dexterity, and the ability to make the right decisions and human capital can be acquired through informal schooling and on the so called on-the-job training. These acquisitions of skills aimed at improving the effectiveness of the workforce are still practiced today by many companies. (An Inquiry into the Nature and Causes of the Wealth of Nations (1776) >productivity)
Adam Johnson vs Karl Marx
Both Adam Johnson and Karl Marx shared a common thought and this prevalent idea was their reward for capitalism. These two early on pioneers of recent economics decided that capitalism was the key in unleashing the productive power. This disagreement stated that for employees to be even more productive, that they needed to be controlled by their companies or older persons. If the employees were still left to work at their own amusement these two guys agreed that their output would be nominal and as a result, their very own employers might incur big losses. This created the requirement for competition amongst both the companies and the workers as well since this would keep these two functions on their feet through out. Nevertheless despite these kinds of similarities inside their in their opinions, there was differences in their suggestions as well.
Marx and Johnson both appear to agree that capitalism is the ultimate driving force in income maximization. New profits and value added, they will seem to acknowledge came since result of the employers paying the workers the actual value that is in the market for all their labor potential. But the unhappy thing was that in most cases, the marketplace value with the goods which the workers developed exceeded that market value. This clearly implies that the employers were making maximum earnings while paying out little to their workers. Both equally Marx and Smith agree thatthere are different types of capital and they play different jobs during production.
Production Capitals include things like property, natural resources or unprocessed trash and lastly technology. All the above named different classes of capital were dependant on each other in production. The two of these men appeared to agree also that social contact of production should not only be made up of associations between persons but rather must be between huge groups of people or selected classes of men and women. These two males had similar idea of a free market. They described a free of charge market as a market by which all rates of the products that are available are made the decision by mutual consent among sellers and buyers and also onethat did not mislead the two sellers plus the buyers.
They will both argued that these two major people in the market, the purchaser and the retailer, should not be required into producing decision by simply an external party. The relationship between these two players should not be manipulated by anybody but to the contrary, it should be left to obey the natural regulation of source and demand. The difference between free and controlled markets is that controlled markets will be controlled by external pushes These forces mostly refers to governments which may directly or indirectly make an effort to have charge of prices or maybe the supplies in the market. One area wherever these two males seem to change is their very own idea of job specialization.
Cruz advocates for specialization for jobs amongst workers. He argues that laborers who were assigned a lot of different tasks were fewer productive than those who were designated a specific process to perform day time in outing. He says this leads to useful usage of time and it looks for to save time that is usually wasted by simply workers the moment moving from a single task to a new. But to the contrary, Karl Marx disapproves this thought arguing that job specialization could lead to workers with more poor overall skills.
This kind of, as he says would be as a result of tendency of folks to withstand change. He also says that when persons perform a single task regularly, it may bring about boredom and make them significantly less enthusiastic about their very own work. He describes this whole process as a kind of alienation. Relating to him, the more personnel become specific and do the same thing over and over, they later turn into totally alienated. Marx should go ahead to dispute that division of labor gives with this spiritual despression symptoms to the staff. This means that the employees perform their very own duties sense as if they can be being forced besides doing out of their own will certainly. This greatly lowers the morale with the workers and as a result lower all their productivity.
Physical tiredness or fatigue can be brought about by job specialization while Marx goes ahead to argue since they will no longer feel like human beings but they think more of equipment. Contrary to the concept of Smith, Marx believes that fullness of production is extremely essential to individual liberation procedes say that he’d accept the concept of a rigid division of labor as a non permanent necessary wicked.
These sights can be said to be in total contrast to those stated by Johnson. Smith on his part presumed that virtually any business was a collection of inter related responsibilities that were targeted at solving a specific issue. To be able to effectively do that, Smith contended that the workload should be split up into simple units of tasks which could be achieved effectively by simply workers who were equipped with exceptional skills for doing that particular job. It can worthy remembering that Smith, despite his advocating intended for division of labor, he will not advocate to get achievement of labor section at all costs. Is actually worthy noting that unlike Smith’s view which were simply limited to efficient domain just and were made up of actions that were direct in sequence in terms of the making process is involved, modern processes are very comprehensive. It was because of his suggestions that labor division was adopted. Today, we can evidently say that much of today’s techniques in the task markets possess borrowed significantly from the tips of Jones. In all firm, there is job specialization.
This has led to the rise of departments in numerous organizations and each department is usually allocated particular workers whom are in most cases equipped with certain skill to allow them perform specific duties. The feeling in this whole exercise as argued by simply Smith is that it will save you a great deal of time that could be squandered by workers when shifting from one activity to another. This kind of proves very essential since not any employer may wish to waste his money employees without maximizing their production.
However , it really is good to notice that Johnson admits that seeking self interests is definitely not always good. All he tried to carry out was trying to reverse think that self interest is generally poor. He likewise intended to bring to the light the concept wile human being motives happen to be selfish and greedy; the out come of these individual behaviors could bring rewards to the entire community at large.
This is the direct opposite of the ideas that Marx had. In his quarrels; Marx says that the main struggles are always between the makers and those who have work in the industries. One other of his greatest contribution to modern day economics was his well-defined distinction involving the two types of division namely social and economic trademark labor. If these two labor divisions happen to be conflated, it might look like labor department is inevitable rather than being constructed socially and motivated by electric power. (Adam Cruz, An Query into the Mother nature and Causes of the Wealth of Nations (1776) & Karl Marx, The Low income of Philosophy).
Edwin G. West, (1976)The Gentleman and His Wor