Industrial Age Economic Theories


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  • Industrial Age Economic Theories

    1. 1. Industrial Age Economic Theories From Adam Smith to Karl Marx
    2. 2. Origins The economic history of the modern world can be broken down into two periods The Commercial Age from 1500 to 1750 The Industrial Age from 1750 to present
    3. 3. capitalism The Commercial Age was characterized by the advent of the philosophy of capitalism Capitalism: an economic system of large financial institutions—banks, stock exchanges, investment companies, that first developed in early modern Europe
    4. 4. mercantilism The primitive economic system it created was called Mercantilism Mercantilism: European government policies of the 16 th -18 th centuries designed to promote overseas trade between a country and its colonies and accumulate precious metals by requiring colonies to trade only with their mother country
    5. 5. mercantilism Mercantilists looked to the state to protect their businesses and allowed it to regulate commercial activity European governments enacted numerous trade laws strictly regulating trade The laws maintained high import tariffs to keep out foreign competition
    6. 6. mercantilism Encouraged exports to ensure balance of trade surpluses could be used to acquire gold and silver Goods traded between colonies and foreign countries went through the mother country (taxed both ways!) Shipping trade kept in the hands of the mother country’s merchant marine
    7. 7. Weakness of mercantilism Negative balance of trade between colonies and mother country Stockpiled money led to inflation. Discouraged production and savings Black market trade increased in light of heavy economic regulation Example: The Navigation Acts in Britain and her colonies
    8. 8. Adam smith Adam Smith disagreed with mercantilist practices. Espoused his views in his book The Wealth of Nations
    9. 9. The wealth of nations Smith believed that an economy had to be given free reign to regulate itself to be successful He called this Laissez-faire Individual self interest would be the “invisible hand” guiding trade Trade was limited only by the availability of raw materials
    10. 10. The wealth of nations Labor theory of value : Finished goods produced by an economy are intrinsically valuable because of the labor and resources put into them These intrinsically valuable goods became the reason for trade Stockpiled goods only valuable as a means of acquiring other goods
    11. 11. The corporation Legal foundations for modern corporations laid in Britain and France in 1850s and 1860s Financed through purchase of stocks Investors got dividends if business profited Limited liability of investors if business failed
    12. 12. Monopolies, trusts, and cartels Some big businesses in the late 19 th century sought to eliminate competition Wanted monopoly in their markets Eventually governments intervened to prevent monopoly power
    13. 13. Reactions to industrial capitalism
    14. 14. Trade unions Worked for change through large scale organization Considered Illegal through much of the 19 th century Seen as wanting to restrict trade Strikes combated by police and troops Gradually accepted as gains reduced probability of worker revolt
    15. 15. The socialist challenge Socialists worked to alleviate some of the problems of industrialization Disparities of wealth deplored Condemned exploitation of women and children in the workforce Sought to expand enlightenment ideas of equality to the economic sphere
    16. 16. Forms of socialism Evolutionary socialism : hope for workers lay in change through representative government. Moderate Utopian socialism: sought idealistically organized, separatist communities of workers Marxist Communism : advocated class struggle and revolution. Radical
    17. 17. evolutionary socialism Looked to government to legislate changes in working conditions Successful to a degree Expanded suffrage to all men Reformed working conditions Medical insurance, unemployment compensation and pensions helped
    18. 18. Utopian socialists Led by Charles Fourier and Robert Owen beginning around 1830 Tried to establish equitable society Everyone worked in accordance to ability and inclination
    19. 19. Utopian socialists Model community at New Lanark formed by Owen Lowered working hours, paid fair wages, provided fair prices in company store, and educated children These communities faced considerable moral criticism. Efforts continued but eventually failed
    20. 20. Marxism Karl Marx and Friedrich Engels most prominent 19 th century socialists
    21. 21. marxism Marx saw utopians as unrealistic Social problems were the inevitable result of the capitalist system He stressed class divisions Workers had only their labor to sell Employers took advantage of workers
    22. 22. The communist manifesto Developed in the social and political turmoil of 1848 Stressed class struggle as the driving force in human history Marx believed the working class would ultimately win Socialist revolution the only alternative to continued exploitation
    23. 23. “ The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries, unite!” - Manifesto of the Communist Party, 1848
    24. 24. Socialism and then communism Workers would seize control of the means of production from the bourgeoisie, crush opposition classes, and nationalize the economy Once capitalism collapses, a transitional socialist dictatorship of the proletariat would develop a fair and just society
    25. 25. Socialism and then communism Bourgeoisie: the class of well-off town dwellers whose wealth came from manufacturing, finance, commerce, etc. Proletariat: the working class who typically have only their labor to sell
    26. 26. Once opposition ended, the dictatorship of the proletariat would eventually fade away leading to true Communism In true Communism there is only one class and no state Socialism and then communism
    27. 27. Under true Communism: Economic exploitation, crime, and social injustice would naturally end All private property would cease to exist Thus, there would be no more need for police, courts, armies, or governments Socialism and then communism
    28. 28. Marx didn’t foresee 20 th developments in capitalism like labor concessions and the welfare state Human nature not considered Marx believed the dictatorship of the proletariat would be benevolent. This was not the case in most Marxist governments Critique of Marx