Economic Theories of the Industrial Revolution

Old Ideals: Mercantilism & Rising Demand • An economic theory followed by Europe in

the 1600s that stated a nation should maintain and increase its wealth by exporting goods more than importing

• Encouraged a policy of being self-sufficient, therefore putting guild restrictions on amount of material produced by workers to keep prices stable

• Limited expansion of economy, thus bringing decline making way for another way of managing the economy

Capitalism• Capitalism – an economic system

based on private ownership and on the investment of money in business ventures in order to make a profit.

Other Thoughts…• Herbert Spencer (1820-1903):

– Applied Darwinism to human society: as in nature, survival properly belongs to the fittest, those most able to survive.

– Social Darwinism was used by many Victorians to justify social inequalities based on race, social or economic class, or gender

• Adam Smith- – 18th century economist, – held that the best government economic policy was to

leave the market alone—– to follow a laissez faire or “let it be” policy of little or

no gov’t intervention

• Old mercantile system restricted trade

• Laissez-faire economics

• Adam Smith, market economy

• Thomas Malthus, poverty unavoidable

• Industrialization succeeded and spread

Capitalism and Competition

• Shift in wealth and power

• Entrepreneur

• Banking and finance

• Andrew Carnegie, rags to riches

• Robber barons

New Roles for Business Leaders

New Ideas about Economics

Capitalism • System of production, distribution, and exchange in

which private owners invest accumulated wealth for the sake of gain

• Defined by:– free open market, – private ownership, and – private businesses competing for profit

Capitalism

• Private Property• Free Trade• Low Taxes• Light Regulation

Economists on Capitalism

• Adam Smith • Thomas Malthus • David Ricardo

Adam Smith

Thomas Malthus David Ricardo

Adam Smith

• Scottish economist who wrote The Wealth of Nations (1776)

• Stated that an economy works best when the natural forces of supply and demand operate without government interference

• Believed that self-interest was a natural order in the universe that added up to the common good

Adam Smith cont• Businesses competed to produce goods

at the lowest price possible, and consumers would buy the best products at the lowest prices.

• By 1850’s Great Britain had been the leading industrial power and adopted free trade and laissez-faire policies.

He predicted that workers were at the mercy of the law of supply and demand.

Competition and Free Trade would rule the future.

Laissez-Faire Capitalism

• It is a French phrase that literally means hands-off.

• It states that the government should not be involved in the economy.

• It should let the natural laws of capitalism work. This is the way the economy works best.

• Dominant form of capitalism through the end of the Industrial Revolution.

Capitalists were seen as greedy. The truth was,

many were bewildered

themselves by the forces of an

unregulated cuthroat

marketplace…

Role of Government• Government should enforce contracts and grant

patents and copyrights to encourage inventions and new ideas.

• Government should provide public works like roads and bridges that would not be worthwhile for individuals to provide.

• But the users should pay to use the public works like road tolls.

• Did support retaliatory tariffs.

Smith’s Definition of Wealth• Consists of the goods which all people of society

consume• Rejected the traditional views of wealth as gold,

treasures, kingly hoards• Rejected the restrictions of merchants, farmers, and

guilds• “We are in the modern world where the flow of

goods and services consumed by everyone constitute the ultimate aim and end of economic life.”

Law of Self-Interest and Charity• Charity cannot alone provide the essentials for living.• Self-Interest is the remedy for Charity’s shortcomings.• “It is not from the benevolence of the butcher, the brewer, or the

baker, that we can expect our dinner, but from their regard to their own interest.”

• Someone earning money by his own labor benefits himself.• He also benefits society, because to earn income on his labor in a

competitive market, he must produce something others value.• “By directing that industry in such a manner as its produce may be

of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which has no part of his intention.”

Law of Supply and Demand• When there is a limited supply of a

product, and there is a growing demand, the price of the product will increase.

• When there is a large supply of a product, and there is a decreasing or little demand, the price of the product will go down.

• This results in a fair pricing system.

Law of Competition

• This applies the idea of survival of the fittest to the business world.

• A number of businesses will compete in the same field to offer the best product for the best price.

• It is known that not all will succeed.• Those that succeed should.• The consumer benefits because the consumer

gets a quality product for a fair price.

