IR and Capitalism: Laissez-Faire figures

 Adam Smith : CAPITALISM/Laissez-faire

 Wealth of Nations, 1776

 “the individual, pursuing his SELF-INTEREST, will bring on general benefits to society”

 NEED for free markets (no government intervention) IR and Capitalism: Laissez-Faire figures

 Thomas Malthus predicted that population would outpace the world’s food supply

 People should limit kids

 Wrote: An Essay on the Principle of Population

 No gov’t help for the poor IR and Capitalism: Laissez-Faire figures

 David Ricardo: “iron law of wages”

 Limit kids b/c people have more kids when $ is strong;

 Increase in labor force later means a decrease in wages and increased unemployment  No gov’t help for the poor The Industrial Revolution Spreads… CAPITALISM  Rising economic powers are ALL industrial

 Each wants access/control over RAW MATERIALS and MARKETS

 Capitalism is an economic system based on PRIVATE OWNERSHIP and the use of CAPITAL

 Growth of towns and cities and the expansion of trade in the late Middle Ages sparked this economic development Capitalism

Three main features of capitalism:

1. Private Ownership

2. Profit motive

3. Market Economy Capitalism

1. Private Ownership:

 Capital belongs to individuals, FREE to do what they wish with it

 AKA, the “free- enterprise” system Capitalism

2. Profit Motive:

 When enough people want something, producers make it because they want a PROFIT Capitalism

3. Market Economy:

 Monetary value can be placed on everything in the marketplace (e.g., land, goods, time, and labor)

 Buyers and sellers are free to exchange goods and services at prices determined by SUPPLY and DEMAND Basic Laws of Supply and Demand

DEMAND: “More of a good will be demanded the lower its price. Less of a good will be demanded the higher its price.”

SUPPLY: “More of a good will be supplied the higher its price. Less of a good will be supplied the lower its price.” On a “price/quantity” chart...

Question: Why does a DEMAND curve always slope DOWNWARD?

Why does a SUPPLY curve always slope UPWARD? Effects of Capitalism

 “Profit” for owners of production/business

 Industrial economies greatly exceed agricultural economies

 Market competition = price of goods go down because of the increased supply of goods and competition for your business Criticisms of Capitalism  Tremendously uneven distribution of WEALTH  Poor people live in SQUALOR: slums, bad sanitation, etc.  Working conditions are dangerous and miserable, etc. What's Good about Capitalism?

• Freedom, choice;

• You can work wherever, buy whatever, and pretty much do whatever;

• If you’re successful, you can be very successful. Think Bill Gates. What's Bad about Capitalism?

 No “safety net;”

 If you’re unsuccessful, you can be very unsuccessful. Think about the poor;

 Huge gap between rich and poor. Responses to Capitalism

“ISMs” all over the place...

 Socialism

 Utilitarianism

 Utopianism

 Communism Socialism: society (in the form of the government) owns the means of production and key infrastructure Principles:

 “Equality of all people,” but NOT equality in pay (e.g., skilled workers earn more than unskilled workers, managers earn more than workers)

 One can earn more through amount of work, quality of work, etc., but CANNOT use that wealth to own the means of production (those are owned by the people, and not for sale)

 Cooperation is better than competition

 The state provides a variety of social services to benefit the people Utilitarianism: “greatest good for the greatest number”

“Advance the greatest good for the greatest number.”

“Government should enact reforms that promote more happiness.” John Stuart Mill, economist and Jeremy Bentham, politician economist and judge Utopianism: ideal society based on cooperation instead of competition

 Thomas More's Utopia (Greek for “no place”) described an ideal society  Robert Owen: Set up a model, self- sufficient community (New Lanark, Scotland) to show that it was possible to be good to workers and still make a profit  Campaigned for child labor laws  Encouraged unions  New Lanark worked, but New Harmony, Indiana failed Robert Owen Communism: The extreme (or as Marx would argue, final) form of socialism in which “all people” own the means of production as the state “withers away” and produces a “classless society” Karl Marx’s theory of Communism

 Idea: that History is shaped by ECONOMIC FORCES (the way goods are produced and distributed)

 CLASS STRUGGLE has always existed between the “haves” and the “have nots”

 In industrial times the “haves” = bourgeoisie/middle class capitalists; “have nots” = wage earning laborers How Communism was supposed to happen: Poverty and desperation drive MASSES of workers (proletariat) to:  seize control of the government and the means of production;

 destroy the capitalist system;  establish a “dictatorship of the proletariat;”  A classless society emerges as all goods are shared equally, and the state “withers away” Effects of Marxist thought

 Formation of socialist  Communists take over Russia political parties in many (1917) countries  Communism coopted by  Advocate and support revolutionaries elsewhere revolutions  Dictatorships of Communist  Push for work reforms Party leaders (rather than the proletariat itself)  Fight against “capitalism”  No communist paradise established anywhere What's Good about Communism?

 Security, basic needs met;

 Everyone would have a job, a home, health care, etc. What's Bad about Communism?

 Lack of choice;

 No real reward for being a better worker or real punishment for being a slacker;

 Everyone is expected to be the same/no real incentive toward individualism. Communism/Socialism: What’s the difference?

Communism is “from each according to their ability, to each according to their NEEDS.” Socialism is, “from each according to their ability, to each according to their DEEDS.”  According to Marx, Socialism is the stage between Capitalism and Communism;  It builds upon the previous system (Capitalism) by nationalizing the “means of production” (i.e., corporations, resources, banks, etc.), but not by making a classless society or everyone equal;  People are paid wages based on several factors (social need, difficulty, amount of schooling required, etc.), so not everyone will make the same wage.