reaction and reform: new economic theories
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Reaction and Reform: New Economic Theories. World History - Libertyville HS. Industrialization’s Effects. Gap between rich and poor grew Dominant economic theory = mercantilism Worked for pre-industrial societies Actually hurt development of industrialization. Effects of Industrialization. - PowerPoint PPT PresentationTRANSCRIPT
Reaction and Reform: New Economic Theories
World History - Libertyville HS
Industrialization’s Effects
• Gap between rich and poor grew
• Dominant economic theory = mercantilism– Worked for pre-
industrial societies– Actually hurt
development of industrialization
Effects of Industrialization• Big question: What was the
appropriate role of government, in society and the economy?– Should government stay completely out
of the economy?– Should government help poor people?– Should government completely control
the economy?
Laissez Faire policy: Government, Stay Out!!!
• Literally means “hands off”, in French
• Based in French enlightenment criticism of mercantilism– Criticized high tariffs on
foreign goods– Supported free trade (flow
of commerce between countries w/ no gov’t interference)
– Idea was that the best products would “win”, bringing wealth to that nation
Laissez Faire: Adam Smith (1723-1790)
• Scottish economics professor
• Wrote Wealth of Nations (1776)– Defended free markets– Economic freedom =
economic progress– No gov’t interference
in markets!• Influenced
development of capitalism
Capitalism Policy: Land, Labor and Capital, OH MY!!!
• Belief that factors of production should be privately owned– FOP = land, labor,
capital– Private money
should be invested in business ventures to make profit for investors
Capitalism• Believed in natural laws
of Smith’s Wealth of Nations– People work for their own
benefit– Competition forces people
to make better goods– Law of Supply & Demand:
enough goods will be produced at the lowest possible price, to meet demand in a market economy
Capitalism• David Ricardo’s
Principles of Political Economy and Taxation (1817)– Believed in permanent
underclass (some poor always exist)• With many workers and
many resources, labor costs & resources are cheap
• With few workers and few resources, labor costs & resources are expensive
• When population increases, what happens to wages?
Capitalism• This thinking resulted in
capitalist opposition to government assistance, for poor people– Interference upset
balance of market economy
– Minimum wage, working conditions, etc would reduce profits of business, resulting in hiring fewer people b/c of owner’s increased costs
Socialism: You’ve Got Your Government in My Economy!!!
Belief that government was the only force strong enough to fight against
unfairness created by capitalism, markets
Socialism: Reformers• Reformers
– Jeremy Bentham (1748-1832) advocated theory of Utilitarianism• People should judge
ideas, institutions, and actions based on their utility (usefulness)
• Government should promote greatest good for greatest number of people
• Individual should be free to pursue own advantage w/o state interference
Socialism: Reformers• John Stuart Mill (1806-
1873)– Challenged “pure”
capitalism– Argued that ordinary
workers should have share of profits of company
– Demanded that gov’t should equalize people’s wealth by taxing the rich and giving it to poor
• Other reformers focused on evil effects of industrialization
Theory of Socialism• Belief in social justice– Gov’t was a force for
good, in society– Gov’t should control
key industries to end poverty, encourage equality
– Key industries were factories, mines & RRs
• Public ownership would keep workers from being at mercy of employers
Communism (Radical Socialism): Workers of the World, Unite!!!
• Karl Marx (1818-1883) and Friedrich Engels (1820-1895)– Believed that
economic forces alone dominated history, society
– Wrote The Communist Manifesto in 1848
The Communist Manifesto• Human society divided into
social classes in conflict with each other– Haves: factory owners,
employers– Bourgeoisie: middle class– Have nots: proletariat =
factory workers• Industrial revolution had
made wealthy rich and the poor, poorer
• Predicted uprising of the proletariat: workers would overthrow the owners
Marx’s Dictatorship of the Proletariat• Belief that capitalism would
destroy itself• Process
– Big business would drive artisans out of business
– Eventually, only a few manufacturers would control all wealth
– Proletariat would revolt, take over factories and mills from the owners
– Proletariat would produce only what society needed
– Workers would share all profits (economic equality)
– Gov’t would be controlled by proletariat until state withered away until classless society emerged
Marx’s Classless Society• Classless society =
communism– Means of production (land,
labor, capital) would be owned by the people
– Private property would not exist
– All goods, services would be shared equally by all people
– Marxist slogan: “From each according to his ability, to each according to his need”