Division of Labor• Main cause of prosperity was increasing the division of

labor• Smith gave the example of pins.• 10 workers could produce 48,000 pins per day if each of 18

specialized tasks were assigned to particular workers.• Average productivity is 4, 800 pins per worker per day• If no division of labor, a worker would be lucky to produce

even ONE pin per day.• Individuals should invest in land or labor to earn the

highest possible return

Wage Rates• Wage rates would be higher for trades that were

more difficult to learn, because people would not be willing to learn them if they were not compensated by a higher wage.

• Gave rise to the modern concept of Human Capital.

• Wage rates would also be higher for those engaged in dirty or unsafe occupations like coal mining, butchering, and hangmen,

• Work is compensated by differences in pay.

Private vs Public ownership

• Privately owned things tend to used more efficiently and cared for better.

• Publically owned things tend to be abused for short term gain and have neglected care.

Taxes• A tax is a forced transfer of wealth and will

lessen the incentive to do what is taxed.• If we tax work, we get less work• If we tax smoking, we get less smoking• We should change to a consumption tax• Laissez-Faire Capitalists prefer a national sales

tax over income, SS, Medicare, Estate, Capital Gains, & Dividend taxes

Invisible Hand• Term used by Adam Smith to describe the natural force that guides

free market capitalism through competition for scarce resources. • According to Adam Smith, in a free market each participant will try

to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better of than when simply producing for himself/herself.

• He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this "invisible hand" would guide market participants to trade in the most mutually beneficial manner.

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Adam Smith and the Invisible Hand

• Adam Smith (1723-1790) saw prices as the force that directed resources into activities where they were most valuable

• Prices told both consumers and firms the “worth” of the good.

• Smith’s somewhat incomplete explanation for prices was that they were determined by the costs to produce the goods.

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Adam Smith and the Invisible Hand

• Since labor was the primary resource used, this led Smith to embrace a labor-based theory of prices.– If catching deer took twice as long as catching a

beaver, one deer should trade for two beaver (the relative price of a deer is two beaver’s).

Explain Adam Smith’s “Invisible Hand” theory. What are the forces that drive the hand? What are the benefits?

All of the misery was observed by two important men: Malthus and

Ricardo.

Malthus and Ricardo

• Thomas Malthus and David Ricardo take laissez-faire capitalism to extremes.

• Malthus thinks populations grow faster than food supply; wars, epidemics, etc. kill off extra people or misery and poverty result.

• Ricardo envisions a permanent, poor underclass providing cheap labor.

Thomas Malthus and David Ricardo • Thomas Malthus wrote in An Essay on the Principle

of Population (1798) that poverty, famine, and misery were unavoidable because population was increasing faster than the food supply.

• David Ricardo stated that rapid population growth would only lead to fierce competition for jobs, lower wages, and higher unemployment.

• Both opposed government aid to the poor; the poor could help themselves by working hard, saving their earnings, and having fewer children.

Thomas Malthus

• wrote “An Essay on the Principle ofPopulation”• predicted population would outpace thefood supply leading to widespread poverty• saw effects of the population explosion• thought only checks on population werenatural methods: war, disease, & famine

• Malthus was a political economist who was concerned about, what he saw as, the decline of living conditions in nineteenth century England.

• He blamed this decline on three elements: – The overproduction of young; – the inability of resources to keep up with the rising human

population; – and the irresponsibility of the lower classes

• To combat this, Malthus suggested the family size of the lower class ought to be regulated such that poor families do not produce more children than they can support.

• Does this sound familiar? China has implemented a policy of one child per family (though this applies to all families, not just those of the lower class).

Malthus said that mankind was condemned to overpopulation and “checks” on the population by war, famine, disease and

mother nature (earthquakes, floods, drought)

Though not a cruel man,

his underlying

idea was that one should not improve

the lot of man, because if things get better, they

will just “breed” more.

As the population grows, this will result in another cycle of “checks” by

famine, disease, wars and mother nature.

So, said Malthus: don’t

make things better. If its

too good people will have more

kids—and the cycle will

repeat itself.

Malthus could not foresee that in the Industrial World,

people would begin to limit the

size of their families as health

and education improved.

Also, as the economy expanded, even large families would be successful—

and many of your grandparents came from families of 7 or more children.

Ricardo was a “sidekick” of Malthus. He spoke of an “Iron Law” of wages: when there are too many workers,

wages go down. But when there are fewer workers, wages go up.

