Economic systems of the Industrial Revolution: Capitalism

Bellwork

• Pretend you’re 5 years old again (this should not be hard for many of you…)

• What are the advantages and disadvantages of riding a bike WITH training wheels?

• What are the advantages and disadvantages of riding a bike WITHOUT training wheels?

Adam Smith

• 1723-1790• Laissez faire: “let do” or “let people do as they please”

basically, letting owners of industry and business set working conditions without interference.

• Smith’s three natural laws of economics:– Law of self-interest: people work for their own good– Law of competition: competition forces people to make a

better product– Law of supply and demand: enough goods would be

produced at the lowest possible price to meet demand in a market economy

The Wealth of Nations (1776)

• Defended the idea of a free economy, or free markets, in his book.

• “Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that....But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence (desire to do good) only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.”

Which of these statements would Adam Smith MOST LIKELY agree with?

• A) Man always desires to help one another• B) Man desires to help one another based on

their own self-interests.• C) Man does not desire to help one another• D) all of the above

Quote #1

• “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”– What do you think Smith is trying to say here?

• A) government defends the poor from the rich• B) government should not exist• C) government is supposed to defend your

property• D) government does little to help those

without property

Quote #2

• “Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence (state of being rich) of the few supposes the indigence (state of being poor) of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions.” – What do you think Smith is trying to say here?

Which of these statements would Adam Smith MOST LIKELY agree with?

• A) a society where wealth is equal for everyone is good

• B) The rich will always seek to help the poor• C) The poor in society will always desire to be

in a state of being rich• D) The poor in society want to rob the rich

Quote #3• As every individual, therefore, endeavours as much as he can both to

employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. – Define “invisible hand” in your own words.

Capitalism vs Socialism

• Capitalism: ???• Socialism: ???