Industrial Revolution Impact & Economic Schools of Thought
The Industrial Revolution: Economic and Political Impacts
History of the Industrial Revolution and its Meaning
The Industrial Revolution represents a pivotal era in human history, profoundly shaping both economic and political landscapes.
Economic Impact
- Growth of Industrial Capitalism: The Industrial Revolution marked the rise of industrial capitalism, leading to significant wealth accumulation by capitalists. This spurred the formation of financial institutions like banks to manage and invest capital.
- Labor Market Changes: A major shift occurred from agricultural labor to factory work. While factory jobs offered steady wages, they often entailed long hours, low pay, and hazardous conditions. This led to the exploitation of workers, including women and children.
- Economic Expansion: Increased production and efficiency resulted in a surplus of goods, driving down prices and enhancing product accessibility. This fueled consumerism and overall economic growth.
- Class Divisions: The wealth gap between industrialists and factory workers widened, creating distinct social classes. The working class faced harsh conditions, while the middle class and industrialists enjoyed improved living standards.
Political Impact
- Rise of Labor Movement: Poor working conditions and exploitation prompted the formation of labor unions. These unions advocated for workers’ rights, better wages, and improved working conditions.
- Regulatory Reforms: In response to labor unrest and social issues, governments implemented regulatory reforms. Laws were enacted to limit working hours, improve working conditions, and prohibit child labor.
- Political Ideologies: The Industrial Revolution significantly influenced political ideologies. Socialism and communism emerged as critiques of capitalism, advocating for wealth redistribution and collective ownership of production.
- Imperialism: Industrialized nations sought new markets and raw materials, leading to a wave of imperialism. European powers colonized large parts of Africa, Asia, and the Americas, exploiting their resources and labor.
The Austrian School of Economics
The Austrian School, founded by Carl Menger, is a significant school of thought in economic theory. It is known for its methodological individualism, emphasis on the subjective theory of value, and strong defense of free-market capitalism.
Carl Menger developed what is known as marginal thinking (the diamond-water paradox), and his most important work is “The Principles of Political Economy”.
The Austrian School posits that markets are highly efficient and that government intervention often does more harm than good.
- Methodological Individualism: The Austrian School emphasizes that economic phenomena can be traced back to individual actions and decisions. This contrasts with other schools of thought.
- Subjective Theory of Value: Value is subjective and varies from person to person. The value of a good is determined by its utility to an individual.
- Marginalism: The value of goods and services is determined by their marginal utility, meaning the additional satisfaction gained from consuming one more unit.
The Keynesian School of Economics
The Keynesian School, founded by John Maynard Keynes, revolutionized economic thought and policy in the 20th century.
Keynes published his seminal work, “The General Theory of Employment, Interest, and Money,” during the Great Depression. His ideas challenged classical economics, which emphasized free markets and self-regulating economies.
Great Depression: Keynes argued for a more active role for government in the economy due to the severe economic crisis, which exposed the shortcomings of classical economic theories.
The Keynesian School believes the state should intervene when the economy is not performing well.
The Chicago School of Economics
The Chicago School is a school of thought that emphasizes the importance of free markets, minimal government regulation, and the efficiency of the private sector.
It is closely associated with the University of Chicago and has significantly influenced economic policy and theory since the mid-20th century.
The Chicago School advocates for free markets as the most efficient way to allocate resources.
The Rational Expectations hypothesis, developed by Robert Lucas and others, is a cornerstone of the Chicago School.
The Chicago School strongly critiques Keynesian economics, particularly its advocacy for active fiscal policy. It argues that government spending and intervention are often counterproductive, leading to inflation and inefficiencies.