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David Ricardo and Diminishing Returns

• David Ricardo (1772-1823) believed that labor and other costs would rise with the level of production– for example, as new less fertile land was

cultivated, it would require more labor

• This increasing cost argument is now referred to as the law of diminishing returns

Capital system political cartoon.

Political Cartoons

• 'Punch' cartoon, 1894: Important meeting of smoke makers

Political Cartoon

• 'Punch' cartoon, 1847: A boy falls through the gap between 'voluntary' and 'state' education

Capitalism• Positive Effects:

–Competition led to progress• Negative Effects:

–Unequal distribution of wealth led to social unrest

Industrial Capitalism – Positive Effects

• Unprecedented exploration and technological advancements---major economic growth

• Less responsibilities for govt…more freedom• War less likely.• Urbanization opens people’s minds to new ideas.• New ideas makes society more complex and advanced in terms of

technology, science, etc…• Economic production centralized• Encourages a strong work ethic---motivated by greed---forces people

to work harder and improve• Allows for the best prices for quality products• Growth and importance of the middle class

Industrial Capitalism – Negative Effects

• Destroys important human values, replacing even religious belief with naked exploitation---child labor, etc…

• Undermines an individual’s sense of personal value in one’s work---unfair wages, hours, conditions

• Undermines human relationships; all relationships are based on cash.

• Destroys human freedom. The only freedom it protects is free trade.

• Allows for monopolies• Allows for problems to develop unchecked…bigger issue

later• One mistake can blow up the economy

Negative of Laissez-Faire Capitalism: Monopolies

Social Darwinism• Social Darwinism is a belief, popular in the late

Victorian era in England, America, and elsewhere, which states that the strongest or fittest should survive and flourish in society, while the weak and unfit should be allowed to die.

• The theory was chiefly expounded by Herbert Spencer, whose ethical philosophies always held an elitist view and received a boost from the application of Darwinian ideas such as adaptation and natural selection.

Herbert Spencer• Herbert Spencer, the father of Social Darwinism as an ethical theory, was

thinking in terms of elitist, "might makes right" sorts of views long before Darwin published his theory.

• However, Spencer quickly adapted Darwinian ideas to his own ethical theories. • The concept of adaptation allowed him to claim that the rich and powerful were

better adapted to the social and economic climate of the time, and the concept of natural selection allowed him to argue that it was natural, normal, and proper for the strong to thrive at the expense of the weak.

• After all, he claimed, that is exactly what goes on in nature every day.• However, Spencer did not just present his theories as placing humans on a

parallel with nature.• Not only was survival of the fittest natural, but it was also morally correct. • Indeed, some extreme Social Darwinists argued that it was morally incorrect to

assist those weaker than oneself, since that would be promoting the survival and possible reproduction of someone who was fundamentally unfit.

Applications of Social Darwinism• At the time that Spencer began to promote Social Darwinism, the

technology, economy, and government of the "White European" was advanced in comparison to that of other cultures.

• Looking at this apparent advantage, as well as the economic and military structures, some argued that natural selection was playing out, and that the race more suited to survival was winning.

• Some even extended this philosophy into a micro-economic issue, claiming that social welfare programs that helped the poor and disadvantaged were contrary to nature itself.

• Those who reject any and all forms of charity or governmental welfare often use arguments rooted in Social Darwinism.

Applications of Social Darwinism• Social Darwinism was used to justify numerous exploits which we

classify as of dubious moral value today.• Colonialism was seen as natural and inevitable, and given

justification through Social Darwinian ethics - people saw natives as being weaker and more unfit to survive, and therefore felt justified in seizing land and resources.

• Social Darwinism applied to military action as well; the argument went that the strongest military would win, and would therefore be the most fit.

• Casualties on the losing side, of course, were written off as the natural result of their unfit status.

• Finally, it gave the ethical nod to brutal colonial governments who used oppressive tactics against their subjects.

Applications of Social Darwinism• Social Darwinism applied to a social context too,

of course. • It provided a justification for the more exploitative

forms of capitalism in which workers were paid sometimes pennies a day for long hours of backbreaking labor.

• Social Darwinism also justified big business' refusal to acknowledge labor unions and similar organizations, and implied that the rich need not donate money to the poor or less fortunate, since such people were less fit anyway.

