3. Understanding Economics People have unlimited wants (things they would like to have or to do) but we have limited resources to satisfy these wants. Economics is how people meet their needs by making, distributing, and using goods and services. So society must answer 3 basic economic questions: What Should Be Produced ? How Should It Be Produced ? Who Should Get It ?

4. Free Enterprise System Free Enterprise System is when people have the freedom to make their own choices in what to buy, where to work, and what to make. People are free to use their money and time to start a business in hopes of making a profit. (Producers) People are free to choose the type of product they wish to buy and how much they’ll pay. (Consumers) In a free enterprise system the government has a limited role, it : – Supplies some services (military, roads, police, etc) – Sets the rules (laws, taxes, regulations, etc) – Acts as a referee to settle disputes (courts)

5. Capitalism Capitalism is another word used to describe free enterprise. Capitalism is an economic system based on: – private ownership of capital goods, – the ability to invest in businesses in order to make a profit, – the production, pricing, and distribution of goods based on a free market, Words like capitalism, free enterprise, and democracy often go hand in hand.

6. Capitalism Role of the Entrepreneur – these people are the factory/business owners that invest their time, money, and skills on the chance of making a profit. Role of the Worker – provides the labor in exchange for money/wages. Role of the Government – laissez-faire means as little government rules, laws and interference as possible.

7. The Law of Supply and Demand Supply is how much of a good producers make available. Demand is how much of a product consumers are willing to buy. Price is determined by the interaction of the supply of a product and the demand for that product. Supply Demand Price

8. Interaction of Supply and Demand Prices may go up if: – Demand for a product is high – Supply of a product is limited Prices may go down if: – Demand for a product is low – Supply of a product exceeds the demand

9. Adam Smith Adam Smith wrote “The Wealth of Nations”, a book explaining how the free enterprise system works. Smith explained how the laws of supply and demand would determine products made and their prices. Smith also favored a ‘laissez-faire’ policy with as little government interference as possible. Smith described an ‘invisible hand’ that guides the markets to making it work for the common good.

10. The Invisible Hand “Each individual strives to become wealthy "intending only his own gain" but to this end he must exchange what he owns or produces with others who sufficiently value what he has to offer; in this way, by division of labour and a free market, public interest is advanced.” Adam Smith “The Wealth of Nations’

11. Causes of the Industrial Revolution The Industrial Revolution began in Great Britain in the 1700s. Industrialization is the process of developing machine production of goods instead of by hand. England had all the factors of production the Industrial Revolution needed, land, labor (workers) and capital (wealth). It also had an abundance of resources.

12. Causes of the Industrial Revolution Several factors made Industrial Revolution possible: – Geographical advantages – many harbors, rivers, and lots of coal to fuel industry. – Transportation and Communications – many canals, ports, many newspapers and world’s greatest Navy. – Large Colonial Empire – Britain’s world wide empire brought many raw materials to England and contributed to sophisticated financial skills. (The sun never sets on the Empire) – Powerful Middle Class – who participated in government and promoted free enterprise as a road to success. – Agricultural Improvements – scientific methods of animal and crop production, like enclosing lands and crop rotation

13. The Shift from Home to Factory The Domestic System Before the Industrial Revolution, craftsman worked in their homes. They hand spun wool and cotton and wove the threads into a finished cloth. This system was called the domestic or cottage system. It was a slow process without power machinery and the quality of the product varied widely.

14. Innovations in Textile Manufacturing The revolution began in textile manufacturing, which is clothing. Cotton and wool had traditionally been pulled and twisted on a spinning wheel to make one thread at a time. The invention of the spinning jenny, in 1764, allowed for larger quantities of thread to be spun faster and cheaper. These innovations would soon spread to other industries.

15. The Steam Engine Steam engines heated water that created steam, the steam built up pressure that powered machines. Before the steam engine, factories had to be located near running water as a source of power. This new steam engine allowed factories to be located anywhere! James Watt improved on the steam engine.

16. The Shift from Home to Factory The Factory System The Industrial Revolution brought together workers in a common building that contained machines driven by a power source. This factory system improved the rate of production, lowered the costs of production, and therefore lowered the price of goods while increasing the demand for them.

17. The Shift from Home to Factory The Factory System Demand also increased for the raw materials and for workers needed to make the textiles. Eli Whitney invented a cotton gin, making it easier to clean cotton and more profitable to grow it. Demand for cotton increased trade with the southern USA causing an increase in the slave trade to produce more cotton.

18. Factory Working Conditions England had good supplies of coal and water to create steam energy. British craftsmen built new machinery capable of using this new source of power. Factories rapidly sprang up and greater numbers of people were employed. But, working conditions worsened as the factory system spread and workers raced to keep up with the machines. Year Tons

19. As factory owners grew richer, the conditions for the new working class worsened dramatically. Early factories were appalling, unsafe places to work. Hours were long, wages were low and conditions were dangerous. Women and children often worked. Factory Working Conditions

21. Urbanization As farm equipment improved, fewer workers were needed on the farms. The shift from farm labor to factory work brought large numbers of people to the cities. This mass migration marked one of the largest population shifts in history. Cities became crowded, polluted and unsanitary!

