Economics of the Industrial Revolution

Economics The study of Production (making goods) Consumption (buying goods) Distribution (selling goods) An economy is where all of these actions occur together

Rise of Industry Changes in Communication and Transportation Electricity, telegraph and telephone lines, automobile, railroads, and airplanes increase travel efficiency

Explosion of Industrial Growth The growth of technology and creation of communication power helped fuel industry Companies who had once been local expanded in a growing globally connected economy Systems of mass production came about and factories were used to produce goods in large quantities

Factories Work was done by specialized machinery that could produce identical parts Unskilled workers were used to run the machines Engineers divided up the production process so that each worker did a single task The sped up production and increased profits Increased production led to cheaper goods

Factors (or means) of Production As businesses grew, they needed three factors of production Land – includes soil, forests, and minerals Labor – people to work Capital – money, buildings

Adam Smith commercial virtues are self-interested and should be applied to reap success in the business world: prudence, justice, industry, Wealth of Nations Left to its own devices, the market will allow only the most competitive consumers and producers stay afloat. The free market fixes errors on its own. If there are shortages or surpluses the market, left to its own devices, will ensure that that the economy eventually returns to equilibrium. Invisible hand innate function of the free market was determined by the simple laws of supply and demand.

Capitalism Based on private ownership of the means of production and on individual economic freedom Factories and businesses are owned by private individuals and not the government Prices will be kept as low as possible because consumers will seek the best product for the least amount of money

Capitalism Free competition – people should compete freely without interference from the government or any outside force Laissez-faire Means “hands off” or “allow to do” in French Lawmakers are not intervening in business The market will regulate itself and the government will not interfere Businesses can do what they want – change prices and alter competition

Capitalism Supply and Demand Prices are determined by how many products there are and how many people want them When supplies increase, prices tend to drop When prices drop, demand usually increases until supplies run out. The prices will rise once more, but only as long as demand is high. These laws of supply and demand work in a cycle to control prices.

New ways of thinking Thomas Malthus David Ricardo As long as the population increases, the poor suffer. Poor people should have fewer children. David Ricardo When wages are high, families have more children, but more children lead to lower wages

Pros of Capitalism?

Pros of Capitalism Economic freedom is political freedom Individual choice: you can choose your job Incentives to be efficient Always making improvements Market forces make decisions Not bound by decisions of one or few in charge Encourages innovation and development Economic growth – higher standard of living

Cons of Capitalism?

Cons of Capitalism? Exploitation of workers Gap between the rich and poor Competition implies winners and losers Monopolies can take advantage of the system [control of state by wealthy] social benefit ignored: pollution, health, public transport Lack of centralized planning – overproduction/ underproduction Boom and Bust cycles

Karl Marx Outraged by the growing gap between rich and poor Saw capitalism as an exploitative system As a person labors, he or she becomes alienated from society, the human race, and the object they produced. Workers would eventually rise against the rich because they were treated so unfairly Believed that private ownership encouraged greed and motivated people to knock out the competition, no matter the cost

Communism Communism is based on principles meant to correct the problems caused by capitalism No private ownership of property allowed State government should exercise control in the name of the people Goal to eliminate the gap between rich and poor and create economic equality

Communism Under this system the government has total control of everything produced and control what is made, and who will receive the goods and services produced. Based on need – no need for money The State decides what you can use, how much, and where you will work. In order to produce, a worker must be fit to do so; this means that he or she must be clothed, sheltered, fed, rested, etcetera, before he or she will be able to properly complete the job.

Pros of Communism?

Pros of Communism Economic equality Little to no unemployment No social gap Never need to worry about money Little to no unemployment Government protection Equal access to education, employment, and health provision Focus on the community

Cons of Communism?

Cons of Communism? High poverty rates Little economic growth Censorship Limited personal freedoms No individuality High government intervention/ ownership Strict laws No innovation or creative liberty One party system

Socialism Calls for putting the means of production in the hands of the people – either directly or through the government Based on need: profit distributed equally Wealth and income should be shared more equally among the people Planning or market determine capital allocation to socially-owned enterprises Whole community collectively owns and controls property, goods, and production Local government control

Socialism Different from Communism: Do not believe that the workers will overthrow capitalists suddenly and violently Do not believe all private property should be eliminated Main goal is to narrow, not eliminate, the gap between the rich and the poor Government is responsible to redistribute wealth to make society fair and just

Pros of Socialism?

Pros of socialism Social equality Economic equality Political equality Education, healthcare, public housing Economic equality Lessens the gap between classes Political equality Increases workers’ rights, more likely to allow more than one political party

Cons of Socialism?

Cons of socialism Higher cost = more taxes Fewer entrepreneurships Big Government Potentially become communist (communism is an extreme form of socialism) Does not reduce inequalities