1. Economic Theory & Industrialism
Notes

2. CAPITALISM
Industrialization was fueled by capitalism (a.k.a. the “free market” economy)
Capitalist economic thinkers promoted the concept of laissez faire (“leave it be”)
Laissez faire capitalists advocated for NO government regulation in the economy (…let the “laws of nature” regulate the market)!
This mentality created an open climate for the growth of privately-owned businesses

3. “Father of Capitalism”, Economist & Philosopher
ADAM SMITH
“Father of Capitalism”, Economist & Philosopher

4. CAPITALISM
Adam Smith, early economic theorist & Enlightenment thinker; “father of capitalism”
1776—Smith wrote The Wealth of Nations
Discussed concepts like
the role of self-interest
the function of markets
The laws of “Supply” and “Demand”
Concept of the “invisible hand”—the market will regulate itself, if producers and consumers are left to act in their own self-interest

5. CAPITALISM Producers are motivated to make PROFIT!
Consumers want to get fair prices on goods that they need & want!
Equilibrium price is where they “meet in the middle” (w/out gov’t. intervention)!
Happy Place!

6. CAPITALISM

7. More Laissez Faire/CAPITALISM . . .
Thomas Malthus
Predicted the population (demand for food) would outgrow the food supply!
Natural & social factors would occur to regulate population growth (Ex: war, famine, disease)
David Ricardo
“Iron law of wages”—wages gravitate towards the minimal amount required to sustain the needs (and habits) of workers. . .
Wages are based on supply & demand of labor—therefore, low wages are natural in a large, industrialized population (esp. amongst workers w/ basic skills)
These thinkers opposed government help for the poor (welfare), believing individuals can improve their own situations through thrift and hard work!

8. NEW ECONOMIC THEORIES in the Industrial Age
Industrialization changed the way people lived & worked.
Urbanization, factory conditions, low wages, child labor—often led to a low standard of living for working class families.
Led to calls for change! (Ex: protest movements, unions formed, etc.)
Some economic thinkers came up with new ideas for how economies should work, and presented new “alternatives” to the free market system . . .

9. Utilitarianism
Utilitarianism- idea that society should aim to produce the “greatest good” for the “greatest number” of people
Government involvement might be needed to make sure this happens . . .
Based on the “Principle of Utility”:
an action is "right if it produces more of an increase in happiness for all affected by it than any alternative action, and wrong if it does not".
In other words Pleasure and happiness are intrinsically valuable, while pain and suffering are not . . .
Things have value to society only if they cause more happiness than suffering.

10. Utilitarian PHILOSOPHERS
Jeremy Bentham
Believed individual freedom & democracy created happiness
With improved education, statesmen & the rich would make decisions in their own interests that would also ultimately promote the greater happiness (to keep their constituents & workers happy)
Developed a way to calculate “happiness” and “pain”, based on intensity, duration, likelihood, and extent.
John Stuart Mill
Society should promote happiness and prevent pain
Believed in the rights of capitalists, so long as they do not harm the working class . . .
But called for voting rights for workers and women (as a way for them to voice their unhappiness

11. Utilitarianism Explained??

13. Utopian SOCIALISM Utopia = “ideal world”
Socialism = system in which the society as a whole (rather than individuals) owns the means of production (i.e.—factories, farm equipment, land, etc.)
Early socialists include: Robert Owen, Saint-Simon, Charles Fourier
Aims to combat poverty & equalize the gap between rich and poor, by providing basic needs for all members of society (welfare)
If all members of society are provided for, there should be less conflict.
Utopian socialists advocated cooperation in place of competition

14. KARL MARX Economic & Political Philosopher 1818 - 1883
“History is economics in action “ Karl Marx

15. MARXISM (a.k.a. Communism)
Marx rejected utopian views and created a new theory of “scientific socialism”
Viewed history as a series of class struggles
Believed struggle between employers and employees was inevitable!
With fellow socialist Friedrich Engels, Marx wrote The Communist Manifesto

16. MARXISM (aka Communism)
Bourgeoisie vs. Proletariat (“Haves” vs. “Have-nots”)
Marx calls for a revolution of the proletariat
“Workers of the world, unite. You have nothing to lose but your chains!”
Capitalism socialism then communism is final stage, where community shares benefits of industry; no class struggle (and there is no need for gov’t. at all)!

17. SYNTHESIS
How did industrialization change the way people lived and worked?
What changes resulting from the Industrial Revolution led to the rise of socialism and communism?
What type of economic system most benefits the working class? The upper class? Society as a whole?