Applications of Social Darwinism• In its most extreme forms, Social Darwinism has been

used to justify eugenics programs aimed at weeding "undesirable" genes from the population; such programs were sometimes accompanied by sterilization laws directed against "unfit" individuals.

• The American eugenics movement was relatively popular between about 1910-1930, during which 24 states passed sterilization laws and Congress passed a law restricting immigration from certain areas deemed to be unfit.

• Social Darwinist ideas, though in different forms, were also applied by the Nazi party in Germany to justify their eugenics programs.

Applications of Social Darwinism• At its worst, the implications of Social Darwinism were

used as scientific justification for the Holocaust.• The Nazis claimed that the murder of Jews in World War II

was an example of cleaning out the inferior genetics. • Many philosophers noted evolutionary echoes in Hitler's

march to exterminate an entire race of people.• Various other dictators and criminals have claimed the

cause of Social Darwinism in carrying out their acts.• Even without such actions, Social Darwinism has proven to

be a false and dangerous philosophy.

Positives to Social Darwinism• Not all Social Darwinists were quite so extreme,

and Social Darwinism was not the only justification of colonialism, imperialism, and other intrusive exploits (the "white man's burden" was another, almost completely opposite, justification).

• In fact, the early Social Darwinists, who regarded the theory as a logical extension of laissez-faire capitalism, would have been appalled at the use of the concept to promote state-run eugenics programs.

Positives to Social Darwinism• Though its moral basis is now generally opposed, Social Darwinism

did have some favorable effects. • Belief in Social Darwinism tended to discourage wanton handouts

to the poor, favoring instead providing resources for the fittest of all walks of life to use, or choosing specific, genuinely deserving people as recipients of help and support.

• Some major capitalists, such as Andrew Carnegie, combined philanthropy with Social Darwinism; he used his vast fortune to set up hundreds of libraries and other public institutions, including a university, for the benefit of those who would choose to avail themselves of such resources.

• He opposed direct and indiscriminate handouts to the poor because he felt that this favored the undeserving and the deserving person equally.

Negatives to Social Darwinism• Social Darwinism's philosophical problems are rather daunting, and fatal to it as a

basic theory (though some have applied similar ideas). • First, it makes the faulty assumption that what is natural is equivalent to what is

morally correct.• In other words, it falls prey to the belief that just because something takes place in

nature, it must be a moral paradigm for humans to follow.• This problem in Social Darwinist thinking stems from the fact that the theory falls

into the "naturalistic fallacy", which consists of trying to derive an ought statement from an is statement.

• For example, the fact that you stubbed your toe this morning does not logically imply that you ought to have stubbed your toe!

• The same argument applies to the Social Darwinists' attempt to extend natural processes into human social structures.

• This is a common problem in philosophy, and it is commonly stated that it is absolutely impossible to derive ought from is (though this is still sometimes disputed); at the very least, it is impossible to do it so simply and directly as the Social Darwinists did.

Capitalism vs Socialism• Private ownership vs Public ownership• Creation of wealth vs Distribution of wealth• Forced transfer of wealth always destroys

wealth • Countries that follow Capitalism get richer• Countries that follow Socialism get poorer (or

not as rich as they would have been)

Socialism

“From each according to his/her ability, to each according to his/her

work."

Socialism

• a reaction to the IndustrialRevolution, characterized by:

– rejection of the idea that the wealthy “deserve their wealth” because they created it - but instead an argument that wealthy exploit working classes

– vision of society based on economic equality

– belief in cooperation, production for benefit of all

– idea of public ownership of means of production

Socialism: Reaction against capitalism • Belief that the means of production—capital, land,

raw materials, and factories—should be owned and controlled by society. A lot less private ownership of businesses

• European workers began associating themselves with political parties who believed in increasing the rights for the laboring class.

• They were called socialists.• Production is given over to public control, and the

profits from manufacturing are used for public welfare, not private gain.

Socialism defined • Text: “An ideology arguing that

citizens are best served by policies focused on meeting the basic needs of the entire society rather than on serving the needs of individuals as individuals.”

Socialism• Ancient roots – Judeo-Christian belief in the

common good, which takes precedence over individual desires

• Term “socialism” coined in 1827 by British socialist Robert Owen to describe his view of a cooperative new society.

Socialism’s emergence• Liberal political parties in 19th century Europe failed

to address the desperate needs of working people.– Classical liberalism views poverty as an individual choice

or failure, not the result of social structures. Also suspicious of big government.

