V.

New Economic Theories

A. LAISSEZ-FAIRE CAPITALISTS
Every man, as long as he does not violate the
laws of justice, is left perfectly free to pursue
his own interest his own way. . .
Adam Smith

1. Adam Smith (1723-1790)

a. Wealth of Nations
b. Wealth depends on:
1) Specialization of labor
2) investment
3) profitability
c. Government: leave
individuals free to find
the most profitable
employment of their
labor or capital

2. Thomas Malthus (1766-1834)

a. Essay on the Principles of
Population
b. Population would
eventually outstrip food
supply
c. Only hope of averting
disaster was through late
marriage, chastity and
contraception
d. Immediate plight of the
worker would only become
worse
e. Misery of the worker was
his own doing
f. Video Clip

1. Adam Smith (continued)

d. Duty of government
was three-fold
1) Provide defense
2) Maintain civil order
3) Provide public
works
e. Acting in his own selfinterest, the
businessman benefits
the whole community

3. David Ricardo (1772-1823)

a.

Principles of Political
Economy
b. Iron Law of Wages:
Gave employers
permission to keep
wages low and oppose
labor unions

1. Jeremy Benthem (1748-1832)

a. The founder of utilitarianism
b. believed that individual
rights were not that
important.

B. UTILITARIANS

"nonsense on stilts."

Greatest good for the greatest number

2. John Stuart Mill (1806-1873)

c.

As long as the government

protected its people and
treated them decently, it
was not oppressive.
d. Approval of an action is just
so long as that action has an
overall tendency to promote
the greatest amount of
happiness

1. John Stuart Mill (continued)

a. One of the forefathers of utilitarianism.

b. "The greatest good for the greatest
number"
1) the only way anything can get done is
to satisfy the most people possible,
no matter the class or rank.
2) very important theory because up
until this point the ruling class was a
very small aristocracy and the
majority had a low quality of life (as a
population.)

c.

No Bell Ringer Today

Review Questions

Take our your guided notes on the

economists of the industrial era

Study the economists we talked about
yesterday and prepare to answer some
questions about them (you will be called on
randomly)

What was the name of the principle that stated

that the govt. should leave businesses alone?

Who thought that society should strive for the
greatest happiness for the greatest number?

Which economist came up with the idea that
states wages were determined by supply and
demand?

Explain what he meant by wages were
determined by supply and demand? (give an
example)

Governments Role
1) to improve the hard lives of
workers
2) Government should work to
prevent monopolies
3) Give the vote to working class
men and women

Review Questions

C. SOCIALISM

What was Ricardos theory called?

Name an economist who believed in freeenterprise.

What was Thomas Malthus concerned
about?

Who stated it was the governments duty to
protect against monopolies and provide the
vote to men and women?

People as a whole, rather than

private individuals, own and operate
the means of production.

1. Robert Owen (1771-1858)

D. COMMUNISM AND MARX

a. A successful mill owner

b. Competition was the root of
many problems
c. Cause of evil was a bad social
environment
d. Established the community
of New Lanark
e. Showed that an employer
could offer decent living
conditions and still run a
profitable business

1. Marxist Philosophy

From each
according to their
ability, to each
according to their
need.

Marxist Philosophy cont.

c.

a. Problems of
industrialization
could not be solved
by reforming society
b. With Friedrich Engels
he wrote the
Communist
Manifesto and Das
Kapital

Dialectical Materialism
1) Dialecticalism sees nothing as
fixed or final (everything is
changing)
2) Nature confirmed dialectical
thinking (Charles Darwin)
3) Believed that the forces that
shaped history were largely
economic
4) History has advanced through
class struggle
5) In this way capitalism too
would pass away
6) inevitable workers
revolution

2. Marxist System
a.
b.
c.
d.
e.
f.
g.
h.

Complete socialism
All property and means of
production would be owned
by the people
All goods and services would
be shared equally
From each according to their
ability, to each according to
their need.
No private property
No exploitation of workers
Class distinctions would
disappear
The state (government) would
wither away

3. Flaws in Marx
a. Marx did not foresee government initiated reforms
b. Middle class grew larger instead of shrinking
c. Great wars of the 20th century were fought between
nations, not classes
d. Revolutions occurred in agricultural nations, not in
industrialized nations
e. The perfect society envisioned by Marx never emerged
f. The state (government) did not wither away, but
became totalitarian.

Marx Reading:
1.
2.
3.
4.
5.

What did Marx mean when he called religion the opiate

of the people?
According to Marx, what determined the value of a
product? What did he mean by surplus value? What
did Marx fail to take into consideration?
Describe the society that would emerge from the
inevitable workers revolution?
Why did the perfect societies envisioned by Marx never
materialize?
Which force do you think is influencing events the most
in the world today: economics, nationalism, race and
ethnicity, religion, or technology? Give reasons for your
choice.