Liberalism, Socialism, and Marx

Adam Smith and the liberal tradition that followed him located value in exchange: a factory owner who invests capital, takes risk, and organizes production earns a legitimate return, and free markets let buyers and sellers find fair prices on their own. Marx rejected this. He argued labor alone creates new value, so if a worker's output is worth more than their wage, someone is pocketing the difference. A worker paid enough to live on might still work, say, ten hours a day, but only need six of those hours to produce value equal to that wage. The remaining four hours of output go to the capitalist as surplus value, Marx's name for profit extracted from unpaid labor.

Marx scaled this up into a theory of history. Every economic system, he argued, splits society into a class that owns the means of production and a class that works for it, and the tension between them eventually breaks the system apart: feudal lords gave way to capitalist owners, and capitalists, he predicted, would give way to the workers themselves. Competition would push firms to grow larger and wages toward subsistence, squeezing a shrinking class of capitalists against a swelling, immiserated proletariat until revolution followed.

This sits next to nineteenth-century liberalism, not against a stand-in for modern liberalism. Liberals of this era wanted limited government, free trade, and secure property, and many opposed widening the vote or funding relief programs, a near-reversal of what 'liberal' signals in politics today. Marx's socialism, by contrast, demanded collective ownership and organized workers politically, setting up the next unit's clashes between liberal states and socialist and labor movements.