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.