– Socialism provides a different conception of individual responsibility & of government.

Socialism’s principles

• Egalitarianism or equality. • Humankind will be unified and cooperative, once wealth

is owned and used for the common good. • Capitalism exploits the very people who create society’s

wealth.• Moralism.

• Division of rich & poor is evil; • capitalism is fundamentally unjust. • Instead, the ideal future emphasizes peace, social justice

and true liberty for all.

Social Democracy• A variation on socialism that argues that socialism

and democracy can work together. • Example: British Labour Party.• Change comes through peaceful democratic

processes like elections.• Democratic governments should promote economic

- as well as political - freedom & equality.

Socialism

• Public Ownership• Restricted Trade• High Taxes• Heavy Regulation

Early Socialism • Robert Owen

– Believed that competition caused society’s problems, and if cooperation replaced competition, life would improve

– Reconstructed and improved working and living conditions of textile mill workers of New Lanark, Scotland.

– In 1825, he bought New Harmony, Indiana, where he tried to set up a cooperative community.

– He did not have the same success with New Lanark, thus feuding with the residents of the town and he moving back to Great Britain.

Robert Owen cont.• David Dale had originally built a large number of

houses close to his factories in New Lanark.• By the time Owen arrived, over 2,000 people lived

in New Lanark village.• One of the first decisions he took when he became

owner of New Lanark was to order the building of a school.

• He was convinced that education was crucially important in developing the type of person he wanted.

Robert Owen cont.• With the financial support of several businessmen

from Manchester, Owen purchased Dale’s four textile factories in New Lanark for £60,000.

• Under Owen’s control, the Chorton Twist Company expanded rapidly.

• However, he was not only concerned with making money, he was also interested in creating a new type of community at New Lanark.

• Owen believed that a person’s character is formed by the effects of their environment.

Robert Owen cont.• Owen was convinced that if he created the right

environment, he could produce rational, good and humane people.

• He argued that people were naturally good but they were corrupted by the harsh way they were treated.

• For example, Owen was a strong opponent of physical punishment in schools and factories and immediately banned its use in New Lanark.

Owen cont.• When Owen arrived at New Lanark children from as

young as five were working for thirteen hours a day in the textile mills.

• He stopped employing children under ten and reduced their labor to ten hours a day.

• The young children went to the nursery and infant schools that Owen had built.

• Older children worked in the factory but also had to attend his secondary school for part of the day.

Owen cont.

• Owen’s partners were concerned that these reforms would reduce profits.

• Unable to convince them of the wisdom of these reforms, Owen decided to borrow money from Archibald Campbell, a local banker, in order to buy their share of the business.

• Later, he sold shares in the business to men who agreed with the way he ran his factory.

Owen cont.• Robert Owen hoped that the way he treated

children at his New Lanark would encourage other factory owners to follow his example.

• It was therefore important for him to publicize his activities.

• He wrote several books including The Formation of Character (1813) and A New View of Society (1814).

• In 1815 he sent detailed proposals to Parliament about his ideas on factory reform.

• This resulted in Owen appearing before Robert Peel and his House of Commons committee in April, 1816.

Owen cont.• Owen toured the country making speeches on his

experiments at New Lanark.• He also published his speeches as pamphlets and sent

free copies to influential people in Britain.• In one two month period he spent £4,000 publicizing

his activities.• In his speeches, Owen argued that he was creating a

“new moral world, a world from which the bitterness of divisive sectarian religion would be banished.”

• His criticisms of the Church of England upset many people, including reformers such as William Wilberforce and William Cobbett.

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What are the strengths of socialism?

• An equitable distribution of income

• Rapid growth is possible• No unemployment

105

What are theweaknesses of socialism?

Inefficiencies occurAbsence of entrepreneurship

stifles growth

Utilitarianism“The greatest happiness for the greatest number”

1. The right thing to do is whatever would have the best overall consequences.

2. Which consequences matter? What’s important is human welfare—we want people to be as well-off as possible.

3. Each person’s welfare is equally important.

•English philosophers John Stuart Mill (1806-1873) and Jeremy Bentham (1748-1832) were the leading proponents of what is now called“classic utilitarianism”.•The Utilitarians were social reformers•They supported suffrage for women and those without property, •The abolition of slavery. •Utilitarians argued that criminals ought to be reformed and not merely punished (although Mill did support capital punishment as a deterrent). •Bentham spoke out against cruelty to animals.• Mill was a strong supporter of meritocracy.•Proponents emphasized that utilitarianism was an egalitarian doctrine.• Everyone’s happiness counts equally.

