The Economics of the Industrial Revolution [AP World History Review—Unit 5 Topic 7]

Summary

This video explores the shift from mercantilist to free market economics during the Industrial Revolution. It highlights Adam Smith's ideas in 'The Wealth of Nations,' advocating for minimal government interference, which led to the rise of industrial capitalism and transnational corporations. Despite criticism from figures like Jeremy Bentham and Friedrich List, free market principles grew, creating a new wealthy middle class and increased consumer access. The rise of stock markets and limited liability corporations facilitated the growth of large businesses. The video concludes by noting how these changes improved living standards and sparked a global economic transformation.

Takeaways

• 😀 The Industrial Revolution marked the decline of mercantilism and the rise of free market economics, transitioning away from state-driven systems.
• 😀 Adam Smith's 'The Wealth of Nations' was a key influence in advocating for free market policies and the idea of the 'Invisible Hand,' which promotes market-driven economics.
• 😀 Free market capitalism faced criticism due to its failure to evenly distribute wealth, especially as it created a poor and exploited working class.
• 😀 Critics like Jeremy Bentham argued that government intervention and legislation were needed to address social issues caused by industrialization.
• 😀 Friedrich List rejected global free market principles, believing they were a strategy to dominate other economies, especially by Britain.
• 😀 The rise of transnational corporations, such as the Hong Kong and Shanghai Banking Corporation and Unilever, signaled a shift towards global business operations.
• 😀 Transnational corporations relied on new banking practices, including stock markets and limited liability corporations, to finance their operations and mitigate risks for investors.
• 😀 The global economy in the 19th century was largely shaped by industrial capitalism, which led to a rise in wealth for industrialized nations by 1900.
• 😀 Industrialization created a new, wealthier middle class with access to mass-produced goods, improving their standard of living.
• 😀 The development of mechanized farming increased food production, contributing to longer lifespans and better living conditions for many people in industrialized societies.

Q & A

What was the primary economic system in place before the rise of free-market capitalism?

The primary economic system before free-market capitalism was mercantilism, which was a state-driven system that emphasized government control over trade and colonial expansion.

Who was Adam Smith, and what was his main contribution to economics during this period?

Adam Smith was an economist who wrote *The Wealth of Nations*. His main contribution was promoting the idea of free-market capitalism, advocating for minimal government intervention in the economy, and introducing the concept of the 'Invisible Hand' to explain how supply and demand regulate markets.

What is the 'Invisible Hand' in economic theory?

The 'Invisible Hand' is a metaphor introduced by Adam Smith, suggesting that when individuals make economic decisions based on self-interest, they unintentionally contribute to the overall economic good, leading to the efficient allocation of resources.

What were some criticisms of free-market capitalism during the Industrial Revolution?

Critics, such as Jeremy Bentham and Friedrich List, argued that free-market capitalism led to social inequality and exploitation. Bentham believed government intervention was necessary to address social issues, while List argued that free-market policies were a strategy by Britain to dominate other economies.

How did Friedrich List respond to British free-market policies?

Friedrich List argued that British free-market policies were a way for Britain to impose its dominance over other nations. He believed these policies hindered the industrial development of other countries and contributed to economic inequality.

What was the Zollverein, and how did it relate to Friedrich List's ideas?

The Zollverein was a customs union established in Germany, aimed at reducing trade barriers among German states while protecting local industries with tariffs, aligning with Friedrich List's idea of shielding developing economies from external dominance.

What are transnational corporations, and can you provide examples from this period?

Transnational corporations are companies that operate in multiple countries while being controlled by a parent company in one nation. Examples include the Hong Kong and Shanghai Banking Corporation, which supported British imperial ventures in Asia, and Unilever, which produced household goods using raw materials from colonies.

How were transnational corporations financed during the Industrial Revolution?

Transnational corporations were financed through the selling of stocks, which allowed people to purchase ownership shares in the company. They also used limited liability corporations to protect investors' financial risk, meaning they could only lose the amount they invested.

What impact did industrial capitalism have on the middle class?

Industrial capitalism led to the growth of a new middle class, which became wealthier and had more access to consumer goods, improving their quality of life and fueling economic growth.

What technological advances during the Industrial Revolution contributed to improved living standards?

Technological advances in manufacturing allowed for mass production, making goods more affordable and accessible. Additionally, mechanized farming increased food production, leading to better nutrition and longer lifespans.