1. What is Capitalism?
Lesson Objectives
To explore the ideology of Capitalism; to understand the history of capitalism and be able to define it as an economic and ideological concept.
Notes from Lesson PowerPoint:
Summarise of Capitalism:
Lesson Objectives
To explore the ideology of Capitalism; to understand the history of capitalism and be able to define it as an economic and ideological concept.
Notes from Lesson PowerPoint:
- 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 by using capital, eg. land, factories, to produces goods in order to make money, therefore creating more capital for themselves)
- Prices and distribution of goods are determined by competition between producers in a free market (supply/demand)
- Relies on the voluntary exchange of labour in return for wages/capital, therefore both sides benefit
- Individuals get to pursue their own interest by working for wages, but also promote social interest of society by helping each other out
- Based on greed and self interest (individualism)
- Benefits the whole of society
- Capitalists believe that the government should not interfere with the economy
- Free market will distribute goods to people efficiently and in the cheapest way
- Advantages of Capitalism:
- Best wealth creation tool
- Most efficient system with less waste, produces only what people demand
- Increases standard of living for many
- Natural - Disadvantages of Capitalism:
- Only can accumulate in the hands of a few
- Monopolisation
- Profit motive forces pulls wages down, poor working conditions
- Overpopulation, recession and unemployment
- Reduces worth of a human - Modern Capitalisation:
- Created by Adam Smith
- Founded the modern discipline of economics and provided the rationale of free trade, capitalism and libertarianism
- Attacked govt. interference in the economic process
- Govt. restrictions on trade caused high inefficiency/high prices
- Believed in "laissez-faire" - History of Capitalism:
- Evolved naturally
- First started in Europe where it developed into modern form - 4 Key stages:
1. Pre-Capitalist Feudal System
2. Mercantilism/Merchant Capitalism (14th-18th)
3. Industrial Capitalism (18th-20th)
4. Modern Capitalism (19th-20th) - The Feudal Economic System:
- Medieval Europe, Hierarchy of King
- Peasants forced to work for Lord, no power, no money or free time to invest in capital - The Feudal System:
- Lords relied on force to guarantee that they were not provided with food
- Because they weren't providing food to sell
- No competitive pressure to innovative production
- Lords spent the majority of money on military equipment and lavish consumption
- Led to no incentive to invest in developing new productive technologies
- Feudal System prevented capitalism from growing
- Feudal Manor (village area) was self-sufficient which limited the growth of a free market - How did Feudalism end?
- Black death, resulted in Famine in Europe, led to severe shortage of labour for agriculture
- Peasants could demand real wages for their work instead of servitude
- Peasants became wage earners: rent land, invest in capital, had incentive to innovate production methods and make more money
- New technologies and exploration started trading in 15th Century for richer peasants, merchants and lords could invest in new commodities and trade - Merchant Capitalism:
- Mercantilism: A system of trade for profit. European merchants, backed by governments made profits from the buying and selling of goods (which were still largely produced by non-capitalist production methods)
- For Mercantilism, the State (govt.) became the regulator of economy but not local guild
- Merchants invested capital in companies like the British East India Company, seeking an interest on investment
- Government owned and protected merchant companies became very wealthy and dominated international trade
- Made governments very rich
- However competition was non-existent as governments tried to keep all profits to themselves
- There was no "free-market"
- Industrial Revolution would bring an end to government control of the economy and its Merchant system - Industrial Capitalism:
- An economic system that relies on investment of capital in machines and technology that are used to increase production of marketable goods
- Enabled a new class of entrepreneurs to invest in new production methods
- Adam Smith and other economic liberals realised that more wealth could be created with less not more government interference in the country
- Govt.-owned merchant companies held monopolies in trade and population
- Little competition therefore no innovative production methods
- Government regulation and control held them back
- Sheer speed of revolution meant that competition grew exponentially
- Government decided to help this grow by removing government barriers to trade (laissez-faire economics)
- Banks also grew as industry needed more investment and finance than governments could provide - Modern Capitalisation:
- Private businesses could now create more wealth than governments themselves
- Big, strong governments reduced
- Role of governments was to ensure smooth operation of free markets
- The state was a vehicle for improving business conditions, securing foreign markets and gaining access to resources (colonialism) - Alternatives
- 20th century, clear that Capitalism whilst making businesses fabulously wealthy wasn't working for everyone
- Laissez-faire economic policies reduced government protection for workers
- Wage earners lived/worked in terrible conditions with wages educed by factory owners keen to boost profits
- Seemed like Capitalism was another method for exploitation, benefitting a small minority who owned all the capital
- People who owned the wealth seemed to control the government through political parties and pressure groups
Summarise of Capitalism:
- Capitalism is an economic system which are privately owned and the products are produced in a free market with a personal capital and wealth.