Basic Insights of Utilitarianism

• The purpose of morality is to make the world a better place.

• Morality is about producing good consequences, not having good intentions

• We should do whatever will bring the most benefit (i.e., intrinsic value) to all of humanity.

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Utilitarianism

1. Abolition of slavery; equal rights for women and minorities; abolition of child labor

2. Prison reform: deterrence and rehabilitation, not vengeance

3. We have extensive charitable duties.

Some practical implications:

Utilitarianism & Reforms

• Utilitarianism was the idea that society should work for the happiness of citizens

• It was promoted by Jeremy Bentham, who wanted a better code of law, education for all, public health services, and better prisons

Jeremy Bentham• He was British philosopher• Promoted utilitarianism- the idea that society should work

for the citizens• To him laws should be judged by their usefulness, whether

they advanced human happiness and reduced human misery• He called for a better code of law, education for all, a

public health service, and improved prisons• In Constitutional Code he addressed how government should

be organized. • He suggested the introduction of rules that would ensure the

regular attendance of members of the House of Commons. • He pointed out that politicians should be continually

reminded that they are the “servants, not the masters, of the public.”

Bentham cont.• His most detailed account of his ideas on political

democracy appeared in his book Constitutional Code (1830).

• In the book Bentham argued that political reform should be dictated by the principal that the new system will promote the happiness of the majority of the people affected by it.

• Bentham argued in favor of universal suffrage, annual parliaments and vote by ballot.

• According to him there should be no king, no House of Lords, no established church.

• The book also included Bentham’s view that women, as well as men, should be given the vote.

Bentham cont.• In Constitutional Code Bentham also addressed the

problem of how the government should be organized.• For example, he suggested the introduction of rules

that would ensure the regular attendance of members of the House of Commons.

• Government officials should be selected by competitive examination. The book also suggested the continual inspection of the work of politicians and government officials.

• Bentham pointed out they should be continually reminded that they are the “servants, not the masters, of the public.”

• Jeremy Bentham died in 1832.

John Stuart Mill1806-1873

• Bentham’s godson• Believed that happiness, not

pleasure, should be the standard of utility

• All people should have the right to vote---universal suffrage

• He was one of the first to call for women to have the right to vote.

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John Stuart Mill• He was a Bentham follower• Challenged strict views of laissez faire

economics, calling on govt. to distribute national wealth more justly by taxing income.

• Held a firm belief in individual freedom. • On Liberty (1859) Mill stated that freedom of

thought and discussion promoted social progress and supported extending the vote to all adults

• Believer in full democracy, Mill advocated equal rights for women.

John Stuart Mill

• Mills added an amendment to the 1867 Reform Act

• This amendment would give women the same political rights as men

• It was defeated by 196 votes to 73• Mill’s attacks on colonialism in the West Indies

had made him unpopular

Socialism/Social Democracy’s similarities with Communism/ Marxism

• Sees capitalism as exploitive, leading to social injustice and extreme income inequality.

• These economic conditions have adverse effects on ordinary working people – in terms of physical health, psychological well-being, housing, education, etc.

Social Democracy’s similarities with Marxism

• Both ask the question: why should those who provide the money (capital) receive all the profits, and those who provide the labor receive none of the profits?

• It is labor, after all, that turns raw materials (including cash) into something with greater value.

Social democracy’s differences from Marxism

• Private property not abolished, but the public should control the use of property and make necessities available to all.

• Individual rights not abolished but should complement other important values such as concern for others.

• Change can occur through an evolutionary process that uses democratic means.

Marx’s view of Social Democracy

• Karl Marx said social democrats were naive to think that “enlightened capitalists” would join with workers to form a new society.

• Violent revolution was inevitable.

Communism“The worker of the world has nothing to

lose, but their chains, workers of the world unite.” - Marx

“From each according to his/her ability, to each according to his/her need."

What is Communism?• Communism - a government where people

shared work fairly and were paid equally.• The word “Communism” comes from the Latin

word “Communis” which means common or belonging to all.

