HIST363 Study Guide

Unit 1: Industrialization and Theories of Economic Change

1a. Describe what the Industrial Revolution was

  • What is an industrial revolution?
  • How does an industrial revolution differ from industrialization, if at all?
  • How have historical perspectives about the Industrial Revolution in England changed over time?

We will consider the Industrial Revolution in England closely in Unit 4. However, exploring its full significance requires examining what existed before, as well as the historical conditions and forces that aligned to make the Industrial Revolution possible. We begin here with a broad overview of the Industrial Revolution in Europe to provide context for the rest of this unit.
 
To review, see Industrial Revolutions.

 

1b. Explain why England was one of the first nations to industrialize

  • How was the Industrial Revolution in England based on improvements in agricultural production (what many call the Agricultural Revolution)?
  • What natural advantages did England have that helped make the Industrial Revolution possible?
  • How did England's vast colonial empire contribute to its early industrialization?
  • How did the Industrial Revolution disrupt traditional conventions in social life and psychology and change prevalent economic patterns?


After you have completed the readings in Unit 1, you should be able to explain how and why the Industrial Revolution developed first in England, a country that possessed many of the right preconditions.
 
England had experienced an agricultural revolution where mechanized farming equipment was replacing farm labor. It also had requisite water power, large reserves of iron and coal, and a vast colonial empire from which to draw the raw materials for industrial production – such as cotton from India – as well as new colonial markets where its finished products could be sold.
 
To review, see Origins of the Industrial Revolution and The Industrial Revolution.

 

1c. Discuss the key pieces of technology driving England's industrialization

  • What pieces of technology were most important to England's industrialization?
  • What role did steam and coal power play in England's industrialization?
  • What advances made the expanded use of coal and steam power possible?
  • How was England uniquely situated to begin using new technology and new power sources at the time when they were poised to industrialize?

Although England possessed many of the right preconditions for industrialization, it also needed significant energy sources to power new technologies. Without the combination of new technology and the ability to harness energy on a larger scale, the industrial revolution in England would not have been possible. Fortunately for England, it was also in a unique position to use steam and coal power (among others) at just the right time to drive its industrialization.
 
To review, see Origins of the Industrial Revolution and The Industrial Revolution.

 

1d. Summarize key economic theorists' main ideas about economic growth

  • What were the basic economic and political principles behind mercantilism, and how Europeans practiced it from 1600–1800?
  • What did Adam Smith mean by the "Invisible Hand"? Did he believe in the absolute freedom of the marketplace? Why or why not?
  • What are the main principles of The Wealth of Nations?
  • What is laissez-faire capitalism?
  • What did Max Weber mean by the Protestant ethic? How does it relate to his argument about the development of modern capitalism?
  • What were Karl Marx and Friedrich Engels' basic criticisms of the industrial capitalism of their day? How did this relate to their concept of class struggle?
  • What are the bourgeoisie and the proletariat?

After you have completed the readings in Unit 1, make sure you are familiar with the concept of mercantilism, which was the accepted economic theory before Adam Smith's seminal work, The Wealth of Nations. The mercantile system was based on the premise that national wealth and power are best served when countries increase exports and collect precious metals, goods, and raw materials in return.
 
Adam Smith, Max Weber, Karl Marx, and Friedrich Engels were four key theorists and philosophers who discussed industrialization and economic change.
 
Adam Smith (1723–1790), the Scottish economist who many consider the "father" of modern economics, coined the idea of the invisible hand, in which he described how changes in supply and demand for an item typically return to a state of economic equilibrium. When a shortage of a product occurs, businesses usually raise their prices to take advantage of the increased demand. The profit margin they receive encourages other businesses to enter the market, increase production, and cure the shortage. When too many producers flood the market with increased supply, manufacturers are forced to lower the price of their products to get rid of their excess inventory and stay in business. Eventually, the competition among manufacturers achieves a market equilibrium or "natural price".
 
Max Weber (1864–1920), a German sociologist, believed that traditional hierarchical societies based on honor, prestige, and religion tended to dominate and discourage ownership of capital and modern industrial and commercial enterprises. The rise of Protestantism, particularly Calvinist theology (a major branch of Protestantism), influenced the rise of modern capitalism by reducing the importance of these societal hierarchies in favor of individual freedoms and the entrepreneurial spirit. He wrote, "[T]he Protestants of Germany are today absorbed in worldly economic life, and their upper ranks are most indifferent to religion". He describes "materialistic joy" and an "intimate relationship" with "capitalistic acquisition".
 
While Adam Smith made a case for what would be known as laissez-faire capitalism, Karl Marx (1818–1883) and Friedrich Engels (1820–1895) were highly critical of the exploitative nature of industrial capitalism, a social byproduct that Smith tended to ignore and that was still in its infancy when he wrote his Wealth of Nations.
 
