ECONOMICS
AND THE
RISE OF
SOCIALISM
Adam Smith and
Capitalism
Adam Smith
Scottish professor
Defended the idea of keeping
government out of economics.
Laissez-faire Leave it alone or free-market economy
(kind of)
Wrote Wealth of Nations, describing three
natural laws of economics.
1. Law of Self-Interest –
people work for their own
good.
2. Law of Competitioncompetition causes people to
constantly improve products.
3. Law of Supply and Demand – Supply
is the amount of product made.
Demand is the amount of product
consumers want. If supply is higher
than demand, prices drop. If demand
is higher than supply, prices will rise
Capitalism: economic system in which the
factors of production (ex: land, labor,
capital) are privately owned, not by the
government.
Socialism and Karl Marx
Utilitarianism- decisions should be based on
utility (usefulness); government should do
what is in the best interest of most people.
Utopia – idea of making an ideal
(perfect) society – didn’t work
Socialism – Seeing the effects of the
Industrial Revolution, reformers demanded
that factors of production be owned by the
public.
Socialism (continued)
Government would plan the economy. If
everything was owned by the country, poverty
and suffering of the working poor would end.
Sounded okay, but very difficult to do –
required too much trust in government
officials
Marxism - Karl Marx’s radical type of
socialism.
Karl Marx and Friedrick Engels wrote
The Communist Manifesto – said there has
always been a struggle between the
“haves” (rich) and “have nots” (poor).
Predicted working poor would revolt
and establish a dictatorship of the
proletariat (workers) that would govern
society. All of society would cooperate,
there would be no more classes in
society, no need for government, and
pure communism would be established.
Communism: complete socialism, everything
owned by everyone, nothing private
“Workers of the world unite!”