Communism• Communism – an economic system

in which all means of production are owned by the people, private property does not exist, and all goods and services are shared equally.

Origin of Communism• It originated from

the idea proposed in Greece.

• The ideas on what they wanted communism to be.

• Who first came up with the idea of communism?

• What they believed was wrong and right.

Communism• In many ways, Communism was

a reaction to the Industrial Revolution and Capitalism

Industrial Revolution

1. Inventions of new machines

2. Bought by capitalists

3. Displaced former workers

4. Difference between classes increases

Communism• The Industrial Revolution

intensified class struggle (rich vs. poor)–“Haves”(bourgeosie) take advantage

of “Have-Nots” (proletariat)

The Beliefs of Communism

• The rich get richer.• The poor get poorer.• People wanted to

make everything equal.

• People never achieved the goal.

Communism–Workers are exploited by

employers–The labor of workers profits

employers

The Goal of Communism

• Goal: to get rid of social classes and make everything fair for everyone.

What is Communism?

• This is the symbol of Communism – The Hammer and the Sickle

Hammer for the Workers

Sickle for the Peasants – the farm labourers

Who are these blokes?

What is Communism?

‘Those Blokes’ wrote the ‘Communist Manifesto’

in 1847. It’s a short book – but billions of people have read it….

This is Karl Marx, the ‘Father of Communism’. People who believe in his ideas are called ‘Marxists’

This is his good friend, Frederick Engels.

Communism• Marx and Engels called for workers

of the world to unite and overthrow the rule of the rich.–Wealth would be redistributed–Classes and private property would

cease to exist

Communism

Communism is characterized by:

• idea that history is guided by class struggle

• desire to establish a classless, stateless society

• belief in the abolition of all private ownership,

• belief that this will come about through revolution

The immediate aim of the Communists is the… formation of the proletariat into a class, overthrow of the bourgeois supremacy,

conquest of political power by the proletariat." - Karl Marx, Communist Manifesto, 1848

Communism vs. Socialism

• Communism emerged out of Socialism – and early communists considered themselves socialist

• For modern communists: Communism is an advanced stage of Socialism Socialism is the stage between Capitalism (which is bad) and Communism (which is perfect)

• Communism in practice has moved significantly away from the theory – disconnecting it from Socialism

Communist Manifesto

1. The history of class struggle

• Proletariat vs. Bourgeoisie (oppressor and the oppressed)

• Exploitation of the working class

• Surplus value of labor

Communist Manifesto

2. The nature of the new working class the proletariat

• the abolition of property and family• the necessity of revolution to bring about

the overthrow of the bourgeoisie• Ultimately resulting in end of capitalism,

other forms of government, and a workers’ paradise

Communist Manifesto

2. (cont.)

• Dictatorship of the proletariat – all economic activity will be run by the state,

governed by the working class• Concluding with a Utopian type of society

in which government becomes unnecessary

What is Communism?• Marx and Engels studied the history of the world’s economies.• This means the way that power, industry and finance are controlled.• They saw the way countries developed in stages.

Primitive Communism

Feudalism

Capitalism

Socialism

Communism

Explain these please!

What is Communism?

Primitive Communism

This is how humans first lived together – in small tribes. Primitive means ‘not very advanced’ e.g. hunting and gathering.

Communism means that everything was shared amongst the tribe – food, jobs, belongings.

No-one owned land. Eventually a group comes to power – this leads to Feudalism…

Primitive Communism

• People find food for themselves and trade for needed goods.

• No companies or governments involved

• This system is found among herders or small farmers

What is Feudalism?

Primitive Communism

Feudalism

Under feudalism, a king or emperor or chief becomes the ruler over all the people.

He gives land and privileges to ‘nobles’ who rule the people for him.

The people are kept uneducated and told that god chose the king to rule. The church helps the king this way.

As trade develops, some people get richer. This leads to Capitalism…..

What is Capitalism?

Feudalism

Capitalism

The business owners or capitalists get richer while the workers do all the hard work.

The capitalists get more power to serve their own interests.

Capitalism creates a huge working-class of people who soon get angry at the way they are treated. They organise in unions and demand changes. This will lead to a revolution and Socialism…

Capitalism• Sometimes called

“capitalism” or “market economy.” Ex. U.S.A.

• People own companies and decide what to produce to make consumers happy.

