The Industrial Revolution

A cotton mill in Lancashire, England, ca. 1834

What was the Industrial Revolution?

• Some definitions:– The change from an agrarian to an industrial

economy– The change from a largely rural, handicraft economy

to one dominated by urban, machine-driven manufacturing

– Changes that mark the transition from a primarily rural civilization characterized by agriculture and a handicraft economy, to a primarily urban civilization characterized by machine-powered industry, featuring a more complex society

The Industrial Revolution:Other Characteristics

• New energy sources – Steam– Electricity– Oil

• New forms of organization – The factory system– The joint stock investment

bank• New means of transportation

– Steamships – Railroads– Automobiles

• New industries– Coal– Iron– Steel– Chemicals

“The Triumph of Steam and Electricity”

Why did the Industrial Revolution begin in Great Britain?

• Rise of science• Increasing productivity in agriculture• Expanding population• Merchant tradition; entrepreneurial spirit; capitalist

philosophy• Geography

– Coal deposits– Navigable rivers– Natural harbors– Island location

• Global trading, slave labor, gold & silver of the New World

• State-supported economic development• Constitutionalism; Locke’s philosophy (property!)

The Industrial Revolution:Some important milestones

• The textile industry– Flying shuttle (John Kay,

1733)– Water frame (Richard

Arkwright, 1769)– Spinning Jenny (Richard

Hargreaves, 1770)– Spinning Mule (Samuel

Crompton, 1779)– Cotton Gin (Eli Whitney,

1793)– These innovations began

the mechanization of an existing industry: textiles

Whitney’s Cotton Gin

The Industrial Revolution:Some important milestones

• Steam engine (James Watt, 1769)• Steamships (Robert Fulton, The Clermont,

1807)• Railroads (George Stephenson’s Rocket, 1829)• These developments characterize some of the

important developments of the “1st” Industrial Revolution; after 1850, steel, electricity, and chemicals marked a “2nd” Industrial Revolution that lasted through the mid-20th century.

Consequences of the Industrial Revolution

• Urbanization– Overcrowding– Crime– Sanitation

• Population growth• Social change: new social

classes– Middle class (bourgeoisie)– Urban working class

(proletariat)• Rise in overall standard of

living• Split between producer and

consumer• Era saw rise of classical liberal

political and economic thought, as well as the appearance of communism

Tenements in Manchester, England, ca.1850

Karl Marx (1818-1883)

• “Father of Communism”

• Two major works (with Friedrich Engels):– The Communist

Manifesto (1848)– Das Kapital (1867)

Karl Marx

Das Kapital

• Marx’s account of the nature, development, and future of the capitalist system

• Commodities have a use-value (measure of usefulness) and an exchange-value (measure of monetary value)

• Exchange-value is rooted in how much labor-power went into them

Das Kapital

• Capitalists extract profit by paying workers less than the value of their labor, thus exploiting them

• They are able to do this because they control the means of production

• Workers are wage-laborers; i.e., they do not own the product of their labor

• The workers’ character is adversely affected by this system

The Great Depression1929 - 1941

Why a “Great” Depression• A worldwide economic slump in output and

prices• Affected nearly all industrialized nations of the

world• Caused unemployment to reach previously

unknown levels.• Caused some to question classical economic

theories and favor new, innovative approaches

The Agricultural Crisis• Farmers began to feel an

economic crisis in the early 1920s

• Increased food production during World War I caused many farmers to go heavily into debt

• It became difficult for many farmers to pay their debts when commodity prices declined once the World War I ended

• The Dust Bowl – unprecedented drought

International Trade Declines

• Most industrialized nations relied heavily on tariffs (taxes on imported goods) for revenue

• Tariff rates continued to rise, and “tariff walls” began to reduce the volume of international trade

• The Hawley-Smoot Tariff (1930) raised rates on some commodities to 72%

• Reciprocal trade agreements in the mid-1930s would later begin to dismantle the “tariff walls” that had been established

The Perils of a “Paper Economy”

• In the U.S. businesses appeared to be doing well in the 1920s

• The Stock Market was an indicator of national prosperity

• Three pro-business presidents occupied the White House during the 1920s

• But in reality . . .• Underconsumption was a

problem. Many products went unsold.

• Much purchasing was being done on credit.

• Many stock purchases were made “on margin” (10% down to purchase)

• Bank foreclosures were rising

The Crash• “Black Tuesday” – Oct.

29, 1929 the U.S. Stock Market crashed.

• Over 16 million shares sold in massive selling frenzy

• Average price dropped 40 points

• Paper loss exceeded $26 billion

“Brother Can You Spare a Dime?”

Once I built a railroad, I made it run I made it race against time Once I built a railroad, now it's done Brother, can you spare a dime?

Once I built a tower, up to the sun Bricks and mortar and lime Once I built a tower, now it's done Brother, can you spare a dime?

Once in khaki suits, gee we looked swell Full of that Yankee-Doodly-dum Half a million boots went slogging through Hell And I was the kid with the drum

Say, don't you remember, you called me "Al" It was "Al" all the time Say don't you remember, I was your pal Brother, can you spare a dime?

Hoover is my shepherd, I am in want, He maketh me to lie down on park benches, He leadeth me by still factories, He restoreth my doubt in the Republican Party. He guided me in the path of the Unemployed for his party's sake, Yea, though I walk through the alley     of soup kitchens, I am hungry. I do not fear evil, for thou art against me; Thy Cabinet and they Senate, they do discomfort     me; Thou didst prepare a reduction in my wages; In the presence of my creditors thou anointed     my income with taxes, So my expense overruneth my income. Surely poverty and hard times will follow me All the days of the Republican administration. And I shall dwell in a rented house forever.

Theory vs. Reality• “The sole function of the

government is to bring about a condition of affairs favorable to the beneficial development of private enterprise.” Herbert Hoover (1930)

John Maynard Keynes• Father of the “New

Economics”• Advocated government

spending to “prime the pump” during periods of economic distress

• Noted that even deficit spending might be appropriate in certain circumstances

Franklin Delano Roosevelt & the New Deal

• Ideas based upon Keynesian theory• Programs targeted at the “3Rs” – Relief,

Recovery, & Reform• Expensive and controversial programs that

“made jobs,” raised commodity prices by providing farm subsidies, and reformed American economic institutions (i.e., banks, stock market, etc.)

John Steinbeck• American novelist• Won the Nobel Prize for

Literature in 1962• The Grapes of Wrath won

the Pulitzer Prize in 1940• Described the economic

realities of the Okies – migrant farmers (many from Oklahoma) who sought a new future in California’s fields

Steinbeck in a Letter to a Friend

“I must go over to the interior valleys. There are about five thousand families starving to death over there, not just hungry but starving. The government is trying to feed them and get medical attention to them with the fascist groups of utilities and banks and huge growers sabotaging the thing all along the line and yelling for a balanced budget . . . I've tied into the thing from the first and I must get down there and see it and see if I can't do something to help knock these murderers on the heads . . . I'm pretty mad about it.”

John Kenneth Galbraith• Canadian-born, American

economist• Wrote The Affluent

Society (1958)• Attacked the myth of

“consumer sovereignty”• Ideas contributed to the

“War on Poverty” of the 1960s.

Did the Great Depression Forever Change the American Economy?

• What is the role of the government in preventing (or solving) economic downturns that might appear?

• What was the impact of New Deal liberalism upon the U.S. in the twentieth century?

• How was the Reagan Revolution of the 1980s a reaction to New Deal liberalism?