The introduction of capitalism Classical Liberalism The introduction of capitalism

Economic Theory

Scarcity Human have unlimited needs and wants The earth has a limited amount of resources Land, labor, capital This creates scarcity So how do you decide how to allocate all resources Three basic economic questions What to produce? How to produce it? Who gets it? (How to distribute it)

Economic Systems There are three basic economic systems The fourth – traditional economies, is rare Market Economy – also known as capitalism, free market, private enterprise Planned Economy – also known as socialism, communism, centrally planned, public enterprise Mixed Economy – can range from welfare capitalism, to highly socialistic economies

Terms – which is right/lef t wing? Private direction Public direction Planned economy Free enterprise Laissez-faire Command economy Invisible hand Mixed economy Collectivism Communism Capitalism Welfare capitalism Socialism Interventionist Individualist Individual initiative Common good Social welfare

Centrally Planned Economy Command Economy Mixed Economy Left Wing Center Right Wing Public Direction Private Direction Planned Economy Centrally Planned Economy Command Economy Mixed Economy Free Enterprise Laissez-faire Invisible Hand Communism Socialism Welfare Capitalism Capitalism Interventionist Individualist Common Good Social Welfare Collectivism Individual Initiative Individualism

Origins of capitalism (classical liberalism)

Mercantilism prior to the 19th Century Competition between nations for gold / silver = power Protective tariffs, monopolies, limited international trade (colonies and mother country), high levels of government regulations e.g. Hudson Bay Company

Historical events leading to classical liberalism Protestant Reformation value of hard work, thrift and material growth Industrial Revolution transportation = new markets / resources population explosion = new labor / markets Success in Europe = spread throughout the world Liberal Movement (classical liberalism) Merchants complain about government restrictions believed that the economy should be free to follow natural laws (supply/demand) believed people motivated by self-interest; competition encouraged better production by workers

The Industrial Revolution “The most far-reaching, influential transformation of human culture since the advent of agriculture eight or ten thousand years ago…The consequences of this revolution would change irrevocably human labor, consumption, family structure, social structure, and even the very soul and thoughts of the individual.” Richard Hooker

Promotion of classical liberal ideals Write each of the following, including a brief explanation: Enclosure Act Factory system Entrepreneurial opposition to the mercantilist system Rise of middle class and nouveau riche How do these events promote classical liberal ideals?

Adam Smith An Inquiry into Nations and Causes of the Wealth of Nations (1776 ) strength of nations rested on goods produced, not gold laws and restrictions hindered, rather than promoted economic growth no need to plan the economy; if people free to pursue own self-interest, the sum of their individual actions would automatically work for the betterment of society invisible hand government should interfere only to protect the country against foreign enemies, ensure competition, maintain law and order and protect individual property rights laissez-faire

Other Characteristics Virtues of self-reliance, initiative, hard work Necessity of private property Profit motive Price system (supply and demand) Competition Inequalities of wealth

Answering the three basic economic questions What goods/services to produce: consumer demand How to produce the goods/services: competition of suppliers (quality, price) Who should the goods/services be distributed to: goods/services produced for those who can afford them (price system)

Milton Friedman – Power of the market

Other Capitalist Philosophers

Thomas Malthus Essay on Population the world’s population advancing faster than world’s ability to produce food population growth in past was checked by famine and disease government intervention with charity would only unbalance the system

David Ricardo used Malthus’ argument to state that poverty was inescapable Iron Law of Wages: increasing wages = large families = too many workers = even lower wages poverty was a natural law of limiting population that governments should not challenge (laissez-faire mixed with doctrines of Malthus and Social Darwinism)

Social Darwinism based on Darwin’s theory of “survival of the fittest” (Social Darwinism was NOT promoted by Darwin) Natural laws = place in society according to ability – the best and brightest will prosper and the unworthy will not (everyone is paid what they are worth) competition ensures only the fittest survive this will benefit society as a whole these arguments justified the practices of the economic elite and the gap between the rich and poor

Capitalism – pros Advantages Market gives producers an incentive to produce goods the public wants Market provides an incentive to acquire useful skills A wide variety of goods and services is available There are incentives to use resources efficiently Competition encourages good quality at lower prices Productivity is rewarded by higher profits Fosters self-reliance Possible to become very wealthy

Examples of the benefits of capitalism Growth of the middle class and “nouveau riche” during the Industrial Revolution The rapid industrialization around the world is promoted by the ability to profit from innovations The growth of the US and other consumer countries compared to those nations with high levels of socialism (government intervention, like North Korea) The current technological revolution has been spurred by the benefits of competition

Oil Prices – the perfect example of supply and demand Prices in 2007-2008? Prices today?

U.S. Economy 2000 Russian Economy - $259 B Canadian Economy - $717 B Japan’s Economy - $4.7 T European Union - $7.9 T United States - $9.8 T The US is not the most capitalist nation in the world (as of 2007 Singapore was more right wing), but it is the most successful capitalist nation in the world.

2006

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