1. Industrialization: Economic Principles and Theories

2. Why Industrialization in England
Legal and Political
Developed Banking Industry
Restrictions on power of king
Legal protection of private property
Fewer civil wars than other nations
Growth of Corporations
Stocks
Stockholders

3. Capitalism
Definition: an economic system in which there is private ownership of natural resources and capital goods.
Self-interest is good – it motivates people
Competition keeps it in check

4. Adam Smith Adam Smith – Wealth of Nations, 1776
Scottish Philosopher
Laissez faire – let it alone
No government restrictions/direction
Individual self interest
Wealth created by entrepreneurs chasing after profit
Competition
Prevents any one company from monopolizing market

5. Capitalism Invisible Hand
“It is not due to the generosity of the butcher or baker that we should expect our meat and bread. Instead, we should appeal to their selfishness. We should reward those suppliers who produce quality products with profit. Thus, our needs are met via their own pursuit of wealth.”
Question - are there items that are needed, but not met through the “invisible hand”? Is anyone going to step up and make roads? Or vaccines? Some items are so high in cost that it may not meet the needs of society…gov’t steps in

6. Capitalism What to Produce How to Produce For whom to Produce
Sellers choose to make whatever they think people will buy
Supply and demand sets prices and wages
How to Produce
Method determined by profit motive
For whom to Produce
Only those who can pay
Show a supply and a demand curve
For whom to produce – problem of capitalism – it does not create desire for poor people to be served as well

7. Problems with Laissez fair Capitalism
Monopoly replaces competition
Profit Motive & Lack of government intervention
Dangerous / shoddy products
Child labor
Unsafe working conditions
Low hours – low pay for unskilled labor
Company store
STOP here and READ “The Hard Truth behind Asia’s boom.”

8. Socialism
Definition: an economic system in which the government owns and controls capital and sets prices and production levels.
Government ownership of some of the key factors of production
Private firms may continue to produce goods and services side by side with government
Goal is to own and operate the factors of production for the benefit of all, not just a select few.
Gov’t should plan the economy rather than depend on free market capiatlists -- factories, mines, rr, industry -- end poverty and promote equality

9. The Rise of Socialism Utilitarianism
Jeremy Bentham & John Stuart Mill (late 1700s)
Government should create the greatest good for the greatest number
Government should reduce gap between rich & poor
Promoted greater equality for all people
Individual should be free to pursue his/her own advantage without interference from the state.
People should judge ideas, institutions, and actions on the basis of its usefulness,,,,gov’t shoud promote the greatest good for the greatest amount of people
Mill believed in a greater share of the profit for the workers

10. Goal of socialism Government should help answer economic questions
What: goods & services capitalism not providing – schools, bridges, public trans
How: working conditions - wages
For whom: equal or equitable distribution of goods & services.
See chart pg 303 to compare/contrast the economic ideas of socialism and capitalism

11. Karl Marx and Communist Manifesto
Karl Marx – Communist Manifesto (1848)
Marxism – radical form of socialism
Criticized capitalism
Capitalism only the latest form of exploitation
Capitalists / Bourgeoisie
Workers / Proletariat
Capitalism would result in increasingly large firms employing mostly poor people while owners keep the wealth

12. Radical Socialism (Communism)
Revolution would then be needed to overthrow Capitalism
“The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries, unite.” (Marx and Engels)
Socialist Utopia - Governments would eventually disappear as people shared goods & services
Communism – final phase, complete socialism in which the means of production would be owned by the people. No private property would exist – all goods and services shared equally.

13. Communism
Definition: an economic system based on one-party rule, government ownership of the means of production, and decision making by centralized authorities.

14. Other Reactions to Industrialization/Capitalism: Reform Movements
Unions – created to help workers negotiate with large corporation.
Strikes – all union members refusing to work until improvements in wages & working conditions
Tried to force government to intervene in economy & pass laws to improve product safety, working conditions & wages
Child labor
Working conditions
Length of work day
Unions opposed by governments & corporations – laissez faire

15. Other Reactions to Industrialization
Malthus
Essay on Population 1798
Number of people growing faster than our ability to feed ourselves
Government should not help poor because that would just encourage them to have more children

16. Other Reactions to Industrialization
David Ricardo
Political economist, late 1700s-early 1800s
There would always be a“permanent underclass” of poor
Wages should be allowed to stay low to better allocate scare resources
Comparative advantage: argued that there is mutual benefit from trade even if one party (e.g. resource-rich country, highly-skilled artisan) is more productive in every possible area than its trading counterpart (e.g. resource-poor country, unskilled laborer), as long as each concentrates on the activities where it has a relative productivity advantage.

17. Other Reactions to Industrialization
Herbert Spencer
Social Darwinism
Application of Charles Darwin’s ideas about evolution and “survival of the fittest” to human societies, particularly as a justification for imperialist expansion.
People/cultures are poor because they are “unfit”
People/cultures are rich because they are “superior”
Government should not help poor – it was their own fault!