Powerpoint Notes
Ideology
What is Capitalism?
Advantages of Capitalism
Disadvantages of Capitalism
Who Created Modern Capitalism?
History of Capitalism
The Feudal Economic System
How did Feudalism End?
Merchant Capitalism
End of Merchant Capitalism
Industrial Capitalism
Modern Capitalism
Need for an Alternative?
What is Capitalism? (Summarised in under 50 words)
Capitalism is an economical system that is controlled by a private owner for a personal capital and wealth. Capitalism aims to produce consumer goods in the most efficient way possible. The government is limited in its control of the economical system to keep company competitiveness alive in the free market.
'How Capitalism Works'
Article Questions + Answers
Link: http://islandschoolhistory.weebly.com/uploads/1/4/9/6/14967012/how_capitalism_works.pdf
1. ‘The essence of Capitalism is economic freedom’. What do you understand this to mean?
There is a sense of freedom shrouded around Capitalism as it aims to separate itself from government. Freedom is also shown in how products are sold in a free market. There is no structure in Capitalism when it comes to how to work, where or who you employ. That is entirely up to the employer and this conveys freedom because the owner has the ability to do whatever they want as long as their consumer products are efficiently produced and are of a good quality.
2. What are the two basic approaches to a modern economic system?
The Free Market Economy (Capitalism) or the Planned Economy/Command Economy/Marxist Economy.
3. What does Layton mean by ‘true’ or ‘real’ capitalism?
By 'true' or 'real' capitalism is a term used to describe capitalism before the Industrial Revolution. This was before protests for higher wages and better working conditions and the use of sweatshops occurred. 'True' capitalism rejects all government influence and doesn't approve of labour laws, social security, anti-discriminatory hiring practices and the minimum wage.
4. What is a ‘mixed economy’?
Mixed economies contain certain parts of capitalism as well as planned economies.
5. What does ‘individualism’ mean?
That each human in the economic system has different strengths and weaknesses that makes them individual. (Based on the humanistic ideals of the 18th century European Enlightenment.)
6. Give an example of how someone’s ‘individual wealth’ could lead to an overall improvement in the ‘wealth of society’.
Before the European Enlightenment, human rights weren't spoken of and the Enlightenment allowed people to see humanity and realise their society was made of completely different people who wanted to gain wealth in their own ways. This can cause a 'wealth of society' as everyone is trying to achieve their own aspirations in their own ways in their own society.
7. What two concepts did Adam Smith, introduce in his book, ‘Wealth of Nations’?
8. What does Smith mean by an ‘invisible hand’?
Something that overlooks the economy through self-interest, ownership and competition. This concludes in social wealth because the economic balance is natural.
9. Why does Capitalism thrive in a consumer culture?
In a consumer culture, there are people who are buying products therefore, Capitalism is successful because people are spending their money to increase the economy. Social aspects of consumer culture also help determine who buys and what.
10. Define what the owner class and working class are.
11. According to Smith, what guides production and why?
Rational calculation for profit. This helps guide production as you're able to judge what's happening on the market and adjust production rates. This allows Capitalists to receive the greatest profit possible.
12. How does Smith’s model of Capitalism improve society’s standard of living?
Capitalists bring in profit which, produces more goods, the goods can be sold at a lower price and therefore, more people can afford to buy the goods. This increases societies standard of living as more people can afford to buy more.
13. What should be the role of government according to Smith?
The governments role should be to maintain the peace and keep the economy in order so it can work smoothly.
14. Explain what laissez-faire system of economics is.
The 'Laissez-faire' (anti-interference) is a system that economics leans on to keep the economy self-regulating with producers, consumers and markets that operate the supply and demand in the economy.
15. What is meant by ‘supply and demand’?
Supply and Demand revolves around how much of a product you have and how much you're selling it for. Supply and Demand is trying to find a way to turn the profit.
16. What is Mercantilism?
The practice of selling something for more than its original price.
17. How are Capitalist, Socialist and Fascist economic systems basically different?
Capitalist, Socialist and Fascists are basically different because they all have different types of people leading their production. For example, Fascist societies have the state in charge of production whereas, Capitalist societies have the production owners are all individual.
18. Why didn’t true capitalism work in history?
The inequality between the working class and the owning class continued to grow and labourers' got frustrated as they were depending on Capitalism for their livelihoods. This causes a lack of trust, anger in a community.
19. Why did governments begin to intervene in the Capitalist economies in the early 20th century?
The government tried to protect the working class from the owner class. Laws were passed that made child labour illegal, set proper workdays and hours and banned monopolies.
20. What changes did the economist Keynes believe should be made to Capitalism in the 1930s?
Keynes wanted the government to intervene with the economy keep the economy consistent. Changing taxes, spending and affecting interest rates allowed the government to keep the money supply level and protect the economy from having highs and lows. The Employment Act 1946 stated Keynes economic ideas and put the responsibility of economic stability in the hands of the government.
Ideology
- Ideology - A system of ideas and ideals, especially one which forms the basis of economic or political theory or policy
- Will study political and economical ideologies that affected the 20th century
What is Capitalism?
