Economics of the Industrial Revolution

Problems of Industrial Revolution  Time to look for solutions! Some believed the market would fix the problems Others believed there should be a change in government  What is the market?

Adam Smith Wrote: The Wealth of Nations British economist Adam Smith promoted “laissez faire” capitalism The #1 economic system during the Industrial Revolution Laissez Faire (hands off) – policy allowing businesses to operate with little or no government interference. Smith Capitalism – economic system in which the means of production are privately owned and operated for profit.

Profit Motive Market Economy Competition Free Enterprise Private Ownership Capitalism

Adam Smith Smith’s Argument: Free market forces (supply and demand) would produce more goods at lower prices This would encourage capitalists to invest their money in new ideas Claimed that the “invisible hand” of capitalism led individuals who worked for their own good to promote the good of the community “The Father of Economics” Smith

Thomas Malthus 1798 Wrote: Essay on the Principle of Population Predicted that population growth would outpace food supply Malthus

Thomas Malthus Warned that the poor would suffer from starvation Only option= people must have fewer children Malthus

Thomas Malthus Predictions did NOT come true because food supply grew even faster than population Malthus

David Ricardo British economist that agreed with Malthus The poor were having too many children “Iron law of wages” stated that population and wages are connected and go through a cycle… Ricardo When wages are high families have more children When wages are low families have less children

High Wages  Workers have more Children Surplus of Workers  Lower Wages Lower Wages  Workers have fewer Children Shortage of Workers  Higher Wages David Ricardo’s Iron Law of Wages

Believed that laissez faire was the best cure for poverty (Malthus, Smith) NOT business regulation or government intervention Advised families to be hard workers, thrifty, and have a small family David Ricardo Ricardo

Socialism – system in which the people as a whole rather than private individuals own all property and operate all businesses. Claim that industrial capitalism had created a large gap between the rich and poor Cared less about individual ownership rights and more about the interests of society

Sought to create self-sufficient communities All property and work would be shared Wealth would be equal Fighting would end Utopian Socialism Scotland: Robert Owen set up a Utopian factory community Supplied good housing, education, and fair wages Owen

New Lanark, Scotland

German philosopher Karl Marx promoted “scientific socialism” claimed it was more realistic than utopian socialism 1848: teamed up with German economist Friedrich Engels and published The Communist Manifesto Karl Marx EngelsMarx

Communism Marx Communism – a form of socialism that sees class struggle between employers and employees as inevitable.

In The Communist Manifesto Marx argues: History was a class struggle between the bourgeoisie (wealthy capitalists), and the proletariat (working class) To make profits, the bourgeoisie exploited the proletariat (how???) Capitalism created prosperity for a few and poverty for many Communism

The P would take control of the means of production and create a classless communist society where wealth and power would be shared With communism, all the evils of the industrial revolution would end The Proletariat will eventually revolt and overthrow the capitalists to make a new society In The Communist Manifesto Marx argues: Communism

Marx’s Industrial Age Social Pyramid Bourgeoisie (capitalists, the “haves,” the oppressors) Proletariat (workers, the “have-nots,” the oppressed)

Called for an international struggle to bring down capitalism Slogan = “workers of the world unite!” Socialist political parties formed in Western Europe By 1900: the standard of living for the working class improved and communism lost popularity Communism

1900s: most people still felt stronger ties to their nationality and county rather than their economic class No worldwide communist revolution Communism 1917: revolutionaries toppled Czar Nicholas II in Russia and set up the first communist state

Lenin leads the Revolution in Russia