Part 1: Capitalism Part 2: Industrialization

Theme: Comparing social and economic systems and understanding those

systems as responses to change and development

Lesson 6

Word Association

• Capitalism

Capitalism

• An economic system with origins in early modern Europe in which private parties make their goods and services available on a free market and seek to take advantage of market conditions to profit from their activities

Adam Smith (1723-1790)(Review from Lsn 4)

• Focused on economics and held that laws of supply and demand determine what happens in the marketplace

• Wrote An Inquiry into the Nature and Causes of the Wealth of Nations in 1776 which argued the virtues of a free market economy

Adam Smith(Review from Lsn 4)

• Free enterprise system• The role of self-interest and laissez-

faire– Through an “invisible hand” self-interest

guides the most efficient use of resources in a nation’s economy, with public welfare coming as a by-product

– State and personal efforts to promote social good are ineffectual compared to unbridled market forces

• Provides the intellectual rationale for free trade and capitalism– (We’ll discuss capitalism in Lsn 6)

Precursors to Capitalism

• Population growth– Improved nutrition from the Columbian

Exchange and reduced mortality as a result of recovery from epidemic disease led to dramatic population growth in Europe

– 1500 population was 81 million– 1700 population was 120 million– 1800 population was 180 million

Precursors to Capitalism

• Urbanization– Population growth led to

the growth of cities as centers of government, commerce, and industry

– Madrid, Paris, and London were especially dramatic

– Significant growth also occurred in Amsterdam, Berlin, Copenhagen, Dublin, Stockholm, and Vienna

18th Century London

Capitalist System

• Center of the system is the free market in which businessmen compete with each other, and the forces of supply and demand determine the prices received for goods and services

Capitalist System

• Private parties pursuing their own economic interests hire workers and decide for themselves what to produce– Economic decisions are the prerogative of

capitalist businessmen, not governments or social superiors

– Private parties own the land, machinery, tools, equipment, buildings, workshops, and raw materials needed for production

Capitalist System

• If businessmen organize their affairs efficiently, they realize a profit

• If they are inefficient, they incur losses or maybe even lose their businesses– One way to spread the

risks were the joint stock companies we discussed in Lesson 3

– Insurance companies also were formed to mitigate financial losses

Developments that Fueled Capitalism

• Wanting to make money was nothing new, but during early modern times, several developments transformed the economic order– Efficient networks of transportation and

communication allowed businessmen to take advantage of market conditions

– Banks held funds for safekeeping and granted loans– Business newsletters provided information about not

just the markets, but about the political impacts on the economy

– Stock exchanges provided markets to buy and sell shares

Capitalism and Politics

• Capitalism grew with the active support of governmental authorities within the context of imperialism– Especially the English and Dutch

• Remember the discussion of trading post empires from Lesson 3– Fortified trading posts– Joint stock companies– Seven Years’ War

Organizational Changes

• Guild system– Had monopolized the

production of goods such as textiles and metalwares in European cities for centuries

– Fixed prices and wages and regulated standards of quality but did not seek so much to make a profit as to protect markets and preserve members’ positions in society

– Thus the system discouraged competition and sometimes resisted technological innovation

• Putting-out system– Capitalist entrepreneurs

sidestepped the guild system by moving production to the countryside where labor was cheaper

– Delivered unfinished materials to rural households where workers would turn them into finished goods

– Putting-out system produced such items as cloth, nails, pins, and pots

Capitalism and Social Change

• The putting-out system brought considerable new wealth to the countryside

• Increased wealth brought material benefits but also undermined long-established patterns of rural life

• The new income allowed young adults and women to become increasingly independent of their families– At the same time, young nuclear families (husband,

wife, children) were strengthened because love became more of the reason for marriage than improving financial interests of extended families

Moral Implications

• Profit-making motives challenged traditional beliefs that encouraged individuals to look at the welfare of the larger community rather than just their own

• Adam Smith countered that society as a whole prospered when individuals pursued their own economic interests

• Nonetheless, capitalism generated social strains that sometimes manifested themselves in violence such as robbery

Discussion

• Are unions good or bad?• Should the government provide for individual

members of society or is Smith right that all of society prospers when individuals pursue their own economic interests?

• What does all this say about contemporary issues such as social security, national health insurance, agricultural subsidies, and welfare?

