New Ways of Thinking
The Industrial Revolution fostered
new ideas about business and
economics.
Essay of the Principle of Population
• “Poverty and misery are unavoidable because
the population is increasing faster than the
food supply….the power of population is
greater than the power of the Earth to
produce subsistence for man”
• Thomas Malthus
Laissez-faire Economics
• Government should
not interfere with the
operation of the
economy.
– Laissez-faire or “hands
off” economics
Adams Smith
• Author of Wealth of Nations
• Free markets – the unregulated exchange of
goods and services – would come to help
everyone.
• Free market would:
– Produce more goods and lower prices
– Growing economy would encourage investment
• Government played no part in the success of
the industrial age!
Thomas Malthus
• Believed population would
outpace food supply
• Encouraged people to have
fewer children
• Felt the poor would always
suffer
• His assertions were wrong:
– Population did increase
– Food supply grew even faster
David Ricardo
• Agreed with Malthus about the
poor
– Had too many children
• Felt high wages caused people
to have more children
– Led to increase in labor supply
and reduction of labor cost???
• Felt working class would never
escape poverty
• Economics became known as
the dismal science.
Malthus and Ricardo
• Both laissez-faire economist
• Best cure for poverty was not government but
the free market
• Individuals should improve their lot through
thrift, hard work, and limit the size of their
families.
Utilitarians
• Adaption of laissez faire principles with
government intervention
• Encouraged giving suffrage to workers and
women
– Political power to cause change
• Worked for reforms in
– Workers rights, the poor, child labor and public
health
Emergence of Socialism
• Some believed gap between rich and poor to
great
– Evils of industrial capitalism
• Socialism – the people as a whole rather than
private individuals would own and operate the
means of production
– Farms, factories, railways, and other large
businesses.
Socialism
• Want to develop
world in which
society would
operate for the
benefit of all
members, rather
than just for the
wealthy.
Scientific Socialism of Karl Marx
• Karl Marx – German philosopher of the 1840s
• Forced to leave Germany because of his ideas
– Settled in London
– Met another German there Friedrich Engels
• Together, they wrote the Communist
Manifesto in 1848
• Communism is a form of socialism that sees
class struggle as unavoidable
Marxism
• History is a struggle
between the ‘haves’ and
‘have-nots’
• The ‘haves’ owned the
means of production and
were the bourgeoisie
• The ‘have-nots’ were the
proletariat or the
working class
Marxism
• Modern class struggle between the
bourgeoisie and the proletariat
• Proletariat would prevail taking control of the
means of production
– Set up a classless society
– End the struggle between all people
• Called for an international struggle to bring
about the end of capitalism.
Failures and Revolutions
• Marxism gained support early on
– His ideas never practiced as he envisioned
• Proletariat never rebelled
– Reforms reduced suffering of the working class
• Communist revolutions occurred first in Russia
and followed by other nations
• By the 1990s, every nation would incorporate
free market capitalism !