New Economic Ideas

Chris AndersonRandolph-Henry H. S.

• After the French Revolution, Europe seemed upside down

• Undergoing a transformation:• From a _________________________ to

____________________________• Middle class (MC) gained lots of wealth• Working class (WC) lived in squalor• Lots of reformers were trying to help the WC

“Hands Off”

• Reformers and owners did not agree• Industrial owners thought they should control

industry without government interference• Believed government involvement would

___________________________• Laissez-Faire economics– Government keeps its “hands off” of industry

Adam Smith

• Scottish professor• 1st to explain capitalism (what is it????) and

laissez-faire economics• Wrote Wealth of Nations (1776)• Justified a change from mercantilism

(government restriction) to a more capitalistic (government free) industry

• **Labor is the main source of wealth, NOT $$

• Supply and Demand: people only buy what they want or need; therefore businesses should produce what people buy

• With no government interference, businesses will compete to produce goods at the most inexpensive price

• “Invisible Hand”: the competition between businesses

Adam Smith

Thomas Malthus

• Had a pessimistic (gloomy) view of the economy

• English economist/preacher• Wrote An Essay on the Principles of

Population• Growing population caused poverty (WHY??)• Population was growing faster than food

supply—ending in disaster• Believed poverty to be unavoidable

Thomas Malthus

Draw the Malthusian Ceiling

David Ricardo

• English banker and economists• “Iron law of wages”: believed that the rising

population led to more workers competing for jobs

• Competition for jobs kept wages low• Poverty unavoidable

Reformers

• Many people criticized laissez-faire economics• Many want to make changes in industry• 1.) William Wilberforce:• British Parliamentary member• Wanted to abolish slavery• Make lives of the WC better

• 2.) Lord Shaftsbury:• Parliamentary member• Wanted to reduce working hours for women and

kids

• Both Wilberforce and Shaftsbury will get Parliament to pass laws regulating working conditions in GB– 1833: laws regulating employment of children in

factories– 1842: law outlawing the use of women/kids in mines– 1847: Ten Hours Act—a 10 hour or less workday for

women/kids in factories

William Wilberforce Lord Shaftsbury

• 3.) Jeremy Bentham:• Utilitarianism—true test of any action or

institution is its usefulness to society• What are some institutions that are useful to

society????

• 4.) John Stuart Mill:• Believed the government should tax people’s

income to redistribute wealth

• 5.) Charles Dickens:• Writer• Used his works to attach industrialization• Do you know any of his works????

Socialism

• Many believed that capitalism caused suffering

• Believe the struggle to make a profit caused misery

• Argue for socialism—workers own, manage, and control production

• Utopian Socialism:• Early socialist idea• Wanted to create a society where everyone

shares everything

• Robert Owen:• First to create a working utopia• Believed competition caused suffering• Cooperation would make life better

Karl Marx

• German philosopher• Saw Utopian socialism as impractical• Degrees in history and philosophy• Forced to flee Prussia to France

• Marx’s Theories:• Based ideas in history, economics, and historical

change• History advanced through conflict, but

economics was the major force• At the base of every social order was

production• Everything in a nation developed around its

economic base• Most important part of the economic base was

the creating of social classes

• _____________________ controlled production (Would they every give it up???)

• Only give up control of production through ________________________

• Conflict between the different classes was inevitable and unavoidable

• Class struggle pushed history forward

• Marx said that Europe had experienced 4 stages of economic life:1.) Primitive

-people only produce what they need-no exploitation-tools develop, surpluses made, exploitation

starts2.) Slave

-struggle between ___________ & ___________3.) Feudal

-struggle between ___________ & ___________4.) Capitalist

-struggle between ___________ & ___________

• Marx believed capitalism to be temporary• Was he correct??????• Believed a major crisis would occur in an

industrialized nation where the government would take control of the Middle Class

• Government would create a society where the people owned everything—no private property, no class distinction, and eventually the government would __________________

• Capitalism did not go away—still exists today• Marx was wrong—lives got better for the

Working Class (no need to rebel)

• Communism developed from Marx’s ideas