Economic Theories of the IR Made Simple
The Industrial Revolution was such a huge change in the fabric of society that it sparked many to rethink their view of the
class structure, the economy and human life in general. The four following ideologies are different responses to the IR by 18th
and 19th century scholars.
Adam Smith - Capitalism and laissez-faire economics

Owners and industry can set working conditions without interference. There are natural laws of economics:
o The law of self interest – people work for their own good
o The law of competition – competition forces people to make a better product
o The law of supply and demand – Enough goods would be produced at the lowest possible price to meet
demand in a market economy.
Thomas Malthus – Capitalist British Economic Scholar:

Saw the expanding population of the 18th and early 19th century and had this view:
Population grows faster than food supply. There is not enough for everyone. Because of this there always be a lot of
poor and destitute people. There has to be “checks” on population like war, famine and disease which will kill off the
extra people.

“All the children born, beyond what would be required to keep up the population to this level, must necessarily perish, unless room be made for
them by the deaths of grown persons. ... To act consistently, therefore, we should facilitate, instead of foolishly and vainly endeavoring to impede, the
operation of nature in producing this mortality, and if we dread the too frequent visitation of the horrid form of famine, we should sedulously
encourage the other forms of destruction, which we compel nature to use.” – Essay on the Principle of Population (1798)
David Ricardo – British economic scholar:

“Iron Law of Wages”: (think “natural laws”)
Wages will always sink to lowest levels: they will always only be just high enough to keep people from starving. That
is because there is an abundant supply of people to work and resources to work with. Because of this, factory owners
do not need to pay a lot. When there is not a lot of labor people will get paid more because there is more need and
they can demand more. The economy runs this way naturally and the government should not intervene.
Source: David Ricardo, English economist, Principles of Political Economy and Taxation, 1817.
Like all other contracts, wages should be left to the fair and free competition of the market, and should never be
controlled by the interference of the legislature. The clear and direct tendency of the Poor Laws* is in direct
opposition to these obvious principles: . . . instead of making the poor rich, they are calculated to make the rich
poor. . . . The comforts and well-being of the poor cannot be permanently secured without some regard on their
part, or some effort on the part of the legislature, to regulate the increase of their numbers.

British laws that provided a government subsidy to workers who received less than a certain amount of
wages.
Socialists



Important people: Robert Owen, Charles Fourier, Saint Simon
Criticized the new class system Industrialization had created
Believed society needed to be reorganized to support workers and improve their lives. “Factors of production”
(machines and factories) should be owned by the community and they operate for the welfare of everyone.

Tried out their ideas in small factory communities. Most of these fell apart because people couldn’t agree and would
squabble.
Marx and Engels (Marxism/Communism)

Marx and Engels, two German philosophers, took Socialist ideas, expanded them and made them more radical. They
called for abolishing private property, among other reforms.
Marxist ideas:





The emergence of capitalism and the IR has created a terrible life for the workers.
However, workers are now together in the factory and they can organize.
Not only can the working class (who Marx calls the proletariat) organize, they can create revolution against the
capitalists (who Marx calls the bourgeoisie)
In the Communist Manifesto, Karl Marx says not only that this could happen, but that this is going to happen. The history
of the world is a history of class struggle. First the capitalists defeated the landowners, and ultimately the working
class will defeat the capitalists through a violent revolution.
Once the workers win the revolution, there will be no need for private property, and there will be no need for a
government, the government will simply disappear.
“But not only has the bourgeoisie forged the weapons that bring death to itself; it has also called into existence the men who are to wield those
weapons — the modern working class — the proletarians.” – From the Communist Manifesto - 1848