How did Smith, Malthus, and Ricardo support industrialization and capitalism? Chapter 9 Section 4

Was there a Need for Reform? During the 19th century, the Industrial Revolution not only revolutionized the way things were made, but also created many problems. What were the areas of society in which reforms were needed?

Tensions Created By the Industrial Revolution The gap between the rich and poor widened Business owners/leaders argued that the government should stay out of economic affairs. Reformers argued the government needed to play an active role to improve the conditions for the poor. Workers demanded better wages, more rights, and protection. Workers form labor unions increase their influence, often times clashing with business owners

The Philosophers of Industrialization & their Economic Philosophies Economic Philosophy Adam Smith laissez-faire Thomas Malthus laissez-faire capitalism David Ricardo Jeremy Bentham utilitarianism John Stuart Mill Robert Owen utopian socialism Karl Marx Marxism/communism Friedrich Engels

Laissez-faire Term is French in origin— “let people do as they please.” Economic policy stemmed from the French economic philosophers of the Enlightenment. The Enlightened Philosophers argued: against government intervention in the economy and the use of placing heavy tariffs on foreign goods. that government regulations only interfered with production and wealth. if government allowed free trade, the economy would prosper

Laissez-faire Definition of laissez-faire: The idea that the government should not interfere with or regulate industries and business. An economic policy of letting owners and business set working condition without interference. This policy favors a free market unregulated by the government. What are the advantages/disadvantages of a laissez- faire economy?

Adam Smith Professor at the University of Glasgow, Scotland Defended the idea of a free economy and free markets in his book, The Wealth of Nations (1776): Economic liberty = economic progress Believed the government should not interfere with the economy Adam Smith 1723-1790

Adam Smith 1. Law of self interest— People work for their own good. His arguments rested on what he called the Three Natural Laws of Economics: 1. Law of self interest— People work for their own good. 2. Law of competition— Competition forces people to make a better product. 3. Law of supply & demand— Enough goods would be produced at the lowest possible price to meet the demand in a market economy Adam Smith 1723-1790

Capitalism Definition of capitalism: an economic system based on 1) private ownership and 2) the investment of money in business ventures in order to 3) make a profit These ideas helped bring about the Industrial Revolution and supporters of capitalism believed its success was due in part by the fact that the government did not meddle in economics.

The Philosophers of Capitalism Thomas Malthus (1766-1834) David Ricardo (1772-1823)

Thomas Malthus Supported the basic ideas of Adam Smith and that natural laws governed economic life His ideas, (along with David Ricardo’s,) were the foundations of laissez-faire capitalism. Thomas Malthus (1766-1834)

Thomas Malthus In his essay, An Essay on the Principle of Population (1798), he argued that population tended to increase more rapidly than the food supply. Argued that without wars, famine, or epidemics to control the population, most people would be poor would suffer. Thomas Malthus (1766-1834)

Thomas Malthus He urged people to have less children to avoid overpopulation and the chance of large families becoming poor and to avoid suffering. Predictions became a reality during the 1840s, though the food supply eventually increased, living conditions improved, and people began to have less children. Thomas Malthus (1766-1834)

David Ricardo Believed the poor had too many children. Elaborated on Malthus’s theory of economics in his book Principles of Political Economy & Taxation (1817): Believed a permanent underclass would always be poor Many workers + abundant natural resources = cheap labor & resources. David Ricardo (1772-1823)

David Ricardo Principles of Political Economy & Taxation (1817) continued: Few workers + scarce natural resources = expensive labor & resources. Believed as the population increased, wages would decrease (workers paid less) Iron Law of Wages David Ricardo (1772-1823)

Laissez faire thinkers, such as Adam Smith, Thomas Malthus, and David Ricardo all: Opposed government intervention in the economy, which included government efforts to help poor workers. Believed people should be left to improve their lot through thrift, hard work, and limiting the size of their families. Argued creating a minimum wage and better working conditions would: Upset the free market system Lower profits Undermine the production of wealth in society

Discussion: Laissez-faire Capitalism and the Philosophers How were “workers” viewed by people like Smith, Malthus, and Ricardo? How did they view the poor? Was their view favorable or unfavorable? Explain your answer. According to Malthus and Ricardo, what affect did population growth have upon society? What flaws (if any) can you find with laissez-faire capitalism? Could a society have a capitalist economy in which a government could impose restrictions? Explain your answer. (Hint: Think about the U.S. economy.)