• Business owners can earn big profits or can lose their money if a business fails.

• Some businesses sell stock to get more capital to invest.

New York Stock Exchange

INDUSTRIAL REVOLUTION CONTEXT…

Communist Views on Capitalism.

• Revolutionary Beliefs cont.– Believed that capitalism was only a temporary phase

• Proletariats, or working class, were truly productive• In the face of economic hardship, the bourgeoisie’s (middle class)

control would be seized by the proletariats. Then, the proletariats would build a society in which the people owned everything. Without private property, classes would wither away and so would the government.

• The effect of the previous causes would result in communism, who’s literal principle is “from each according to his ability, to each according to his need.”

What is Socialism?

Socialism

Capitalism

In the Socialist revolution all the rulers – kings, churches, capitalists are removed.

The workers take control of the country to produce things for everyone.

Because nothing is made for profit, all people benefit from education and health.

These ideas spread across the world to create Communism….

Socialism

• The government makes economic decisions about what should be produced, how much it should cost.

• Two types of command economies are socialism and communism.

Workers arrive at a factory in the old Soviet Union in 1929.

Socialism: Command Economies

• In socialism, the government runs some industries, such as oil, and uses profits to pay for health care, education. Ex. Venezuela

• In communism, the government runs all industries, owns all property, sets wages, and prices, and people must do as they are told. Ex. North Korea

Venezuela’s President Hugo Chavez

What is Communism?

Socialism

Communism

The remaining capitalists put up a bitter fight, but the will of the people will always win.

As everyone now works together, war is a thing of the past – armies are not needed. Sharing means no police are needed. Everything is provided by the people – so money becomes a thing of the past.

All human activity goes towards benefiting each other – allowing all to live their lives to the fulestl.

Marx’s Key Ideas

1. Slave system gave way to feudal economy2. Feudal economy broke down with growth

of manufacturing, towns, navigation & transportation, emergence of middle class

3. Industrial capitalism emerged, with only two classes: proletariat and bourgeoisie.

Communist Revolution Inevitable

• Capitalism creates huge factories. • Workers become concentrated and begin

to organize for legal reforms (higher wages/better working conditions).

• Their effort fails. • Fierce competition between capitalists

leads to new technologies, which leads to lower costs.

Communist Revolution Inevitable

In the competition, some capitalists go bankrupt & have to become workers, and many workers lose their jobs as new technology replaces them.

(Consider reports that U.S. workers’ productivity is going up. Fewer workers are making more goods, which means technology is replacing them.)

Communist Revolution

• Revolution will eliminate private property. No longer will man have the means of exploiting another man.

• Bourgeoisie will fight, so revolution will be violent.

• A dictatorship of the proletariat will follow to weed out remaining capitalist elements.

The Worker’s Utopia

• In the end, a classless society with no more oppression or internal contradictions.

• People will be free to choose how they labor, and can be creatively productive.

• They will be able to live to their fullest potential.

• further, this change follows a regular scientific pattern:• FEUDALISM • CAPITALISM • COMMUNISM… • acc. to this pattern communism is inevitable

Explain Marx’s theory of a class struggle. How does this struggle end? How does this cartoon relate to this theory?

Communism vs. Capitalism

• Capitalists say that people have no reason to do a good job in communism because everyone gets the same pay. Products are boring and poorly made.

• Communists say that capitalism is unfair to the poor because people at the top of the company get rich while workers get low wages. They also say capitalists wipe out little companies and destroy the environment to get money.

Communism vs. Capitalism

• The Cold War from 1945-1991 between U.S. and Soviet Union was based on getting nations to line up on the communist side or capitalist side.

• Today Russia allows some capitalism.

• Communist China also allows some capitalism. Factory workers in China

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A Classification of Economic Systems

Pure socialism

Hong Kong

U.S., Canada, W Europe, Japan

France, Sweden, Israel

Mexico, Latin America

China, Russia

Pure capitalism

Cuba, N. Korea

Putting Politics & Economics Together

• Communist countries have been dictatorships in which leaders have tried to control all aspects of the country.

• But not all dictators are Communists. • Some want capitalist companies to come in and create

jobs Ex. Batista in Cuba before Castro.• Democracies are sometimes capitalist and sometimes

socialist. • Voters may elect a leader who promises to help the

poor through socialism. • Or voters may prefer capitalism as a way to create more

jobs.