Economics of Industrialization
From Mercantilism to Capitalism
Mercantilism & Industrialization
• Nations should maintain & increase their
wealth by exporting more than they import
• Governments regulate trade to make
countries self-sufficient & keep prices
stable
• Industrial Revolution brings about the
decline of Mercantilism:
– More goods are produced
– More money to be made
Capitalism Emerges
• People start to demand more & better goods
• Merchants respond:
– Invest in raw materials, pay cottage workers,
sell at a profit
– Invest their profits to build more factories, to
hire more workers, who buy more goods,
giving merchants more profits to invest…..
Capitalism
• ‘Free Market’ economy
• No regulation of trade (vs. Mercantilism)
• A system of production, distribution &
exchange where:
– Profit is invested for further profit
– Workers are paid wages & compete for jobs
– Control of the economy is PRIVATE
Philosophy of Capitalism
• An economic theory based
on:
– Natural forces of
supply & demand
– Free competition
– Private ownership
• Laissez-Faire
– Government should
not intervene in
economy
– Economy can take care
of itself
– Self-interest is good
Capitalism & the Poor
• Capitalism is great when you are
making the profits, what about when
you’re not?
• Laissez-faire thinkers accept that there
will be a permanent underclass
• Laissez-faire thinkers oppose
government help for workers because
that would interrupt the natural forces
of the free market
Critics of Capitalism
• Some people are concerned about the abject
misery of the new working class
• They think that the government should do
something to help them & make working
conditions better
• Some of these critics come from the middle
class, some come from the working class,
some are philosophers…
Utilitarians
• Jeremy Bentham &
John Stuart Mill
• Need to judge things
based on their
usefulness
• Government should
promote the greatest
good for the greatest
number of people
Mill’s Utilitarianism
• Questions unregulated
capitalism
• Wants a more equal
division of profits
• Thinks government
should do away with
big inequalities in
wealth
• Calls for reforms:
vote, legal system,
prisons, education
Socialists
• Saint-Simon, Fourier,
Owen
• Government should
offset the bad effects
of industrialization
• Government regulates
the economy
• Government should
own factories
• Goal of social justice
Communists
• Karl Marx (18181883)
• Philosopher &
Economist
• Student of Hegel
• Published: Das
Kapital, Communist
Manifesto
• Lived in poverty in
London, supported by
Friedrich Engels
Marx’s Critique of Capitalism
• Based on humanism
• Capitalism is fundamentally unfair:
– some benefit at the expense of many
– unequal distribution of wealth & goods
• Marx says:
– it is possible to have an industrial system that
benefits everyone not just the owners
– Laissez-faire government isn’t actually neutral,
it is acting on the behalf of the capitalists
Marx’s Theory of Class Struggle
• All of human history is the history of class
struggle
– Worker vs. owner is just the most recent
form of this struggle
– In the past: peasant v. lord, slave v.
master
• Class conflict is inevitable & it is how
history progresses
Capitalist Class Relations
• Under capitalism there are 2 classes:
– Bourgeoisie: employers
– Proletariat: workers
• Proletariat is destined to organize and
overthrow the Bourgeoisie
Marx’s Theory of Alienation
• Marx thought that labor is humans’
‘life-activity’
• When you sell your labor, you sell
your self
• If labor is what make us uniquely
human, then industrial work is dehumanizing
• The more we produce, the less we have
of ourselves, and the more the
capitalists have
Marx’s Theory of Exploitation
• A worker’s labor power creates more value
than the wage s/he gets in exchange for that
labor.
• Under capitalism, a surplus of value (profit)
is taken from labor.
• Marx says, even if you pay the workers
more, improve their working conditions, &
guarantee their rights, they are still
exploited.
• The only way to get rid of exploitation is to
get rid of the wage relationship entirely.
• Which brings us to….
Marx’s Theory of Communism
• Capitalist class conflict leads to the Proletarian
Revolution
– Workers are tired of being exploited & feeling alienated
– They organize & revolt against the capitalists
• As a result of the Proletarian Revolution
Capitalism gives way to Communism
• Communist Utopia:
– a classless society where no one wants for
anything
– everyone has equal say in all things
Would you want to live in this society?
“… nobody has one exclusive sphere of
activity but each can become accomplished
in any branch he wishes, society …makes it
possible for me to do one thing today and
another tomorrow, to hunt in the morning,
fish in the afternoon, rear cattle in the
evening, criticize after dinner, just as I have
a mind, without ever becoming hunter,
fisherman, shepherd or critic.”
Oh, the irony of it all…
• Capitalism creates its own downfall!!!
• It creates the Proletariat & the Bourgeoisie
• The Bourgeoisie exploits & alienates the
Proletariat
• Eventually, the Proletariat notice that they
all share a common problem & revolt
• They have ‘nothing to lose but their
chains!’
Was Marx Right?
• Well, time will tell, but in the short run….
• There may not have been a Proletarian
Revolution in Britain, but
• There was a great deal of Reform and social
mobilization
Labor Organization & Trade Unions
• Workers worked long hours under dirty &
dangerous conditions with the threat of
being fired or laid off if they complained
• Urbanization meant that people worked &
lived together
• They began to see that they had things in
common as workers
Workers Organize!
• Trade unions were
illegal in Britain until
1824
• After 1824 many
unions were formed
• By the 1870s workers
won the right to strike
• 1871: 290,000 union
members
• By 1901: 2,000,000
A Punch magazine cartoon from 1858 shows Father Thames with 'his offspring',
diphtheria, scrofula and cholera.
Trade Unions
• Strength through
unity permitted
workers to demand
reforms
• Better pay &
working conditions
• Unions took care of
their own: dues
went to sick leave
& strike pay
Reform Movement
• Trade Unions & middle class
reformers pressure politicians to do
something about working & living
conditions
• 1832 Reform Bill extends the vote to
the middle class
• Second Reform Act of 1867 gives all
adult males the vote
Political Pressure Works:
• Factory Act of 1833
– Illegal to hire children under 9
– Kids 9 to 12 couldn’t work more than 8
hours/day
– Kids 13 to 17 no more than 12 hours /day
• 1842 Mines Act prevents women & children from
working in the mines
• Public Health Act of 1875 forces towns to:
– pave, light & clean streets
– appoint a Medical Officer of Health, Surveyor
& Sanitary Inspector