Economic Theory 1 Starting in England around 1750, the introduction of new machines powered by steam or by running water in streams and rivers changed the ways people had lived and worked for centuries. These changes, called the Industrial Revolution, were embraced by some people and rejected by others. The new machines, which were too big and too expensive for individual workers to install and operate in their homes, gave rise to factories, financed by a group of business owners who hired workers to run the machines. Some factory owners became very wealthy; industrialization was a new route to riches, along with international trade and owning land. At the same time, jobs once done by highly skilled workers, such as weaving, were transferred to factories, and the formerly independent workers became employees of the new factory owners. Adam Smith 3 Andrew Ure 13 Karl Marx 21 Andrew Carnegie 34 The Industrial Revolution gave rise to a group of thinkers and writers who thought about the implications of these changes in work. Some writers, such as Adam Smith (1723 1790), writing in 1776, foresaw advantages for both factory owners and working people in the new arrangements. 1
Smith also saw a third player in the economy the government, which had long adopted policies on foreign trade, especially, that might help or hinder the new move towards industrialization. Scottish professor Andrew Ure (1778 1857) argued that industrialization and factory life was a benefit to workers, and much better than attempting to make a living at farming. While Smith and Ure saw the potential good that might come from the rise of factories, other writers, such as Karl Marx (1818 1883), saw the disadvantages. Writing about seventy-five years later, Marx thought that factory workers should stage a violent revolution to seize control of the factories and run them on a democratic basis. The accumulation of wealth was also an issue that grabbed attention during the Industrial Revolution. Andrew Carnegie (1835 1919), who rose from poor beginnings to become the leading steel manufacturer and one of the wealthiest individuals in the United States, thought that wealth was a good thing. Whereas most people could never hope to achieve great riches, the existence of a few wealthy individuals resulted in money being spent for cultural advancement (in painting and music, for example). The wealthy also served as inspiration for people who, in the future, might hope to succeed as Carnegie did. Of course, Carnegie s views might have been flavored by the fact that he was one of the few to achieve a degree of wealth that most workers could barely imagine. 2 Industrial Revolution: Primary Sources
Adam Smith Excerpt from An Inquiry into the Nature and Causes of the Wealth of Nations Published in 1776 Adam Smith (1723 1790) was one of the first people to write about what is now called economics, the way a people in a society make a living and spend money. Smith was a professor at the University of Glasgow in 1776 when he published his most famous work, An Inquiry into the Nature and Causes of the Wealth of Nations, usually called simply The Wealth of Nations. His topic was how the British government could increase the wealth of the country by adopting certain policies and avoiding others. Smith believed in laissez-faire (pronounced less-say-fair, a French term meaning free to do ) economics, relying on the free market to proceed without government interference. His book has been studied ever since, both by government officials and by economists (people who study how people and nations make a living). The division of labor, however, so far as it can be introduced, occasions, in every art, a proportionate increase of the productive powers of labour. One of Smith s concerns was how to improve the productivity of labor. (Productivity is the measure of how much value a person creates in a period of time, such as a week or a year. Smith thought the best way to maximize productivity was to let individuals focus on specific tasks and become very good at doing just one or two things, a theory he called the 3
Adam Smith s groundbreaking work is still studied by economists today. Reproduced by permission of the Library of Congress. division of labor. The notion that workers should specialize in a single task was later used in setting up assembly lines to make complex objects, like a car, by letting each worker do just one thing, such as attach the wheels. This selection from The Wealth of Nations comes from the very beginning of the book. The example Smith uses to illustrate his point is people who manufacture pins (like those used in sewing). Smith says that if an individual were to try to do the whole job of making pins from pulling a piece of wire into a very thin strand to putting the head on the pin the result might be producing one pin a day. But if ten people divided the task into its separate parts, together they could produce about forty-eight thousand pins a day or about forty-eight hundred pins per individual. Smith s example describes the way new factories were being set up at the beginning of the Industrial Revolution, the term used to describe the introduction of new water- or steam-powered machines in factories to replace work traditionally done by hand. The Industrial Revolution was getting started at the same time Smith was writing. In the new factories, work was reorganized in the way Smith recommended, with an individual worker assigned part of the overall task. (In the older methods, workers at home were responsible for the whole process of spinning yarn or weaving cloth, for example.) Smith wrote that the division of labor was an important reason that Britain was becoming wealthier than nations where traditional methods were used. Smith thought farming was an exception to the idea of division of labor. One farmer usually did a variety of jobs as one season moved to the next. And for that reason, he wrote, British farming did not have an advantage over any other country s farming, whereas British manufacturing (where division of labor was the rule) enjoyed a huge advantage. 4 Industrial Revolution: Primary Sources
Things to remember while reading the excerpt from The Wealth of Nations: Smith s book was published in 1776, at the beginning of the Industrial Revolution. He had not yet seen the eventual results of the division of labor how monotonous and boring jobs could become, or how factory owners would insist that workers stay on the job for twelve or sixteen hours a day, long after they were exhausted. Smith was thinking about how to increase the wealth of Great Britain as a whole society. His study on the division of labor was not so concerned with how much workers should be paid, although he took up this subject later in his book. In England in the 1700s, working people had very few political rights, and there was not much concern for their welfare. On the other hand, people who owned property both land, used for farming, and equipment or factories had a lot of rights. Smith was primarily concerned with how property owners should behave to increase the wealth of the country. Smith used the language and spelling of his time, which is preserved in this excerpt. The Life of Adam Smith Born in 1723 in Kirkcaldy, Scotland, Adam Smith was the only child of Adam Smith and Margaret Douglas. A sickly but brilliant child, he was always attracted to books more than physical activity. He entered the University of Glasgow at age fourteen. Three years later, when he was seventeen, he went to Oxford University, where he stayed for seven years. He returned to Edinburgh, Scotland, in 1748. His best-known work is An Inquiry into the Nature and Causes of the Wealth of Nations (1776), in which he advocates a system of competition rather than the highly regulated foreign trade prevalent at the time. Smith thought taxes should be kept low, and that people should be free to exercise their own best judgment about how to conduct business, including foreign trade, which was highly regulated at the time he published The Wealth of Nations. Adam Smith is sometimes called the father of modern economics, and many of his ideas are still promoted today. Adam Smith 5