HUMAN NATURE AND THE ECONOMY: MARX VERSUS SMITH ON THE DISTRIBUTION OF SCARCE RESOURCES
In the last few weeks I have been engaged often in discussions about equality and inequality. An interesting subject matter and one at the base of economic science. So, I thought, let’s go back to basics and write a blog about this.
In every society one reality binds us all: resources are limited, and needs are unlimited. How we choose to allocate those scarce resources, who gets what, and why, is at the heart of economics. But beneath the technicalities of supply curves, marginal costs, and monetary policy lies a deeper, more primal force: our view of human nature.
This blog dives into that fundamental question through the contrasting lenses of two of history’s most influential economic philosophers: Adam Smith and Karl Marx. Their visions of human nature, one rooted in self-interest, the other in social cooperation, continue to shape debates about capitalism, socialism, and everything in between. We’ll also consider modern behavioral insights and other thinkers like John Maynard Keynes, Thomas Hobbes, Thomas Piketty and Elinor Ostrom to enrich the discussion.
Adam Smith: Human Nature as Rational Self-Interest
Adam Smith, often called the “father of modern economics,” is best known for his work “The Wealth of Nations” (1776). In it, he introduces the idea that individuals, when pursuing their own self-interest, promote the good of society through what he famously called the “invisible hand.”
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam Smith, The Wealth of Nations
Smith believed that humans are naturally self-interested, but this isn’t necessarily a vice. When institutions (like markets, property rights, and laws) are well-structured, self-interest leads to productivity, innovation, and efficient allocation of resources.
In Smith’s model, scarcity is not a moral problem, but a technical one. Markets, if left relatively free, will coordinate demand and supply, ensuring that resources flow where they are most valued.
Smith believed that the market, guided by an “invisible hand,” distributes scarce resources efficiently. Yet he was not blind to inequality. In The Theory of Moral Sentiments (1759), Smith warned of the corrupting influence of extreme wealth and the social admiration it often commands, leading to distorted values and moral decay.
Still, he maintained that inequality was tolerable so long as markets were open, merit was rewarded, and social mobility remained possible.
Yet, modern research suggests Smith’s vision was both prescient and incomplete.
Behavioral economists like Daniel Kahneman and Amos Tversky (Kahneman, 2003, American Economic Review) found that humans often act irrationally under risk and scarcity.
Even more damning to pure market logic is the growing evidence that unregulated self-interest can lead to inequality, short-termism, and externalities like climate change.
Karl Marx: Human Nature as Social and Cooperative
Karl Marx, writing nearly a century later, rejected Smith’s optimism. In his Economic and Philosophic Manuscripts of 1844 and later Das Kapital (1867), Marx argued that under capitalism, human nature is distorted rather than revealed.
For Marx, humans are inherently productive, social beings who find meaning through cooperative labor. However, in capitalist economies, people are alienated:
- From the product of their labor (they don’t own what they make),
- From the process of production (they have no control over how they work),
- From each other (competition replaces solidarity),
- And from their own human potential.
“The worker becomes all the poorer the more wealth he produces, the more his production increases in power and range.” Karl Marx, Economic and Philosophic Manuscripts of 1844.
He rejected the Smithian idea that market outcomes are neutral or natural. Instead, Marx believed capitalism systematically concentrates wealth and power, turning scarcity into a weapon of control. He famously wrote:
“Accumulation of wealth at one pole is at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole.”
For Marx, inequality is not a flaw to be corrected within capitalism, it is inherent to its design. He envisioned a world where the means of production were democratically controlled, and resources allocated based on need rather than profit.
Marx viewed scarcity not as natural, but as manufactured, a result of private ownership and unequal control over the means of production. In a just society, where production is democratically planned and shared, abundance would be achievable and human cooperation would thrive.
Contemporary scholars have revisited this claim. In Review of Radical Political Economics, Erik Olin Wright (2010) argues that capitalism systematically creates artificial scarcities (e.g., intellectual property rights, wage suppression) that reinforce class hierarchies.
A Deeper Divide: Scarcity vs. Abundance
The clash between Smith and Marx goes beyond markets and labor. It’s a fundamental disagreement about whether scarcity is a natural condition or a social construction.
Smithian’s accept scarcity as a given and believe competitive markets are the best solution. Marxist’s see scarcity as political, maintained by systems of power that benefit a few.
This divide matters because our assumptions about scarcity shape our institutions. If you believe humans are greedy and resources are limited, then markets and private property make sense. If you believe humans are cooperative and scarcity is artificial, then redistribution and public ownership seem more rational.
Other Voices
While Smith and Marx are often seen as opposites, other thinkers complicate the picture.
John Maynard Keynes
Keynes, writing during the Great Depression, acknowledged self-interest but warned that markets are not always self-correcting. In his General Theory (1936), he advocated for government intervention to smooth economic cycles and preserve human dignity in the face of mass unemployment.
He saw human nature as both rational and emotional, capable of productivity, but also vulnerable to fear and herd behavior.
Thomas Hobbes vs. Jean-Jacques Rousseau
In political philosophy, Hobbes painted humans as naturally selfish, necessitating strong authority (see Leviathan, 1651). Rousseau, in contrast, argued that humans are naturally good, but corrupted by society (The Social Contract, 1762). These views parallel Smith and Marx in their assumptions about human nature and governance.
