Development of Capitalism during the Industrial Revolution

Created by: Erika Arellano

• Industrial Revolution refers to the greatly increased output of machine made goods

• Began in England in the 1700’s• Why did it begin in England? It had natural resources

such as: – Water power and coal to fuel the new machines– Iron ore to construct machines, tools and buildings– Rivers for inland transportation– Harbors from which merchant ships set sail

http://www.historyguide.org/intellect/lecture17a.html

Industrial Revolution1700-1900

• Spinning Jenny

• Flying Shuttle

• Cotton Mills

• Steam Engine

• Factories

Innovation created during Industrial Revolution

Ideas of Adam Smith

• Believed in free economy, or free markets• Wrote book The Wealth of Nations• Economic liberty guaranteed economic progress• Three Natural Laws of Economics:

– Law of Self Interest: People work for their own good– Law of Supply and Demand: Enough goods will be

produced at the lowest possible price to meet demand in a market economy

– Law of Competition: Competition forces people to make a better product

Thomas Malthus and David Ricardo

• Smiths ideas influenced Malthus and Ricardo• Believed that natural laws governed economic

life• Opposed government efforts to help poor

workers• Their ideas formed the foundation of laissez-

faire capitalism: – http://

www.importanceofphilosophy.com/Politics_LaissezFaire.html

Capitalism• Economic system in which the factors of

production are privately owned and money is invested in business ventures to make a profit

• Replaced feudal empires (i.e. Holy Roman Empire) and monarchies

• Created markets where buyers and sellers of goods and services agreed on prices

• Created market types:– Competition– Monopoly– Oligopoly

• Long distance trade increased dramatically due to innovation in transportation

Capitalism continued

• Individuals and businesses own property and the mean of production.

• Progress results when individuals follow their own self interest.

• Businesses follow their own self interest by competing for the consumer’s money. Each business tried to produce goods or services that are better and less expensive then those of competitors.

• Government should not interfere in the economy because competition create efficiency in business.

How did capitalism bring about the Industrial Revolution?

• The connection is that it:– Led to investing in factories– Led to increased production and higher

demands for raw materials– Led to world wide trade– Led to new inventions and new innovations– Led to changes in transportation, agriculture,

and communication

Spread of Industrialization1850-1914

Global Diffusion of the Industrial Revolution

Summary of Institutional Capitalism• English Parliament was firmly under the control of the

capitalist classes.

• Increase in agricultural production and turned the established rules of land ownership on their head.

• Lands previously held in common by tenant farmers changed into large private farms, worked by a smaller labour force. This increased the agricultural production and caused the displaced peasants to head for the cities. Subsequently, there was an abundant labour supply to mine coal and iron, and man the factories.

• The revolution moved economic power away from the aristocratic classes and into the hands of the new middle class, the bourgeoisie.