Transcript PPT Economic Decisio..

Economic
Decision
Making
Economic Infrastructure
Consequences of the Industrial Revolution
Economic Infrastucture
Capitalism
• By the 17th century Englishmen were taking
the necessary steps toward capitalism.
– In a capitalist economy goods are offered as a
way of earning more purchasing power which is
then saved for reinvestment in some other
enterprise to earn even more purchasing power.
Consequences of the Industrial
Revolution
Social Expectations
• Thinkers such as Adam Smith began to
question whether mercantilist theory could
effectively manage an economy
– Smith argued that mercantilism meant the
imposition of stifling government regulations and
unjust privileges for private monopolies and
government favourites
– this should be replaced with free competition
which would give all citizens a fair and equal
opportunity to invest
– competitive free enterprise regulated by the
market place would result in higher incomes for
everyone
• Smith began to question what to do about
the large amount of surplus labour
– his solution was to put them to work through the
process of division of labour
• Divide production process into specialized tasks made
up of repetitive movement that are easily learned
• Standardize the parts of the product
• Systematically plan and engineer the total production
process
– He concluded that division of labour would result
in increased productivity and a higher standard
of living for all
» View Adam Smith/Carl Marx video
• Economic Development
– The 18th century was a time of canal and road
building which made it possible to ship goods
from areas of surplus to areas of shortages
– Improved trade lead to improved standard of
living especially because food could be
transported to areas of shortages
– Business organizations, such as banks and
corporations, developed to facilitate the
accumulation of capital and encourage
investment
Rising Expectations
• The cottage industry had a positive effect on
marriage and on population increase
– Because a piece of land, a cottage, a loom, and a
spinning wheel could produce a meager living,
young people married and had families earlier
• There was a significant growth in demand for
products and increased incentive to find ways
to produce more goods for less money
Supply and Demand
• As demand increases, prices increase
• As supply increases, prices will decrease
• Supply and demand together set the price for
a particular commodity as well as the labour
costs to produce the commodity
Development of New Economic
Organizations
At the beginning of the 18th century:
– The majority of industry was done by families in
rural areas
– All members of the family worked long and hard
in agricultural and textiles to produce a living
– These workers had some economic
independence in terms of setting their personal
priorities, work schedules, etc.
– Productivity was low as was standard of living
Political and Economic Infrastructure
– Transportation system: Britain had an advantage
because of its proximity to water for
transportation
– Free Trade: Britain did not have internal tariffs so
trade could flow freely
– Surplus Agriculture: Britain had good crops and
low food prices leaving income free for spending
on other manufactured items
– Government: Britain had a stable and predictable
government which allowed the economy to
operate as a free market
– Surplus labour: Britain had a large class of hired
agricultural workers
Capitalization
• requires some system by which pools of wealth can be
created for investment
• investment by individuals requires some certainty
about the return on investment
Development of new social
organizations in textiles
– Cotton goods became cheaper and readily
available
– Lower classes could now afford cotton
– Led to widespread use of undergarments
– Cottage industries were unable to respond to the
increase in demand
– Increase demand resulted in a sharp increase in
wages for weavers
• First Factories were textile mills in response
to this demand
Development of new social
organizations in energy
– Lack of power was a key reason for poverty; no
matter how hard people work they can not
produce very much
– New energy sources were needed to provide
more power
– The energy shortage was becoming acute in
Britain because most forests had been cleared.
• Without a new energy source the industry
would stagnate and cease to exist
Development of new social
organizations in metals
– By 1740 Britain’s iron industry was stagnating
because of the shortage of trees to produce
charcoal for coking
– Britain was forced to import iron from Russia
which still had large forests
Development of new
energy sources
– Coal was the alternate energy source, provided
the necessary technology could be developed to
use it
– Watt created a more efficient version of the
steam engine
– Production of the new engine required the
backing of infrastructure to supply the skilled
labour, technology, and the materials.
