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Economic Decision Making Economic Infrastructure Consequences of the Industrial Revolution.

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1 Economic Decision Making Economic Infrastructure Consequences of the Industrial Revolution

2 Economic Infrastucture Capitalism By the 17 th century Englishmen were taking the necessary steps toward capitalism. – In a capitalist economy goods are offered as a way of earning more purchasing power which is then saved for reinvestment in some other enterprise to earn even more purchasing power.

3 Banking By the 17 th century English bankers began to develop a deposit banking system. – Businesses found they had a steady level of cash – Depositors found it convenient to transfer money – This lead to the privilege of borrowing money by cheque (banks charged and now made money) – Banks began to issue their own bank notes

4 Empiricism Is the belief that truth can be gained by the careful observation of reality. Became the foundation for the Scientific Revolution Became a major part of modern mentality Lent itself to economic growth – careful observation allows one to know what works

5 Agricultural Revolution Nitrogen rich crops were discovered and grown on fallow fields to allow productivity Draining wasteland and using fertilizers improved land and the yields Manorial common land was enclosed and turned into sheep runs Breeding of sheep resulted in larger flocks

6 Larger herds were now possible More animals meant more fertilizer which lead to more grain which lead to better diets Precise accounts were kept on the changes so that owners could know how they were doing (practical aspects of empiricism and scientific approach)

7 As food production increased the price of food decreased meaning the ordinary person had a little more income remaining to spend on other goods. Needs and wants were rapidly replacing tradition as a motivator of human behaviour

8 Textile Production Traditionally wool was the fiber used to make cloth. However, as cheap cotton fiber began to become available from markets in the United States, its advantages made it in demand by all classes.

9 The Cottage Industry (putting out system) grew to maturity in the eighteenth century This system was a type of capitalism: – The objective was to make profits and increase the capital in their business – It was not regulated by guilds and the workers and merchants were free to change the system – Workers and merchants could negotiate prices – Much of the production was done in rural settings by women (spinning of cloth)

10 Shipping The Navigation Acts of 1651, 1660, and 1663 – required that British goods be transported on British ships – Gave British merchants and ship owners a monopoly on trade – Enabled the merchant marine to develop and provided the Navy with men – Were a form of economic warfare on the Dutch The Act was not changed until 1786

11 Population Growth During the 17 th century – Birth rate was high but only slightly higher than the death rate. (famine, epidemic, disease & war) During the 18 th century – Europe’s population began to grow rapidly due to decline in mortality rates – Better health due to better transportation, less destructive wars, new foods, like potatoes to provide vitamin A & C

12 Overpopulation led to a serious imbalance between the number of people and the number of opportunities for jobs – High unemployment especially in rural areas – People had to look for new ways to earn a living – Women in particular were forced of the family farm and into day wage labour where they were abused and worked for lower wages than men

13 Inflation In England, the commercial and agricultural income rose faster than prices The wealth country gentry, rich city merchants, and financiers took their money and invested abroad Common people, especially women were not in a position to invest and take advantage

14 Surplus production was becoming an issue European countries began closing their markets to the British Britain began trading with countries other than the European neighbours Increased production of manufacturing goods (metal items) over agricultural goods

15 Role of North America North America provided an important outlet for surplus population in European countries This helped limit the effects of over population and poverty, especially in Britain The resources of North America, the export crops, and the immigrant population (consumer market) positively affected the European marketplace

16 Labour in North America was expensive due to the vast expanse of land – Led to the acceptance of slavery in the south – Needed cheap labour to pick tobacco and cotton – Slavery provided a 10x increase in tobacco production between 1700 and 1774 – Inexpensive cotton was important to the textile industries in Europe – especially those in Britain

17 In small groups: – Develop an example of how economic infrastructure functions in our society today. – Discuss how capitalism, banking, empiricism, population, transportation of goods, labour, and inflation impact the success of a particular country, product, resource, or economic initiative. – Create a web to highlight the various components and show interactions among them.

