6.3 Capitalism and the First Industrial Revolution

The Industrial Revolution transformed economies from mercantilism to capitalism. This shift, sparked by Adam Smith's ideas, led to private ownership, free markets, and wage labor. These changes reshaped society, causing urbanization and the rise of a new working class.

Marx criticized capitalism, arguing it exploited workers and was unstable. He believed in class struggle, predicting the working class would overthrow the ruling class. His ideas about labor value and communism challenged the capitalist system, influencing future economic and political movements.

Economic Theories and Industrialization

Mercantilism to Capitalism

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• Mercantilism
  • Dominant economic theory in Europe 16th-18th centuries emphasized nation's wealth and power determined by gold and silver holdings
  • Encouraged governments to maintain positive balance of trade through tariffs and trade restrictions to accumulate precious metals
• Transition to capitalism
  • Adam Smith's "The Wealth of Nations" (1776) challenged mercantilist ideas arguing free trade and competition lead to economic growth and prosperity
  • Emphasized "invisible hand" of market in regulating prices and production through supply and demand
• Capitalism
  • Economic system based on private ownership of means of production (factories, land) and pursuit of profit
  • Characterized by free market competition, wage labor, and capital accumulation (investment)
  • Emerged as dominant economic system during Industrial Revolution in late 18th and 19th centuries

Mechanization Impacts

• Social impacts
  • Urbanization: Rural population moved to cities for factory work leading to overcrowding and poor living conditions
  • Family structure changes: Women and children entered workforce altering traditional gender roles and family dynamics
  • Working class rise: Factory workers formed new social class with distinct living and working conditions often involving long hours and low wages
• Economic impacts
  • Increased productivity: Mechanization enabled faster and more efficient goods production leading to economic growth
  • Industry growth: New industries emerged and expanded rapidly (textiles, steel) transforming economic landscape
  • Wealth inequality: Factory owners and investors accumulated vast wealth while workers faced poor wages and working conditions
• Political impacts
  • Labor movements: Workers organized unions (trade unions) and political parties to advocate for better working conditions and rights
  • Government regulation: Governments intervened in economy to address social and economic issues caused by industrialization (child labor laws, factory safety regulations)
  • Imperialism: Industrial nations sought new markets and raw materials leading to expansion of colonial empires (British Empire, French colonial empire)

Marxism and Capitalism

Marxism Core Ideas

• Critique of capitalism
  • Karl Marx argued capitalism led to exploitation of working class by bourgeoisie who owned means of production
  • Believed capitalist system inherently unstable and prone to crises due to overproduction and underconsumption
• Class struggle
  • Marx viewed history as series of class struggles between ruling class and oppressed class (bourgeoisie vs proletariat)
  • Argued proletariat would eventually overthrow bourgeoisie through socialist revolution leading to classless society
• Labor theory of value
  • Marx believed commodity value determined by amount of labor required to produce it, not market forces
  • Argued workers not fairly compensated for labor as bourgeoisie extracted surplus value (profit) from their work
• Communism
  • Marx envisioned classless society where means of production owned and controlled by community as a whole, not private individuals
  • Believed communism would be final stage of human history following period of socialism where workers controlled means of production