Infrastructure needed to produce a the
sophisticated steam engine:
– Risk capital and a manufacturing plant from a
wealthy toy maker
– Locksmiths, tinsmiths, and millwrights who
could install, regulate, and repair the engine
– Ingenious manufacturing techniques to produce
precision parts
• By the 1780’s the steam engine was a
practical and commercial success and was the
most fundamental advance of the industrial
revolution
– Steam power replaced water power in mills
– Steam driven bellows enabled the use of blast
furnaces using coke
– Steam driven rolling mills increased iron
production
Consequences of Technological and
Social Change on Standard of Living
– Roads had to be hard surfaced so land
transportation was expensive
– By 1816 an iron rail, which could carry heavier
loads was developed
– Stephenson developed the concept of a
locomotive which led to trains
– Railroads changed the outlooks and values
• The power and speed was never before realized
• This fired the imagination of the 19th century
Economic consequences for the GNP
– Gross National Product is the value of all goods
and services produced by the entire economy in
a year.
– GNP is closely tied to the Standard of Living
– Iron production went from 17000 tons in 1740 to
260000 tons in 1806 and 3 million tons in 1844
– Larger markets > larger factories > cheaper goods
Social Consequences of the
Industrial Revolution
Britain at mid century:
– Was the ‘workshop of the world’
– Produced 2/3 of the world’s coal and more than ½ of the
iron and cotton cloth
– Between 1780 and 1800 doubled its production of
manufactured goods
– Between 1801 and 1851 the GNP rose 3 ½ times
– Between 1780 and 1851 the population went from 9
million to 21 million
– Between 1801 and 1851 the real average income doubled
Social Consequences of the
Industrial Revolution
Britain from 1750 to 1790:
– Cottage industry wages seem to have risen somewhat
– Workers were able to buy more goods
– Wages in industry were much higher than in agriculture
Britain from 1792 to 1815:
– Constant war between Britain and France
– Wages rose but did not keep up with inflation
– Food prices rose the most with the price of wheat
doubling
– Economic well being of the poor declined
Social Consequences of the
Industrial Revolution
Britain from 1815 to 1850:
– Between 1800 and 1825 the real wage of the average
worker increased 25%
– Between 1825 and 1850 they rose another 40%
– The wages of industry workers were twice the wages of
workers in agriculture
During this period of time, increased purchasing
power meant the ability to afford more goods.
– Workers ate more nutritious food (health increased)
– Clothing improved, but housing didn’t
Working conditions in industry was far different
than what cottage industry workers were use to.
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Freedom of setting own work pace was lost
Work was monotonous and tedious
Factories were being built in urban areas
Workers forced to migrate from rural areas
Family units could no longer work together
Some factories allowed children to work along side
their parents
Factory workers felt they had lost control of their
lives.
• They were faced with a lifetime of boring, repetitive
tasks which were so small they seemed meaningless
• For craft workers whose skills were now taken over by
the factories they felt a lose of status and income
• The mechanization of spinning meant an end to the
traditional skilled jobs of women
• Men excluded women from trades which left them
with menial jobs
• Between 1799 and 1811 workers revolted and
destroyed many mills
Balancing the rights of the consumer, the rights of
the producer, and the rights of the investor
• A monopoly was defined as the power to prevent the
market from producing the greatest number of goods
at the lowest possible price
• Businessmen argued that the free marketplace must
be protected to encourage investors
• Parliament was asked to set laws to prevent any
group, especially labour from having the right to
disrupt the free marketplace
Protection of workers
• Humanitarians insisted on shortening the hours of
work for children under the age of 13 and regulating
the hours for those under 18 to twelve hours.
• Workers began to for unions as a way to counter the
powers of the owners
In 1799 Parliament passed the Combination Acts
which outlawed unions and strikes
In 1824, in the face of widespread union activity,
Parliament repealed the Combination Acts.
British industry continued to outperform other
European countries.
• Many European countries held on to their agricultural
worldview
• France was dealing with the French Revolution and
Napoleonic wars
• Steam power was a technology not well understood
outside of Britain
• British goods were being produced and sold more
inexpensively than goods from other countries
Basic premises of the Industrial Paradigm
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Progress is possible
Progress is equated to growth
Progress is possible by applying science and technology
Wealth is based more on trade and industry than land
Work is useful and meaningful and has dignity
A person’s labour is a commodity
Individuals should be socialized to be self-reliant,
ambitions, and competitive
Basic premises of Non-Industrial Paradigms
• A group’s economy is based on the environment
• The environment is to be respected and is sacred
• The needs, safety and well-being of everyone is of
primary importance
• Individual wealth only has meaning when the whole
group shares the abundance
• Trading of goods should be done fairly with the mutual
benefit of everyone in mind
• The ability to be self-sufficient is highly admired
provided it is used for the benefit of the group