AP European History
In Search of an Economic View of the World: Smith to Marx
Background: With the advent of the Commercial Revolution in the sixteenth century, national monarchs
adopted mercantilism as their economic policy. The chief objective of mercantilism was to gain a favorable
balance of trade by restricting imports and promoting exports.
In the eighteenth century a group in France called the physiocrats, who were influenced by the natural law
thinking of the Enlightenment, sought to remove all man-made barriers to trade. In particular, they opposed
the restrictions imposed by guilds and mercantile laws. The physiocrats desired the elimination of all restrictive
economic policies to permit the natural laws of the marketplace to regulate the flow of goods. This concept
developed into the doctrine of laissez faire, which greatly influenced and aided the development of classical
The industrial capitalist’s adoption of the philosophy of laissez faire resulted in the exploitation of industrial
workers. Many important thinkers, reacting to the economic and social abuses existing in the early Industrial
Revolution, found in the doctrine of socialism the only solution to the problem. A common conviction
developed among them that private property and the competitive spirit were thoroughly evil.
The struggle for survival among capitalists and between capitalists and workers brought out the worst in
human nature. A variety of socialistic schemes was presented and tried by Saint-Simon, Fourier, Owen, Blanc,
and Marx. Socialism and capitalism struggled and competed throughout the nineteenth and early twentieth
centuries until an accommodation was achieved in most modern states.
Directions: Study the following chart on the back then on a separate sheet answer the questions below. Be
prepared to share your responses.
1. How would each of the people view the role of government? Classify them on the political
Smith, Ricardo, Owen: held that government should remain divorced as much as possible from the
economic activity of the country.
Blanc & Marx held a diametrically opposed view.
2. Why must economic philosophy be allied with political power to effect change?
Although most economic philosophies would have some impact without government support, they would
operate only on a very limited scale.
3. Why does the implementation of an economic theory lag in adoption?
An economic theory analyzes current economic conditions but does not dictate policies. If converts are
made in government and industry, the theories may develop into policies. Often gaining this acceptance
requires a considerable period of time.
4. Why does an economic philosophy tend to be less radical in practice than in theory?
The idealism of a theory tends to become distanced from reality. When a theory is put into practice, it
confronts the intracacies of the economic world which do not admit the smooth implementation of an idea.
In addition, there are social and political elements that oppose the introduction of new economic
procedures. Compromise often results.
RESPONSE to existing
conditions or theories
Inspired by the ideals of the
French physiocrats who
argued that mercantilism was
no longer an acceptable
economic policy.
IDEAS for change
In Wealth of Nation, questioned governmental policy that imposed restrictions on
trade. Suggested that every individual should
operate freely in the marketplace without
government regulation. Then, the nation
would profit. The wealth of a nation
depended not as much on a centralized
economy as on the sum of the individual
wealth of all the people.
INFLUENCE of ideas
Liberal laissez-faire ideas
in the mid-nineteenth
century were influenced
by his work.
Took a more pessimistic view
of the idea of laissez faire
and, in so doing, turned
economics into the “dismal
Agreed with Adam Smith that the wealth of a
nation was based on the total of individual
efforts. However, he suggested that Smith’s
view was naive because reality showed that
only some people would be successful. The
masses would never be able to compete and
would be exploited; but this was the law of
nature and there was nothing to be done
about it.
Ricardo’s realistic
impression dominated
much of the nineteenthcentury industrial world
and served as support for
the ideology of Social
An English factory owner, he Unlike many nineteenth-century capitalists,
was one of the first socialists. he organized his business empire on a
fraternal basis and spent a lifetime crusading
for social reform. Owen believed that the
only solution to the exploitation of the
workers rested in the hands of the wealthy
who should voluntarily organize schemes to
improve the lives of the workers.
His ideas, while not
popular, reappeared
throughout the nineteenth
century in other idealistic
Found himself at the head of
the French government at the
end of the Revolution of
He had been one of the most eloquent
spokesmen for socialist reforms, arguing that
the government should involve itself in
“social workshops” to solve the problems of
the famished unemployed. A confirmed
republican, he demanded elections to
support his new government, but his policies
alienated the conservative countryside, and
he was tossed from power before he could
implement his early socialistic schemes.
Blanc’s ideas found
embodiment in many
twentieth-century social
welfare programs.
Karl Marx
Represented an extreme
understanding of social-ism
that developed into
communism. Marx and his
colleague, Friedrich Engels,
highlighted the necessity of
government intervention in
the economic woes of the
The government would be created by a
mass uprising of proletarians who would
create a universal community of shared
wealth based on shared labor.
The ideas of Marx,
significantly altered,
found full expression in
the Russian Revolution of
1917 and the consequent
development of a
worldwide communist

37 - Economic - Smith to Marx