18 Consequences of the Industrial Revolution Social Expectations Thinkers such as Adam Smith began to question whether mercantilist theory could effectively manage an economy – Smith argued that mercantilism meant the imposition of stifling government regulations and unjust privileges for private monopolies and government favourites

19 – this should be replaced with free competition which would give all citizens a fair and equal opportunity to invest – competitive free enterprise regulated by the market place would result in higher incomes for everyone Smith began to question what to do about the large amount of surplus labour

20 – his solution was to put them to work through the process of division of labour Divide production process into specialized tasks made up of repetitive movement that are easily learned Standardize the parts of the product Systematically plan and engineer the total production process – He concluded that division of labour would result in increased productivity and a higher standard of living for all » View Adam Smith/Carl Marx video

21 Economic Development – The 18 th century was a time of canal and road building which made it possible to ship goods from areas of surplus to areas of shortages – Improved trade lead to improved standard of living especially because food could be transported to areas of shortages – Business organizations, such as banks and corporations, developed to facilitate the accumulation of capital and encourage investment

22 Rising Expectations The cottage industry had a positive effect on marriage and on population increase – Because a piece of land, a cottage, a loom, and a spinning wheel could produce a meager living, young people married and had families earlier There was a significant growth in demand for products and increased incentive to find ways to produce more goods for less money

23 Supply and Demand As demand increases, prices increase As supply increases, prices will decrease Supply and demand together set the price for a particular commodity as well as the labour costs to produce the commodity

24 Development of New Economic Organizations At the beginning of the 18 th century: – The majority of industry was done by families in rural areas – All members of the family worked long and hard in agricultural and textiles to produce a living – These workers had some economic independence in terms of setting their personal priorities, work schedules, etc. – Productivity was low as was standard of living

25 Political and Economic Infrastructure – Transportation system: Britain had an advantage because of its proximity to water for transportation – Free Trade: Britain did not have internal tariffs so trade could flow freely – Surplus Agriculture: Britain had good crops and low food prices leaving income free for spending on other manufactured items

26 – Government: Britain had a stable and predictable government which allowed the economy to operate as a free market – Surplus labour: Britain had a large class of hired agricultural workers Capitalization requires some system by which pools of wealth can be created for investment investment by individuals requires some certainty about the return on investment

27 Development of new social organizations in textiles – Cotton goods became cheaper and readily available – Lower classes could now afford cotton – Led to widespread use of undergarments – Cottage industries were unable to respond to the increase in demand – Increase demand resulted in a sharp increase in wages for weavers First Factories were textile mills in response to this demand

28 Development of new social organizations in energy – Lack of power was a key reason for poverty; no matter how hard people work they can not produce very much – New energy sources were needed to provide more power – The energy shortage was becoming acute in Britain because most forests had been cleared. Without a new energy source the industry would stagnate and cease to exist

29 Development of new social organizations in metals – By 1740 Britain’s iron industry was stagnating because of the shortage of trees to produce charcoal for coking – Britain was forced to import iron from Russia which still had large forests

30 Development of new energy sources – Coal was the alternate energy source, provided the necessary technology could be developed to use it – Watt created a more efficient version of the steam engine – Production of the new engine required the backing of infrastructure to supply the skilled labour, technology, and the materials.

31 Infrastructure needed to produce a the sophisticated steam engine: – Risk capital and a manufacturing plant from a wealthy toy maker – Locksmiths, tinsmiths, and millwrights who could install, regulate, and repair the engine – Ingenious manufacturing techniques to produce precision parts

32 By the 1780’s the steam engine was a practical and commercial success and was the most fundamental advance of the industrial revolution – Steam power replaced water power in mills – Steam driven bellows enabled the use of blast furnaces using coke – Steam driven rolling mills increased iron production