Industrialization

• The process that transformed agrarian and handicraft-centered economies into economies distinguished by industry and machine manufacture

• Key to the process were technological and organizational changes that transformed manufacturing and led to increased productivity– Machines– Factories

Importance of Coal

• Until the 18th Century, wood had been the primary fuel in Great Britain

• Britain’s natural abundance of coal allowed it to convert to this more efficient fuel which paved the way for industrialization through such means as iron production and the steam engine

Woman coal drawer in a British

mine

Importance of Textiles

• In addition to coal, the triangular trade supplied Britain with large amounts of cotton from America

• Consumer demand for cotton products transformed the British cotton industry and started the larger industrial expansion

Mechanization of the Cotton Industry

• Demand for cotton products encouraged the development of faster spinning and weaving processes

• In 1733, John Kay invented the flying shuttle– Before cloth could be woven

only up to the width of a man's body because he had to pass the shuttle backwards and forwards, from hand to hand

– Kay's invention allowed the shuttle, containing the thread, to be shot backwards and forwards across a much wider bed

Social Impact

• With the Flying Shuttle, one worker could do the work of two, even more quickly

• This threatened jobs and in 1753 an angry mob of weavers, afraid of the competition, wrecked Kay’s house and destroyed his looms

• Moreover, manufacturers formed an association which refused to pay Kay any royalties

• He lost all of his money in legal battles to defend his patent and died a poor man

Portion of a mural depicting Kay escaping from his home after being attacked by local textile workers

Other Inventions: The Spinning Jenny

• In 1764, James Hargreaves invented an improved spinning jenny, a hand-powered multiple spinning machine that was the first machine to improve upon the spinning wheel

• The original spinning jenny used eight spindles instead of the one found on the spinning wheel– Later models had 120 spindles

• Like Kay, Hargreaves suffered from violence at the hands of workers who saw his machine as a threat– In 1768 a group of spinners broke

into Hargreaves’s house and destroyed his spinning jenny machines

Other Inventions: The Mule

• In 1779, Samuel Crompton invented the “mule”

• It was adopted for steam power in 1790

• A worker using a steam-driven mule could produce a hundred times more thread than a worker using a manual spinning wheel

Steam Power

• Steam engines burn coal to boil water and create steam which then drives mechanical devices that perform work

• In 1756, James Watt developed a general-purpose steam engine which used steam to force a piston to turn a wheel whose rotary motion converted a simple pump into an engine that had multiple uses

Steam Power

• By 1800, thousands of Watt’s steam engines were in operation in the British isles, especially in the textile industry

• In 1773, James Watt and Matthew Boulton formed a partnership

• In 1785, Edmund Cartwright patented the first version of his power loom which combined the steam engine and the textile industry– Cartwright set up a factory in

Doncaster. James Watt

Factories

• Cartwright’s Doncaster factory was just one of many

• By the end of the 19th Century, the factory had become the predominant site of industrial production in Europe, the United States, and Japan

Factories

• The size and cost of machines led to production being centralized in selected locations

• Mass production strongly encouraged new divisions of labor and specialization– In the handicraft traditions, a single worker did

the entire job– In the factory system, each worker performed

a single task

Adam Smith’s Description of Work at a Pin Factory

• “One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head… and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.”

Working Conditions• Factory work required strict

discipline, a fast pace, and close supervision

• Work became monotonous and repetitive

• Safety suffered• Workers lost their broad-

range of skills, could easily become obsolete to technological developments, and became completely dependent on the factory owners for their livelihood– Some workers such as

the Luddites revolted against the new system by destroying textile machines

Luddites burning a textile machine

Industrial Capitalism: Mass Production

• Eli Whitney developed the technique of using machine tools to produce large quantities of interchangeable parts in firearm making

• Allowed unskilled workers to make a particular part of the musket, replacing skilled workers who used to make the complete product

• By the 19th Century, mass production of standardized articles was becoming the hallmark of industrial societies

Industrial Capitalism: Assembly Lines

• Introduced by Henry Ford in 1913 for automobile production

• Used a conveyor built to carry components past workers at the proper height and speed

• Each worker performed a specialized task from his fixed point

• Reduced the time to produce a chassis from 728 to 93 minutes

• Increased production meant lower prices so that millions of ordinary Americans could own cars

Industrial Capitalism: Corporations

• Corporations are private businesses owned by individual and institutional investors who finance the business through the purchase of stocks representing shares in the company

• By the late 19th Century, corporations controlled most businesses requiring large investments in land, labor, or machinery

Industrial Capitalism: Monopolies

• To protect their investments some big businesses sought to eliminate competition by forming monopolies

• Vertical monopolies dominated all facets of a single industry– Through Standard Oil

Company, John D. Rockefeller controlled almost all oil drilling, processing, refining, marketing, and distribution in the United States

Industrial Capitalism: Monopolies

• Horizontal monopolies tried to eliminate competition by the consolidation or cooperation of independent companies in the same business

• Ensured prosperity of the cartel members by absorbing competitors, fixing prices, regulating production, or dividing up markets– IG Farben, through the merger

of many chemical and pharmaceutical manufacturers, was able to control 90% of production in chemical industries

Discussion

• What were the good things about industrialization?

• What were the bad?

Putting It All Together

CoalSteam powered machines

More incentive,more capability, more demand, more supply

Triangular trade

Cotton

Factories

Enlightenment Capitalism

More goods, more money, but some unpleasant social developments

Socialism

Next

• Part 1: Socialism• Part 2: Global

Depression

Migrant Mother taken by Dorothea Lange in

1936