FCPS World II SOL Standards: WHII 9b
Responses to the Industrial Revolution:
Economic Systems (1776-Present)
You Mean People Disagreed about How
to Reward Hard Work?
Capitalism (Free Market Economy/
Free Enterprise System)
In capitalism, individuals own both private property and the means of
production (factories, machines, tools, etc.). People make all economic
decisions based on their own self-interest. In a pure capitalist system, only
the forces of supply and demand control the economy. When people want
more goods, businesses make more goods. If too many products exist,
however, the owners lower their prices to sell the rest. Adam Smith argued
for capitalism in The Wealth of Nations (1776). He believed that market
competition would force owners to make more goods at lower prices.
Smith liked entrepreneurs because they began new businesses. He said
that competition forced people to find the best ways to make the products.
Smith liked a laissez-faire policy in which the government plays little or
no role in the economy. He stated that the “invisible hand” of supply and
demand should work with little interference
Adam Smith
Results of Capitalism
Source:http://commons.wikimedia.org/wiki/File:AdamSmith.jpg
Capitalism and market competition fueled the Industrial Revolution. Wealth increased the standard of living for some people,
and the middle class grew. However, the lack of laws to protect people led to problems. Many people disliked the poor working
conditions and unequal distribution of wealth. Alternate economic ideas emerged as new ways to address these problems.
Communism
Communism responded to the injustices of capitalism. In communism, the people as a
group own all property and the means of production. No private property exists. Society
makes all economic decisions based on the common interest. In a pure communist
system, everyone works hard in order to help society. The people then share all goods
and services equally. People take what they need. Karl Marx argued for communism in
The Communist Manifesto (1848) (written with Friedrich Engels) and Das Kapital. Marx
saw history as a series of class struggles. In his own time, Marx pointed to the conflict
between employers (the “haves”) and employees (the “have-nots”). He said that the
middle class (bourgeoisie) controlled the working class (proletariat). Marx thought
that the problems would get so bad that the workers would revolt. They would seize the
means of production, redistribute wealth, and create a classless society. In theory, the
government would become unneeded and would gradually wither away.
Pro-Communist Poster 1911
Source: http://02varvara.files.wordpress.com/2013/10/00-pyramid-of-the-capitalist-system-1911-iww.jpg
Results of Communism
Communists took power in many countries during the 1900s. Examples included the
Soviet Union, China, North Korea, and Cuba. The communist economies usually did poorly, however, because people had few
incentives to work hard. They received the same goods and services even if they did little work. In addition, the governments
never withered away as Marx had predicted. Instead, a dictatorship frequently emerged. Only a strong leader could force
people to work in this unfair system. Communist party members became the “haves,” while most people stayed poor.
FCPS HS Social Studies © 2014
Responses to the Industrial Revolution: Economic Systems (cont.) WHII 9b
Economic Systems Today
After the fall of the Soviet Union, communism failed as an economic system. Capitalism, in
turn, flourished. However, there is no purely capitalist or communist economy in the world
today. The capitalist United States has a Social Security System and a government-owned
postal service. Communist China now allows its citizens to keep some of the profits they earn.
Another economic system, socialism exists in many European countries today. Their main
goal is to narrow the gap between wealth and poverty. In these nations, the government has
a responsibility to redistribute wealth to make society more fair and just.
Karl Marx
Source: http://upload.wikimedia.org/wikipedia/commons/a/a2/Marx_old.jpg
Key Vocabulary
Capitalism: economic system in which
individuals own both private property and
the means of production
Means of production: physical structures
or objects that are used to make goods,
such as factories, machines, and tools
Proletariat: the working class, often used
when describing the theories of Karl Marx
Bourgeoisie: the middle class, used in the
1700s and 1800s
Communism: economic system in which the
people as a group own all property and the
means of production
Laissez-faire: policy in which the government
plays little or no role in the economy
Dictatorship: government in which one
person or political party holds all power
Socialism: economic system in which people
may own private property but the public
controls the means of production
Market competition: struggle between
businesses to attract customers and
increase profits
Entrepreneurs: people that beginor start
new businesses
Quick Review
1. What book belongs at the center of the Venn diagram?
A. Das Kapital
B. Don Quixote
C. The Communist Manifesto
D. The Wealth of Nations
2. The author of this quote was most likely a –
“The proletarians have nothing to lose but their
chains. They have a world to win. Workingmen
of all countries, unite.”
A. Capitalist
B. Communist
C. Mercantilist
D. Socialist
3. Who believed that market competition would help the economy?
A. Friedrich Engels
B. Karl Marx
C. Vladimir Lenin
D. Adam Smith.
4. What are at least three reasons why someone might choose
capitalism over communism?
Connection to Today
Resources
The United States passed laws to help reduce the injustices of
capitalism. What types of laws could help workers?
ABC-CLIO
● Capitalism
http://worldhistory.abc-clio.com/Search/
Display/309337?terms=capitalism
● Communism
http://worldhistory.abc-clio.com/Search/
Display/309346?terms=communism
FCPS HS Social Studies © 2014