Economics of the Industrial Revolution

Economics of the Industrial RevolutionHow to make a living in the 1800s

MERCANTILISMLooking to get a bigger piece of the pie.

Characteristics of Mercantilism1. “Bullionism” – the economic health of

a nation can be measured by the amount of precious metals (gold and silver) which it possessed

◦ Bullionism dictates a “favorable balance of trade”, requiring that you export more than you import

2. Trade is a zero sum game – this means that a nation can only make gains in international trade at the expense of other nations

Characteristics of Mercantilism3. Each nation must try to be

economically self-sufficient4. Thriving agriculture should be

encouraged 5. Sea power was necessary to

control foreign markets

Characteristics of Mercantilism6. A large population was needed

to provide a domestic labor force and to people the colonies

7. Colonies would provide captive markets for manufactured goods and sources of raw materials

Characteristics of Mercantilism8. State action is needed to

regulate and enforce all of these economic policies

◦ Example: State sponsored trade monopolies such as the Hudson Bay Company

Mercantilism in Action

Who Benefits from MercantilismMonarchsMerchant capitalistsJoint – stock companiesGovernment officials

CAPITALISMShow me the money!

Adam SmithAppointed to the chair of logic at the

university of Glasgow, Scotland later transferred to the chair of philosophy

In 1776 wrote the book Wealth of Nations in which he attacks the mercantilist system

While his primary points were political he made several economic arguments:◦ Base unit for social analysis should be the

nation NOT the state◦ He believed that trade was NOT a zero sum

game but that both nations could benefit making it a positive sum game

Principals of Capitalism1. Goods and services are produced for

profitable exchange2. Human labor power is a commodity for sale

– LABOR IS THE SOURCE OF VALUE

Principals of Capitalism3. The “Invisible Hand” of the market

◦ The free market while appearing chaotic and uncontrolled, it is in fact guided by logic and/or greed to produce the right amount and variety of goods

◦ The basic market mechanism is self regulating

◦ This is the so called “Invisible Hand”4. Individuals seeking success are

driven by self-interest – profit motive

Principals of Capitalism5. The Law of Supply and Demand

◦ Individuals who are free to pursue their self-interest will produce goods and services that others want and at prices others are willing to pay

Principals of Capitalism6. Government should interfere as little

as possible with the free and efficient workings of the government

◦ This is called Laissez Faire (leave things alone) economics

MARXISMWhat is yours is mine and what is mine is yours.

Karl MarxKarl Heinrich Marx was a German

philosopher, economist, sociologist, historian, journalist, and revolutionary socialist.

His ideas played a significant role in the development of social science and the socialist political movement

Marxism: an economic and political theory that states that law is an instrument of oppression and control that the ruling classes use against the working classes

Basic Principles of Marxism1. As the forces of production, most

notably technology, improve, existing forms of social organization become inefficient and slow or stop further progress.

2. These inefficiencies show themselves as social contradictions in society in the form of class struggle.

Basic Principles of Marxism3. Under the capitalist mode of production,

this struggle materializes between the minority (the bourgeoisie) who own the means of production, and the vast majority of the population (the proletariat) who produce goods and services.

4. Capitalism (according to Marxist theory) can no longer sustain the living standards of the population due to its need to compensate for falling rates of profit by driving down wages, cutting social benefits and pursuing military aggression.

Basic Principles of Marxism5. Private property in the means of

production would be superseded by co-operative ownership.

6. The economy would not base production on the creation of private profits, but would instead base production and economic activity on the criteria of satisfying human needs – that is, production would be carried out directly for use.

The End