19 th Century Economics

19th Century Economics

Capitalism• An economic system in

which ownership and control of the means of production and distribution of products is in the hands of private individuals or corporations who operate these businesses for profit

• Evolved out of state-sponsored mercantilism of the colonial era

Adam Smith• Scottish economist and

author of The Wealth of Nations (1776)

• Argued that a “free market” economy works to benefit everyone, because it encourages the manufacture of more goods, thereby creating jobs, innovation, and lower prices on goods

• Also argued that the “invisible hand” of supply and demand works to regulate markets

Supply and Demand• The laws of supply and demand:

– If demand increases and supply remains unchanged, then price increases

– If demand decreases and supply remains unchanged, then price decreases

– If demand remains unchanged and supply increases, then price decreases

– If demand remains unchanged and supply decreases, then price increases

– In most goods, the price will be where supply = demand

Elastic vs. Inelastic Demand• Elastic goods: products for

which demand will drop if price increases (ex. luxury goods like video games, cars, or jewelry)

• Inelastic goods: products for which demand will remain relatively stable, even if price increases (ex. necessary goods like gas, bread, or medicine)

Laissez-faire• Because of the laws of supply and

demand, most capitalist economists promote “laissez faire” (French term meaning “let them do as they will”) policies

• In this approach, government does nothing to regulate the economy – they do not try to control prices or wages, they also provide no protection from monopolies or foreign goods

• Capitalist economists argue that the market will balance itself without government interference

David Ricardo• 1772 – 1823• Economist, who opposed

any wage controls (such as minimum wage)

• Described the “Iron Law of Wages”: When wages are high, people will have more children, thereby creating more available labor in the next generation and causing their wages to fall

Thomas Malthus• 1766 – 1834• Economist who predicted that

population would soon exceed the food supply

• Argued that mankind had worked to defeat the natural checks on population (war and disease) and so nature would respond with famine

• Urged families to have fewer children to halt population growth

• So far, Malthus has been wrong , thanks to agricultural innovations

Socialists• Others believed that the

government needed to exercise some control over the economy and protect workers and consumers from industrial interests

• To deter economic injustice, some supported socialism: a system where the economy is heavily regulated by the government to ensure that all citizens enjoy an equal share in society’s prosperity

Utilitarians• Believe that an action is right so

long as it produces the greatest happiness for the greatest number of people

• Believe that an action is separate from the person who performs the action. In other words, a child who burns down a house is not a bad child, but rather a child who has done a bad thing.

• Also believe that the “rightness” of actions depend on the consequences of the action - If something has undesirable effects, it is wrong regardless of whether or not the person had good intentions.

Jeremy Bentham• 1748 – 1832• Founder of utilitarianism• Called for separation of

church and state, freedom of expression, equality for women, an end to slavery, end of corporal punishment, and the decriminalization of homosexuality – all instances where he believed that minority opinions were preventing the “greater happiness”

BENTHAM’S MUMMIFIED HEAD!

Marx & Engels• Friedrich Engels• Karl Marx• Expatriated Germans• Co-wrote The Communist

Manifesto (1848) • Argued that society is made up

of “haves” (factory owners or “bourgeoisie”) & “have nots” (workers or “the proletariat”) and this inequality will inevitably lead to a violent overthrow of the bourgeoisie by the proletariat

Communism• Marx and Engel’s believed that

the struggle between the bourgeoisie and proletariat would result in communism, or a system of government where a temporary authoritarian power directs the economy in order to ultimately achieve a higher social order where all property is collectively owned by “the people” and government is no longer necessary