Elinor Ostrom
In a groundbreaking departure from both Marxist and free-market views, Elinor Ostrom (Nobel Laureate, 2009) demonstrated that communities can manage common resources sustainably, without government intervention or privatization. Her empirical studies (Governing the Commons, 1990; Science, 2009) showed that assumptions of inevitable tragedy and selfishness were overstated.
Ostrom provides real-world proof that cooperation under conditions of scarcity is not only possible but also happening globally.
Thomas Piketty: Capital and the Concentration of Wealth
In Capital in the Twenty-First Century (2014), economist Thomas Piketty builds on Marx’s critique using a vast trove of tax records and income data. He shows that wealth tends to concentrate, especially when the rate of return on capital (r) exceeds the rate of economic growth (g), a formula that breeds inequality.
Piketty is not a Marxist, he supports progressive taxation over revolution—but he confirms Marx’s fear that without intervention, capitalism drives inequality. As Piketty writes:
“The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.”
This echoes Marx’s view that scarcity and inequality are not simply economic byproducts, they’re the result of political choices.
Joseph Stiglitz: Inequality Undermines the Economy
Nobel Laureate Joseph Stiglitz, in The Price of Inequality (2012), argues that inequality is not just unfair, it’s economically destructive. He emphasizes that extreme concentration of wealth distorts markets, undermines democracy, and erodes trust in institutions.
Stiglitz echoes Smith’s concern about how unregulated markets favor the few. But unlike Smith, who believed in markets as natural regulators, Stiglitz emphasizes the role of policy capture, where the wealthy shape laws in their favor.
“The top 1 percent have the best houses, the best educations… but what trickles down to the rest isn’t prosperity—it’s powerlessness.”
Stiglitz represents a middle path between Marx and Smith: acknowledging the efficiency of markets but calling for strong institutional correction to address inequality.
Amartya Sen: Inequality as Capability Deprivation
Amartya Sen, another Nobel laureate, shifts the discussion from wealth to human freedom. In Development as Freedom (1999), Sen argues that inequality should be measured not merely by income but by people’s capabilities—their ability to live the life they value.
Sen draws attention to hidden forms of inequality: lack of education, health, and political voice. He challenges both Smith’s efficiency logic and Marx’s class determinism by emphasizing human dignity and agency.
“Poverty is not just lack of income. It is the deprivation of basic capabilities.”
This broader lens on inequality links economic theory to behavioral science, ethics, and human rights.
Relevance, where does this leave us?
Today’s challenges, climate change, inequality, automation, are forcing us to re-evaluate old assumptions about human nature and economic systems. Is competition the best way to allocate resources, or does it breed division? Are we more productive when motivated by profit, or by purpose? Is scarcity always real, or sometimes imposed? We do see evidence of the creation of the ultra-rich, and also evidence of them determining policy.
If you believe, like Smith, that institutions should channel self-interest into mutual benefit, then reforming markets, ensuring transparency, and rewarding innovation makes sense.
If you align with Marx and see the economy as a social system that shapes and is shaped by power, then challenging ownership structures and promoting democratic control of resources may seem urgent.
Or perhaps, like Ostrom, you believe that communities—if trusted and empowered—can transcend both markets and states, drawing on the best of human cooperation and stewardship.
The economy is not just a machine. It’s a mirror, reflecting what we believe about ourselves.
Whether we see humans as selfish or cooperative, rational or impulsive, driven by fear or hope, affects how we build systems to manage our collective lives. As we face the future—scarcity of clean air, water, and social trust, how we answer these fundamental questions about human nature will shape not just the economy, but civilization itself.
So, let’s keep debating, not just how to divide the pie, but how to bake a better one together.
References
- Smith, A. (1776). The Wealth of Nations. London: W. Strahan and T. Cadell.
- Marx, K. (1844). Economic and Philosophic Manuscripts. [Translated by M. Milligan]
- Kahneman, D. (2003). “Maps of Bounded Rationality.” American Economic Review, 93, 1449–1475.
- Ostrom, E. (1990). Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press.
- Ostrom, E. (2009). “A General Framework for Analyzing Sustainability of Social-Ecological Systems.” Science, 325, 419–422.
- Wright, E. O. (2010). “Envisioning Real Utopias.” Review of Radical Political Economics, 42, 525–529.
- Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan.
- Marx, K. (1867). Das Kapital; (1844) Economic and Philosophic Manuscripts.
- Piketty, T. (2014). Capital in the Twenty-First Century. Harvard University Press.
- Stiglitz, J. E. (2012). The Price of Inequality. W.W. Norton & Company.
- Sen, A. (1999). Development as Freedom. Oxford University Press.
Dieudonne (Neetje) van der Veen is a financial and management business advisor. His work and experience are mainly in the field of financial management and structuring of companies in distress and Governance on Planning & Control cycles.
Mr. van der Veen has a master’s degree in business economics (Erasmus University Rotterdam), is a Registered Accountant (Royal Dutch Professional Organization of Accountants), CFE (Certified Fraud Examiner) and CICA (Certified Internal Control Auditor).