“New Ways of Thinking”
Key Terms
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Laissez Faire
Capitalism
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Socialism
◦ Utopians
◦ Robert Owen
◦ Adam Smith
◦ Thomas Malthus
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Communism
◦ Karl Marx
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Utilitarianism
◦ Jeremy Bentham
◦ John Stuart Mill
 The Communist
Manifesto
 Bourgeoisie
 Proletariat
Background
The dramatic changes brought forth by
the Industrial Revolution led to new ways
of thinking.
 People were trying to make sense of their
changing world
 People were trying to solve the problems
of society (poverty, hunger, the wealth
gap etc…)

Laissez-Faire Economics
The government is “hands-off”
 It should not interfere in the free operation of the
economy
 Main proponent: Adam Smith
◦ The Wealth of Nations
 Argued that a free market (capitalist) economy
would benefit the rich and poor
 Capitalism: economic system where means of
production are privately owned and operated for
profit.

Best evidence of this being
successful?

THE INDUSTRIAL REVOLUTION
◦ It happened without government interference!
The “Gloom and Doom” Economist

Thomas Malthus – 1798 – An Essay on the Principle
of Population
◦ Wrote it in response to massive population growth
and the crowded slums, hunger, and poverty he
observed in industrial cities.
◦ Believed population was growing faster than food
supply.
◦ Urged families to have fewer children
◦ Discouraged charity and vaccinations
◦ Opposed any kind of government help for the poor
◦ He was wrong! The food supply surpassed
population growth.
Utilitarianism
Called for some limited government intervention
 Goal: “greatest happiness for the greatest number” of
society’s citizens

◦ Jeremy Bentham – British philosopher/economist
◦ Does a law or action provide more happiness or pain?
◦ Influenced John Stuart Mill

John Stuart Mill
◦ Liked free enterprise, but argued that the government should
help the poor
◦ “The only purpose for which power can be rightfully exercised
over any member of a civilized community, against his will, is
to prevent harm to others.”
◦ What kind of laws/actions might Mill have supported?
SOCIALISM
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In response to industry and laissez-faire
Socialists believe the government should plan
the economy, not competition
Were disturbed by the negative effects of the
Industrial Revolution and the huge gap between
rich and poor
Believed socialism would end poverty and
injustice
Socialism: system where the people as a whole
rather than private individuals own and operate
the means of production (farms, factories,
railways, businesses)
Utopian Socialists

Early socialists = utopians = “impractical dreamers”
◦ Robert Owen – Cotton mill owner
◦ “The conditions in which people live shape their
character”
◦ Set up a model community in New Lanark, Scotland
◦ Refused to use child labor, reduced working hours,
built homes for workers, started a school for
children
WHY DOES IT FAIL?
Using strictly voluntary, peaceful means,
how do you obtain human cooperation and
allocate resources in a socialistic society ?
How do you convince the most productive
workers that they should keep on producing
when everybody, including the idler and the
incompetent, is rewarded equally? How do
you decide what is to be produced? Or who
is to have what job? Who should do the
saving to provide investment funds? How
can you exchange goods and services in a
fair and equitable manner?
KARL MARX
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Built Marxism from earlier socialist ideas
Criticized Utopians as unrealistic
advocated Communism – a system where there is a
classless society, essentially no government, all
means of production are owned by the community.
1848 – co-wrote The Communist Manifesto with
Friedrick Engels
Said that modern industry split society between the
◦ “haves” – bourgeoisie (middle class)
◦ “have-nots” – proletariat (working class)

Argued that profits were really wages stolen from
workers
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Socialism and communism are ideological doctrines that have
many similarities as well as many differences. One point that is
frequently raised to distinguish socialism from communism is that
socialism generally refers to an economic system, and
communism generally refers to both an economic system and a
political system. The means of production are publicly owned in
both systems, but the ways that money and resources are
distributed are different. In socialism, each person is allotted
resources according to his or her input, or amount of work, and in
communism, each person is allotted resources according to his or
her needs. Many people consider communism to be a "higher" or
more extreme form of socialism.
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As an economic system, socialism seeks to manage the economy
through deliberate and collective social control. Communism,
however, seeks to manage both the economy and the society by
ensuring that property is owned collectively and that control over
the distribution of resources is centralized to achieve both
classlessness and statelessness. Under communism, all people
are considered equal and are provided for equally, regardless of
their contributions to the economy or to society. This is different
from socialism, but both socialism and communism are similar in
that they seek to prevent many of the ill effects that are
sometimes associated with capitalism, such as economic
inequality.
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Another difference between socialism and
communism is that communists assert that
both capitalism and private ownership of the
means of production must be done away with
as soon as possible in order to make sure a
classless society — the communist ideal — is
formed. Socialists, however, typically see
capitalism as a steppingstone toward the
ideal state and believe that socialism can
develop out of a capitalistic society. In fact,
one of the ideas of socialism is that everyone
within the society will benefit from capitalism
as much as possible as long as the capitalism
is controlled somehow by a centralized
planning system.
Communism’s weakness:
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Sounds good in theory, but doesn’t work
in practice.
Essentially became a dictatorship because
“Communists” wouldn’t give up power.
Discourages new ideas and new products
No incentive to work hard
Poor quality goods, serious shortages,
falling production
◦ (see other powerpoint!)
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In 1937, Leon Trotsky said, “In a country
where the sole employer is the state,
opposition means death by slow
starvation. The old principle: he who does
not work shall not eat [from the Bible],
has been replaced by a new one: he who
does not obey shall not eat.”