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Rise of the Gentry and Capitalism

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1 Rise of the Gentry and Capitalism
New Economic Systems Rise of the Gentry and Capitalism

2 Shift From Mercantilism
In the 18th century, the economic systems of the Post-Classical and Early Modern Eras were becoming obsolete for the growing wealth and populations of Western Europe While most governments focused on controlling wealth through taxation, state control, and guilds, European investors and businessmen began to think otherwise Under the mercantilist system, the government and guilds controlled workers, wages, prices, and quality, and tariffs and taxes kept prices very high There were also few stable banks able to give loans, which made starting businesses or building difficult, as you needed the money yourself This gov. and guild control limited industries and their prices, and the lack of money, or financial capital, prevented many bright and motivated people from working on their own

3 Old Problems and New Ideas
Two factors allowed for the upcoming explosion of money supply, investment (the amount of money in circulation), and innovation in the 17th and 18th centuries: A reduction of gov. and guild control (this enabled cheaper prices and increased innovation) An increase in money supply for investment (more banks and loans for starting businesses) Initially, the gov. and guilds kept prices high and controlled industries in an attempt to both enrich the mother countries, and keep incomes high for workers However, higher prices due to these costs and controls resulted in less people buying the items, and often there was only one, single option/business for consumers to buy from For innovation to occur, and sales to increase, businesses would need lower taxes, and the ability to hire motivated and naturally-good workers rather than guild selections

4 New System: Capitalism
The new economic system that helped spur the Industrial Revolution was capitalism – explained in detail by Adam Smith’s book The Wealth of Nations According to capitalist theories, the best way to promote economic growth was a wealth-creation system rather than a fixed-wealth system Smith and others believed wealth could be created through cheap labor, which lowered prices, sold more products, and created more jobs To capitalists, the gov. and guilds did not need to control prices, but that consumers, or the market, would determine the best prices and goods alone According to Smith, competitive process was the best way to ensure the lowest prices, best goods, and meet the needs of society

5 Capitalism Cont. Smith believed low production costs kept prices low for business owners (suppliers), which meant consumers (demand) could save money and buy more If a product was too expensive, or not high enough in quality, the demand (consumers) would not buy it This would result in business owners (suppliers) to either reduce the price or go out of business to competitors The lower the prices, the more disposable income consumers had to buy other goods, which would result in more sales, and economic growth To achieve this, capitalism called for the elimination of guild controls that limit innovation and control prices, as well as tariffs and taxes that raised production costs

6 The Invisible Hand Lastly, Smith believed all needs would be met in a laissez-faire market, where no guilds or gov. impacted prices (aka a free market) The Invisible Hand—self interest--was that the desire of suppliers to profit would result in the needs of society (consumers) being met Example If a new medicine is needed to cure a plague, entrepreneurs will start businesses to make money off of producing and selling that new medicine Other entrepreneurs will also attempt to make that medicine for profit, and competing with each other will cause them to lower prices and raise quality The theoretical result? Everyone is provided with new medicine that is good in quality and at an affordable price. Desire for profit provided affordable medicine.


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