22. Transportation Technology The steam engine was used to improve transportation as early as the 1800s when the steam boats became useful. Steam engine technology was also applied to power locomotives. The first railroads developed in 1820s unified regions linking cities, factories and the countryside and allowed factories to move products to market much faster. Railroads also increased the demand for coal, iron, & steel, this stimulated the growth of heavy industry.

23. Reform Movements Social Reforms The shift from rural to city, in search of work in the factories, changed life. Men had always worked, but now women and children began working long hours which ultimately led to the breakdown of the family unit. This unprecedented growth and profit led to radical social change. England’s Queen Victoria favored efforts to help the poor and worked for social reforms during England’s Victorian Era.

24. Reform Movements Political Reforms By 1832, the middle class factory owners and managers wanted political power to match their new-found economic punch. The Reform Bill of 1832 gave suffrage, the right to vote, to an additional 20% of the male population that had previously not been able to vote.Reform Bill of 1832 Soon the law would expand democracy for all males, but still, no females were allowed the right to vote.

25. Reform Movements Municipal Reforms Municipalities (cities) set out to make cities cleaner, healthier, and safer places to live. They improved the water supply and introduced sewage systems to stop spread of disease like cholera. The first free public schools were started. Police forces and street lights made city streets safer.

26. Reform Movements Workers’ Unions Workers were often taken advantage of by management or employers, so they began to organize into unions. Unions attempted to get better wages, shorter hours, and better conditions for labor. Unions used technique like strikes, a refusal to work, in order to get what they wanted.

27. Karl Marx and Communism Karl Marx was a critic of capitalism! Marx and Friedrich Engels wrote a book called “The Communist Manifesto” in which they explained a new economic system called communism. Marx felt capitalism was unfair and that the: – proletariat (workers) created value through their labor. – bourgeoisie (business owners) took advantage of the workers and kept most of the value created for themselves. Marx felt when workers tired of the abuse there would be a violent revolution against the capitalist.

28. Karl Marx and Communism Marx predicted this violent overthrow of capitalism would lead to an equal society that lived in harmony, he called this new system communism. Under Marx’s version of communism there would be: – No private property, everything is owned in common. – No social classes would exist. (No rich, No poor) – Cooperation would replace competition. – Everyone’s needs would be met.

29. Socialism Not everyone was as radical as Marx and his communists, some did not think a violent revolution was the answer. Socialists did believe that it was necessary to improve working conditions for the average worker. Socialism tried to protect workers from low wages, unsafe conditions and long hours of work. Socialists believe that government should own certain types of industries, they should provide free health care, schooling and low-income housing. The Soviet Union, China, North Korea, and Cuba all follow some form of socialism/communism.

30. The Second Industrial Revolution A stream of innovation that started the Industrial Revolution continued into what became called the “Second Industrial Revolution”. This Second Revolution was brought about by the – introduction of electricity, – combined with improvements in industries like: steel, petroleum, chemicals,

31. The Second Industrial Revolution Thomas Edison – with the introduction of electricity he was able to create: – Motion pictures – The light bulb – The phonograph Alexander Graham Bell – developed the telephone, that led to our cell phones of today and improved communications. Marie Curie – studied about radioactivity and became the first woman to win a Nobel Prize for discovering radium.

32. The Second Industrial Revolution Louis Pasteur - believed diseases were caused by germs. – This new ‘germ theory’ was unpopular until Pasteur proved sanitary practices, like washing hands and boiling objects to stop infections. – Pasteur developed vaccines for anthrax and rabies that decreased death rates. – Pasteur’s method of heating liquids to kill germs is called pasteurization and is used in the milk industry. (Check out a milk carton) Pasteur’s work led to longer, healthier lives!

33. The Second Industrial Revolution The steam engine led to the development of the internal combustion engine and the use of petroleum products as a power source soon led to the car. Henry Ford used an assembly line to mass produce the automobile, making it possible for everyone to own one.

34. Impact of Industry on Nationalism Nationalism is a belief that a person’s loyalty belongs to the nation not to the nations ruler. A common ethnic nationality, language, culture, history, and religion connect people. People sharing these traits felt they had a right to a land they could call their own. In the 1800s the French Revolution and Napoleon unleashed feelings of nationalism throughout Europe and in Latin America. Italy and Germany would soon experience a surge of nationalism & achieve independence.

35. Nationalism Unites Italy During the 1800s, large parts of Italy were ruled by kings of Austria and Spain. Camillo di Cavour and Giuseppe Garibaldi led Italians who desired their own nation to achieve a united Italy in 1861. Italy before nationalism Italy after unification

36. Nationalism Unites Germany Before the Industrial Revolution Germany was divided into many different nation-states. Otto von Bismarck led German nationalists to establish a strong united Germany. Germany used the railroads and rifles to develop Europe’s most powerful army. Germany before unification Germany after unification ‘Blood and Iron’ will unite Germany