“New Ways of Thinking” Key Terms Laissez Faire Capitalism Adam Smith Thomas Malthus Utilitarianism Jeremy Bentham John Stuart Mill Socialism Utopians Robert Owen Communism Karl Marx The Communist Manifesto Bourgeoisie Proletariat

Background The dramatic changes brought forth by the Industrial Revolution led to new ways of thinking. People were trying to make sense of their changing world People were trying to solve the problems of society (poverty, hunger, the wealth gap etc…)

Laissez-Faire Economics The government is “hands-off” It should not interfere in the free operation of the economy Main proponent: Adam Smith The Wealth of Nations Argued that a free market (capitalist) economy would benefit the rich and poor Capitalism: economic system where means of production are privately owned and operated for profit.

Best evidence of this being successful? THE INDUSTRIAL REVOLUTION It happened without government interference!

The “Gloom and Doom” Economist Thomas Malthus – 1798 – An Essay on the Principle of Population Wrote it in response to massive population growth and the crowded slums, hunger, and poverty he observed in industrial cities. Believed population was growing faster than food supply. Urged families to have fewer children Discouraged charity and vaccinations Opposed any kind of government help for the poor He was wrong! The food supply surpassed population growth.

Utilitarianism Called for some limited government intervention Goal: “greatest happiness for the greatest number” of society’s citizens Jeremy Bentham – British philosopher/economist Does a law or action provide more happiness or pain? Influenced John Stuart Mill John Stuart Mill Liked free enterprise, but argued that the government should help the poor “The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.” What kind of laws/actions might Mill have supported?

SOCIALISM In response to industry and laissez-faire Socialists believe the government should plan the economy, not competition Were disturbed by the negative effects of the Industrial Revolution and the huge gap between rich and poor Believed socialism would end poverty and injustice Socialism: system where the people as a whole rather than private individuals own and operate the means of production (farms, factories, railways, businesses)

Utopian Socialists Early socialists = utopians = “impractical dreamers” Robert Owen – Cotton mill owner “The conditions in which people live shape their character” Set up a model community in New Lanark, Scotland Refused to use child labor, reduced working hours, built homes for workers, started a school for children

WHY DOES IT FAIL? Using strictly voluntary, peaceful means, how do you obtain human cooperation and allocate resources in a socialistic society ? How do you convince the most productive workers that they should keep on producing when everybody, including the idler and the incompetent, is rewarded equally? How do you decide what is to be produced? Or who is to have what job? Who should do the saving to provide investment funds? How can you exchange goods and services in a fair and equitable manner? 

KARL MARX Built Marxism from earlier socialist ideas Criticized Utopians as unrealistic advocated Communism – a system where there is a classless society, essentially no government, all means of production are owned by the community. 1848 – co-wrote The Communist Manifesto with Friedrick Engels Said that modern industry split society between the “haves” – bourgeoisie (middle class) “have-nots” – proletariat (working class) Argued that profits were really wages stolen from workers

Socialism and communism are ideological doctrines that have many similarities as well as many differences. One point that is frequently raised to distinguish socialism from communism is that socialism generally refers to an economic system, and communism generally refers to both an economic system and a political system. The means of production are publicly owned in both systems, but the ways that money and resources are distributed are different. In socialism, each person is allotted resources according to his or her input, or amount of work, and in communism, each person is allotted resources according to his or her needs. Many people consider communism to be a "higher" or more extreme form of socialism. As an economic system, socialism seeks to manage the economy through deliberate and collective social control. Communism, however, seeks to manage both the economy and the society by ensuring that property is owned collectively and that control over the distribution of resources is centralized to achieve both classlessness and statelessness. Under communism, all people are considered equal and are provided for equally, regardless of their contributions to the economy or to society. This is different from socialism, but both socialism and communism are similar in that they seek to prevent many of the ill effects that are sometimes associated with capitalism, such as economic inequality.

Another difference between socialism and communism is that communists assert that both capitalism and private ownership of the means of production must be done away with as soon as possible in order to make sure a classless society — the communist ideal — is formed. Socialists, however, typically see capitalism as a steppingstone toward the ideal state and believe that socialism can develop out of a capitalistic society. In fact, one of the ideas of socialism is that everyone within the society will benefit from capitalism as much as possible as long as the capitalism is controlled somehow by a centralized planning system.

Communism’s weakness: Sounds good in theory, but doesn’t work in practice. Essentially became a dictatorship because “Communists” wouldn’t give up power. Discourages new ideas and new products No incentive to work hard Poor quality goods, serious shortages, falling production (see other powerpoint!)

In 1937, Leon Trotsky said, “In a country where the sole employer is the state, opposition means death by slow starvation. The old principle: he who does not work shall not eat [from the Bible], has been replaced by a new one: he who does not obey shall not eat.”