FCPS World II SOL Standards: WHII 9b FCPS HS Social Studies © 2014 Responses to the Industrial Revolution: Economic Systems (1776-Present) You Mean People Disagreed about How to Reward Hard Work? Capitalism (Free Market Economy/ Free Enterprise System) In capitalism, individuals own both private property and the means of production (factories, machines, tools, etc.). People make all economic decisions based on their own self-interest. In a pure capitalist system, only the forces of supply and demand control the economy. When people want more goods, businesses make more goods. If too many products exist, however, the owners lower their prices to sell the rest. Adam Smith argued for capitalism in The Wealth of Nations (1776). He believed that market competition would force owners to make more goods at lower prices. Smith liked entrepreneurs because they began new businesses. He said that competition forced people to find the best ways to make the products. Smith liked a laissez-faire policy in which the government plays little or no role in the economy. He stated that the “invisible hand” of supply and demand should work with little interference Results of Capitalism Capitalism and market competition fueled the Industrial Revolution. Wealth increased the standard of living for some people, and the middle class grew. However, the lack of laws to protect people led to problems. Many people disliked the poor working conditions and unequal distribution of wealth. Alternate economic ideas emerged as new ways to address these problems. Adam Smith Source:http://commons.wikimedia.org/wiki/File:AdamSmith.jpg Pro-Communist Poster 1911 Source: http://02varvara.files.wordpress.com/2013/10/00-pyra- mid-of-the-capitalist-system-1911-iww.jpg Communism Communism responded to the injustices of capitalism. In communism, the people as a group own all property and the means of production. No private property exists. Society makes all economic decisions based on the common interest. In a pure communist system, everyone works hard in order to help society. The people then share all goods and services equally. People take what they need. Karl Marx argued for communism in The Communist Manifesto (1848) (written with Friedrich Engels) and Das Kapital . Marx saw history as a series of class struggles. In his own time, Marx pointed to the conflict between employers (the “haves”) and employees (the “have-nots”). He said that the middle class (bourgeoisie) controlled the working class (proletariat) . Marx thought that the problems would get so bad that the workers would revolt. They would seize the means of production, redistribute wealth, and create a classless society. In theory, the government would become unneeded and would gradually wither away. Results of Communism Communists took power in many countries during the 1900s. Examples included the Soviet Union, China, North Korea, and Cuba. The communist economies usually did poorly, however, because people had few incentives to work hard. They received the same goods and services even if they did little work. In addition, the governments never withered away as Marx had predicted. Instead, a dictatorship frequently emerged. Only a strong leader could force people to work in this unfair system. Communist party members became the “haves,” while most people stayed poor.