- Capitalism - An economic system in which the means of production (capital) are privately owned and goods and services are produced for profit in a free market
- Businesses are set up using land, factories and wealth - Capital
- This helps to produce goods or services which, allow you to make money
- Therefore, you are creating more capital for yourself (profit motive)
- The competition deduces the price and the distribution of your goods or services in a free market (supply/demand)
- Capitalism needs the voluntary exchange of labour in return for wages/capital
- This arrangement is fair and therefore, mutually beneficial
- Working for wages allows people to follow their own personal self-interests and they can express their interest to their society and help others too
- Capitalism revolves around the concept of greed and self-interest (individualism) and can also positively effect a whole society.
- Capitalists are against the idea of the government being involved with economy
- The free market distributes goods quickly and cheaply
- Language, scientific knowledge and law have all outgrown the concept of free exchange and voluntary production
Advantages of Capitalism
- The best way to wealth
- Efficient system
- Better living style
- Capitalism is a natural concept as humans are always driven by desire and greed
Disadvantages of Capitalism
- Capital will stay with the people who control production
- Poor wages and working conditions caused be the need to want to make profit
- Over-production
- Unemployment
- Humans are appreciated less and their worth is decreased
Who Created Modern Capitalism?
- Adam Smith (1723-1790) - Political economist and moral philosopher
- 1776 The Wealth of Nations formed the modern discipline of the economy and provided the rationale for free trade, capitalism and libertarianism
- The free market seems to be very crazy and intense but can produce the correct amount of goods from the guide of an 'invisible hand'
- When a shortage of any product occurs, the price of the product rises
- This provides and incentive which, allows other to enter production of that product
- This conveys that the system can regulate itself
- Smith, stood against the governments involvement with the economy
- Government restrictions can cause inefficiency of production and an increase in prices
- The free market wanted to be able to do whatever it wanted
History of Capitalism
- Transformed naturally in several cultures and mainly in Europe where it modified itself
- Four key stages of analysis - Pre-Capitalist Feudal System (pre-14th century), Mercantilism/Merchant Capitalism (14th-18th century), Industrial Capitalism (18th-20th century) and Modern Capitalism (19th-20th century)
The Feudal Economic System
- In Europe wealth was shown in how much land you owned because of a hierarchy system
- Peasants were forced to work for their lords and therefore, conveyed no interest in technological innovation
- Peasants only functioned to keep their families afloat and never wanted to co-operate with each other
- Peasants have no money, power or time to own their own land (capital)
- Lords owned land and therefore, were relied on for the production of food
- They weren't selling food on the market there was no competition to increase food production or change the price of food
- Lords money was spend on the military or on consumption and therefore, had no need to investing into developing technologies
- The Feudal System didn't allow capitalism to grow, the Feudal Manor was able to take care of itself and couldn't increase the growth of the free market
How did Feudalism End?
- The Black Death caused a massive famine through Europe and there was a shortage of people working in agriculture
- Peasants now demanded real wages for their work, the Lords' couldn't disagree as they needed the peasants
- In the 15th century new technology and exploration opening up the world to trade and there were now new products for lords, merchants and peasants for trade
Merchant Capitalism
- Mercantilism - A system of trade for profit. European merchants, backed by governments, made profits from buying and selling goods (mainly produced using non-capitalist methods)
- State was the regulator of economy not the local guild
- Merchants invested their money in companies and wanted an investment in return
End of Merchant Capitalism
- The companies were government-owned and had merchants invested in them and became very wealthy and they were are the top of international trade
- There was no competition and the government tried to keep all the money for itself
- The Industrial Revolution would soon bring an end to the governmental control of the economy and its Merchant system
Industrial Capitalism
- Industrial Capitalism - An economic system that relies on investment of capital in machines and technology that are used to increase production of marketable goods
- Smith and other economic liberals thought that wealth could be formed without the government interfering with the economy
- Government-owned merchant companies decreased the amount of innovative production because of the lack of competition
- The Industrial Revolution allowed a new set of entrepreneurs to invest in new production systems
- Only government regulation and control stopped them
- Competition grew massively from the speed of the revolution
- Governments help the growth by removing their barriers from the trade (suggested by smith)
- The growth of banks was also caused by the industry's need to invest and for finances
Modern Capitalism
- Private businesses create more wealth than the government
- The need for a big government wasn't as necessary
- Governments now only needed to make sure the free markets were run well
- The State was now only needed for improving business conditions and helping foreign markets gain resources
- 'The business of America is business'
Need for an Alternative?
- Capitalism by the 20th century was obviously making some wealthy and others not so wealthy
- Economic policies (Laissez-faire) reduced government protection for workers
- Workers lived in horrible living conditions as well as working conditions
- Wages were reduced and factory owners wealth increased
- Capitalism only benefited a small margin of people who owned the capital
- The capital owners also had control through political parties and pressure groups
What is Capitalism? (Summarised in under 50 words)
Capitalism is an economical system that is controlled by a private owner for a personal capital and wealth. Capitalism aims to produce consumer goods in the most efficient way possible. The government is limited in its control of the economical system to keep company competitiveness alive in the free market.