Known for their views on social and class conflict within society, Marx and Engels witnessed and protested against the extreme poverty and abhorrent living conditions that capitalist practices created in many newly-industrialized cities. They predicted a class struggle would occur between the lower and upper classes over control of the means of production. Marx and Engels advocated that the proletariat (the working class) should rise up in revolt against the bourgeoisie (the upper classes and wealthy elite) to support better working conditions. They predicted society would become more stable and equal once capitalism failed.
 
To review, see:

 

1e. Explain the historical forces that shaped the ideas of different economic theorists

  • Why is The Wealth of Nations credited with establishing the field of economics?
  • How did the shift from wealth being based on land ownership to wealth being based on labor power affect the ideas of Adam Smith, Friedrich List, Karl Marx, and others?
  • What historical shifts in perspective might have led Friedrich List to make refinements to Adam Smith's ideas?
  • What historical forces did Karl Marx and Friedrich Engels observe that informed their views on class conflict?
  • Why do Max Weber's takes on social class and religion differ from that of Karl Marx and Friedrich Engels?
  • How and why do Schumpeter's views on capitalism differ from that of Karl Marx and Friedrich Engels?
  • How have List's theories influenced Import Substitution Industrialization?

Not surprisingly, contemporary ideas and events have always shaped how various thinkers view the world and the ways in which they contribute new ideas. For economic theorists, industrialization marked a major shift in their thoughts about trade, national wealth, and the emerging international system. It is important to consider each theorist's historical context and worldview when we evaluate their work – and the contributions they made to their fields.
 
To review, see:

 

1f. Compare classical and contemporary theories of industrialization

  • What are Walt Rostow's five stages of economic development?
  • Compare Georg Frederich List's views on tariffs and a national economy with those of Adam Smith. What argument did each use to support their beliefs regarding tariffs?
  • What did Joseph Schumpeter mean by social value? Why do capitalists try to establish monopolies, and how can monopolies stifle capitalism in the long run?
  • Using Walt Rostow's stages of economic development, how would you characterize the modern American economy as compared to that of a developing country?

Ensure you are familiar with Walt Whitman Rostow's five stages of economic development, Georg Frederich List's ideas about tariffs and creating a national economy, and Joseph Schumpeter's explanation of entrepreneurship and business cycles. These three economists focused on different aspects of economic development. Their theories have affected different economies and parts of the world in distinct ways.

Walt Rostow (1916–2003), an American economist, identified five stages of economic development: 1. the traditional society, 2. the preconditions for take-off, 3. the take-off, 4. the drive to maturity, and 5. the age of high mass-consumption.
 
Georg Friedrich List (1789–1846), a German-American economist, described a similar series of stages but went a step further by explaining that countries may need to use protectionism to temporarily protect their infant industries (such as through tariffs or quotas) from foreign competition until these industries mature because "these transitions cannot take place automatically through the 'natural course of things,' i.e., through market forces".
 
Joseph Schumpeter (1883–1950), an Austrian political economist, coined the concept of creative destruction to describe how the new constantly replaces the old. He compared the economy to a living organism that is constantly growing and changing to maintain its health. Entrepreneurs periodically disrupt existing industries, including the workers, businesses, and entire sectors that go along with them. This is part of the normal business cycle, which supports and promotes innovation and productivity. Many of today's economists look to Schumpeter's work to explain how technology and automation processes have disrupted the manufacturing industry in the current economy.
 
By social value, Schumpeter refers to the value society places on certain goods, depending on the wants or needs of the entire community. Social value influences that of the individual and the exchange value. For example, I may not like to eat avocados, but I may come to value them and even become an avocado farmer because the rest of society values them and will buy them from me. I receive something in exchange for the avocados I sell, i.e., money.
 
Although Schumpeter promoted the benefits of a free market, capitalist innovation, and entrepreneurial growth, he also believed that elements of socialism would eventually replace capitalism due to capitalism's tendency to promote human greed, monopoly, and social inequalities.

To review, see:

 

Unit 1 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.
  • Adam Smith
  • agricultural revolution
  • bourgeoisie
  • business cycle
  • class struggle
  • creative destruction
  • entrepreneurship
  • exchange value
  • five stages of economic development
  • Friedrich Engels
  • Georg Friedrich List
  • industrialization
  • Industrial Revolution
  • invisible hand
  • Joseph Schumpeter
  • Karl Marx
  • market equilibrium
  • Max Weber
  • means of production
  • mechanized farming
  • mercantilism
  • proletariat
  • protectionism
  • social value
  • supply and demand
  • The Wealth of Nations
  • Walt Rostow