"How Capitalism Works"
Article Questions + Answers
Link: http://islandschoolhistory.weebly.com/uploads/1/4/9/6/14967012/how_capitalism_works.pdf
Article Questions + Answers
Link: http://islandschoolhistory.weebly.com/uploads/1/4/9/6/14967012/how_capitalism_works.pdf
- ‘The essence of Capitalism is economic freedom’. What do you understand this to mean?
- By having economic freedom, individuals can have the freedom to choose how to produce, sell, and use their own resources. In Capitalism, the means of production are largely privately owned and operated for profit therefore economic freedom would benefit the system of capitalism. - What are the two basic approaches to a modern economic system?
- Free Market Economy (Capitalism)
- Planned Economy/Command Economy/Marxist Economy - What does Layton means by "true" or "real" capitalism?
- Layton's means of "true" or "real" capitalism is used to describe Capitalism before the Industrial Revolution - What is a "mixed economy"?
- A system that incorporates components of pure capitalism and components of a planned economy - What does "individualism" mean?
- A moral stance, political philosophy, ideology or social outlook that emphasises the moral worth of individualism
- Every human is unique - Give an example of how someone's "individual wealth" could lead to an overall improvement in the "wealth of society"?
- Individuals get to pursue their own interest by working for wages, but also promote social interest of society by helping each other out. This then will benefit the wealth of society in a higher level - What 2 concepts did Adam Smith, introduce in his book, "Wealth of Nations"?
- "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." - What does Smith mean by an "invisible hand"?
- Something that guides the economy through the combination of self-interest, private ownership and competition which leads to general social wealth
- Self-interested + Private Ownership + Competition = Social Benefit - Why does Capitalism thrive in a consumer culture?
- The social effects of a society that defines itself by what it buys or possesses, not by what it creates can be seen in widespread - 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 - According to Smith, what guides production and why?
- Rational calculation for profit
- Guide production to judge what is happening on the market and adjust production rates
- Allows Capitalists to receive the greatest profit possible - How does Smith’s model of Capitalism improve society’s standard of living?
- Profit making produces more goods which can be sold at a lower price allowing more people to buy the goods
- This increases societies standard of living as more people can afford to buy more - What should be the role of government according to Smith?
- The government should not have restrictions on trade caused high inefficiency/high prices
- Should not interfere with the economy - Explain what laissez-faire system of economics is
- A system of economics that relies on interconnected, self-regulating networks of producers, consumers and markets that operate on the principles of supply and demand - 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 - What is Mercantilism?
- An economic theory and practice, dominant in Europe from the 16th to the 18th century, that promoted governmental regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers
- Making money by moving products around - How are Capitalist, Socialist and Fascist economic systems basically different?
- In a capitalist economic system, the owner of production is the individual, and the benefactors of production are first the individual and second the society
- In a socialist or communist economic system, the owner of production is the state or the society, and the benefactor is the society
- In a fascist economic system, the owner of production is the state, and the benefactors of production are first the state and second the society - Why didn’t true capitalism work in history?
- Why did governments begin to intervene in the Capitalist economies in the early 20th century?
- Defend bad things from happening (Eg. Wall Street Crash) - What changes did the economist Keynes believe should be made to Capitalism in the 1930s?