'How Capitalism Works'
Article Questions + Answers
Link: http://islandschoolhistory.weebly.com/uploads/1/4/9/6/14967012/how_capitalism_works.pdf
1. ‘The essence of Capitalism is economic freedom’. What do you understand this to mean?
There is a sense of freedom shrouded around Capitalism as it aims to separate itself from government. Freedom is also shown in how products are sold in a free market. There is no structure in Capitalism when it comes to how to work, where or who you employ. That is entirely up to the employer and this conveys freedom because the owner has the ability to do whatever they want as long as their consumer products are efficiently produced and are of a good quality.
2. What are the two basic approaches to a modern economic system?
The Free Market Economy (Capitalism) or the Planned Economy/Command Economy/Marxist Economy.
3. What does Layton mean by ‘true’ or ‘real’ capitalism?
By 'true' or 'real' capitalism is a term used to describe capitalism before the Industrial Revolution. This was before protests for higher wages and better working conditions and the use of sweatshops occurred. 'True' capitalism rejects all government influence and doesn't approve of labour laws, social security, anti-discriminatory hiring practices and the minimum wage.
4. What is a ‘mixed economy’?
Mixed economies contain certain parts of capitalism as well as planned economies.
5. What does ‘individualism’ mean?
That each human in the economic system has different strengths and weaknesses that makes them individual. (Based on the humanistic ideals of the 18th century European Enlightenment.)
6. Give an example of how someone’s ‘individual wealth’ could lead to an overall improvement in the ‘wealth of society’.
Before the European Enlightenment, human rights weren't spoken of and the Enlightenment allowed people to see humanity and realise their society was made of completely different people who wanted to gain wealth in their own ways. This can cause a 'wealth of society' as everyone is trying to achieve their own aspirations in their own ways in their own society.
7. What two concepts did Adam Smith, introduce in his book, ‘Wealth of Nations’?
- 'Because self-interest guides producers to create exactly what people want, the pursuit of personal gain eventually benefits society.'
- 'An economy has a natural design. Left to its own devices - and removed from politics, religion and all other pursuits - it will regulate itself. As long as no one throws a spoke in the wheel, the economy will work the way it's supposed to, and everyone will benefit.'
8. What does Smith mean by an ‘invisible hand’?
Something that overlooks the economy through self-interest, ownership and competition. This concludes in social wealth because the economic balance is natural.
9. Why does Capitalism thrive in a consumer culture?
In a consumer culture, there are people who are buying products therefore, Capitalism is successful because people are spending their money to increase the economy. Social aspects of consumer culture also help determine who buys and what.
10. Define what the owner class and working class are.
- Owner class - The means of production (capital) are owned only by the few people (capitalists) who can pay for them. Modern means of production are things like machines, factories and land.
- Working class - The people (labourers) who use capital to produce goods and have no ownership of the capital. Capitalists pay the labourers the wages (money), not with the products the labourers produce. The labourers use that money to purchase the goods they want. In this way, no-one who purchases goods (the consumer) has any real connection to those goods.
11. According to Smith, what guides production and why?
Rational calculation for profit. This helps guide production as you're able to judge what's happening on the market and adjust production rates. This allows Capitalists to receive the greatest profit possible.
12. How does Smith’s model of Capitalism improve society’s standard of living?
Capitalists bring in profit which, produces more goods, the goods can be sold at a lower price and therefore, more people can afford to buy the goods. This increases societies standard of living as more people can afford to buy more.
13. What should be the role of government according to Smith?
The governments role should be to maintain the peace and keep the economy in order so it can work smoothly.
14. Explain what laissez-faire system of economics is.
The 'Laissez-faire' (anti-interference) is a system that economics leans on to keep the economy self-regulating with producers, consumers and markets that operate the supply and demand in the economy.
15. What is meant by ‘supply and demand’?
Supply and Demand revolves around how much of a product you have and how much you're selling it for. Supply and Demand is trying to find a way to turn the profit.
16. What is Mercantilism?
The practice of selling something for more than its original price.
17. How are Capitalist, Socialist and Fascist economic systems basically different?
Capitalist, Socialist and Fascists are basically different because they all have different types of people leading their production. For example, Fascist societies have the state in charge of production whereas, Capitalist societies have the production owners are all individual.
18. Why didn’t true capitalism work in history?
The inequality between the working class and the owning class continued to grow and labourers' got frustrated as they were depending on Capitalism for their livelihoods. This causes a lack of trust, anger in a community.
19. Why did governments begin to intervene in the Capitalist economies in the early 20th century?
The government tried to protect the working class from the owner class. Laws were passed that made child labour illegal, set proper workdays and hours and banned monopolies.
20. What changes did the economist Keynes believe should be made to Capitalism in the 1930s?
Keynes wanted the government to intervene with the economy keep the economy consistent. Changing taxes, spending and affecting interest rates allowed the government to keep the money supply level and protect the economy from having highs and lows. The Employment Act 1946 stated Keynes economic ideas and put the responsibility of economic stability in the hands of the government.