INT 200: Global Capitalism and its Discontents

Adam Smith & the Industrial Revolution

Adam Smith• The Wealth of Nations (1776)

– free trade between nations, and between individuals left both sides better off

– when governments interfered with that freedom with controls, tariffs or taxes, they made their people poorer rather than richer

• A nation’s wealth is its per capita national product– real wealth is what money buys; GNP/GDP

• Key to economic efficiency: specialization– Division of labor

• Mutual gains from exchange• Money and value

– Labor remains the real price

Adam Smith

• Self-regulating Markets– Supply and demand: the quantity of the product

that sellers bring to market, and the size of the demand from potential buyers

– In their natural pursuit of profit, sellers steer their resources to where the demand, and therefore price, is highest, thereby helping to satisfy that demand.

– Resources are drawn to their most valued application, without the need for any central direction

• Money vs. Wealth– Money is a tool of exchange– Real wealth resides in what that money can buy– Mercantilism wrong

Adam Smith

• Role of Government– Defense– Justice– Public Works– Taxes

• Tenets of Capitalism– Private Property– Self Interest– Competition– Supply and Demand (invisible hand)– laissez-faire

Industrial Capitalism

• Industrial Revolution– transition from agrarian, handicraft economy to one dominated by

industry and machine manufacturing– technological, socioeconomic, political, and cultural changes

• wider distribution of wealth, the decline of land as a source of wealth, and increased international trade

• new state policies corresponding to the needs of an industrialized society• growth of cities, the development of working-class movements, and the emergence

of new patterns of authority• worker acquired new and distinctive skills, and his relation to his task shifted;

instead of being a craftsman working with hand tools, he became a machine operator, subject to factory discipline

– industrialist > the merchant