33 Consequences of Technological and Social Change on Standard of Living – Roads had to be hard surfaced so land transportation was expensive – By 1816 an iron rail, which could carry heavier loads was developed – Stephenson developed the concept of a locomotive which led to trains – Railroads changed the outlooks and values The power and speed was never before realized This fired the imagination of the 19 th century

34 Economic consequences for the GNP – Gross National Product is the value of all goods and services produced by the entire economy in a year. – GNP is closely tied to the Standard of Living – Iron production went from tons in 1740 to tons in 1806 and 3 million tons in 1844 – Larger markets > larger factories > cheaper goods

35 Social Consequences of the Industrial Revolution Britain at mid century: – Was the ‘workshop of the world’ – Produced 2/3 of the world’s coal and more than ½ of the iron and cotton cloth – Between 1780 and 1800 doubled its production of manufactured goods – Between 1801 and 1851 the GNP rose 3 ½ times – Between 1780 and 1851 the population went from 9 million to 21 million – Between 1801 and 1851 the real average income doubled

36 Social Consequences of the Industrial Revolution Britain from 1750 to 1790: – Cottage industry wages seem to have risen somewhat – Workers were able to buy more goods – Wages in industry were much higher than in agriculture Britain from 1792 to 1815: – Constant war between Britain and France – Wages rose but did not keep up with inflation – Food prices rose the most with the price of wheat doubling – Economic well being of the poor declined

37 Social Consequences of the Industrial Revolution Britain from 1815 to 1850: – Between 1800 and 1825 the real wage of the average worker increased 25% – Between 1825 and 1850 they rose another 40% – The wages of industry workers were twice the wages of workers in agriculture During this period of time, increased purchasing power meant the ability to afford more goods. – Workers ate more nutritious food (health increased) – Clothing improved, but housing didn’t

38 Working conditions in industry was far different than what cottage industry workers were use to. Freedom of setting own work pace was lost Work was monotonous and tedious Factories were being built in urban areas Workers forced to migrate from rural areas Family units could no longer work together Some factories allowed children to work along side their parents

39 Factory workers felt they had lost control of their lives. They were faced with a lifetime of boring, repetitive tasks which were so small they seemed meaningless For craft workers whose skills were now taken over by the factories they felt a lose of status and income The mechanization of spinning meant an end to the traditional skilled jobs of women Men excluded women from trades which left them with menial jobs Between 1799 and 1811 workers revolted and destroyed many mills

40 Balancing the rights of the consumer, the rights of the producer, and the rights of the investor A monopoly was defined as the power to prevent the market from producing the greatest number of goods at the lowest possible price Businessmen argued that the free marketplace must be protected to encourage investors Parliament was asked to set laws to prevent any group, especially labour from having the right to disrupt the free marketplace

41 Protection of workers Humanitarians insisted on shortening the hours of work for children under the age of 13 and regulating the hours for those under 18 to twelve hours. Workers began to for unions as a way to counter the powers of the owners In 1799 Parliament passed the Combination Acts which outlawed unions and strikes In 1824, in the face of widespread union activity, Parliament repealed the Combination Acts.

42 British industry continued to outperform other European countries. Many European countries held on to their agricultural worldview France was dealing with the French Revolution and Napoleonic wars Steam power was a technology not well understood outside of Britain British goods were being produced and sold more inexpensively than goods from other countries

43 Basic premises of the Industrial Paradigm Progress is possible Progress is equated to growth Progress is possible by applying science and technology Wealth is based more on trade and industry than land Work is useful and meaningful and has dignity A person’s labour is a commodity Individuals should be socialized to be self-reliant, ambitions, and competitive

44 Basic premises of Non-Industrial Paradigms A group’s economy is based on the environment The environment is to be respected and is sacred The needs, safety and well-being of everyone is of primary importance Individual wealth only has meaning when the whole group shares the abundance Trading of goods should be done fairly with the mutual benefit of everyone in mind The ability to be self-sufficient is highly admired provided it is used for the benefit of the group


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