The Economics of the Industrial Revolution [AP World History Review—Unit 5 Topic 7]

Heimler's History
8 Jan 202404:57
EducationalLearning
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TLDRThe video script explores the economic shifts during the Industrial Revolution from 1750 to 1900, highlighting the transition from mercantilism to free market economics. Adam Smith's influential 'The Wealth of Nations' is discussed, which criticized mercantilism and advocated for policies that would allow the 'Invisible Hand' of supply and demand to guide economic interactions. Despite Smith's optimism, the script notes the emergence of a poor working class under capitalism. Critics like Jeremy Bentham and Friedrich List are mentioned, with the latter's work leading to the formation of the Zollverein, a customs union among German states. The rise of transnational corporations, such as the Hong Kong and Shanghai Banking Corporation and Unilever, is also covered, along with the financial innovations that supported them, including the stock market and limited liability corporations. The script concludes by noting the overall increase in wealth and standard of living in the Western world by 1900, the rise of a middle class, and improvements in consumer goods and food availability.

Takeaways
  • 📚 The Industrial Revolution saw a shift from mercantilism to free market economics, which was market-driven rather than state-driven.
  • 🌐 Adam Smith's publication of 'The Wealth of Nations' criticized mercantilism and advocated for less government intervention in the economy, promoting the idea of the 'Invisible Hand'.
  • 💰 After 1815, several Western governments reduced state regulations on trade, leading to increased trade and wealth, supporting Smith's theories.
  • 👥 Critics of free market capitalism, such as Jeremy Bentham and Friedrich List, argued for government legislation to address social problems and protect emerging economies from British domination.
  • 🇩🇪 Friedrich List's ideas contributed to the formation of the Zollverein, a customs union that reduced trade barriers between German states and imposed tariffs on imported goods.
  • 🏭 The rise of transnational corporations, such as the Hong Kong and Shanghai Banking Corporation and Unilever, marked a new phase in global economic activity.
  • 📈 Financing these corporations involved new banking and financial practices, including the rise of stock markets and the expansion of limited liability corporations.
  • 📊 Stock markets allowed for the sale of stocks, which are shares of ownership in a company, spreading risk and potential for profit among many investors.
  • 🛡️ Limited liability corporations protected investors from losing more than their initial investment, encouraging risk-taking in business ventures.
  • 🌊 The 19th-century global economy, dominated by industrial capitalism, experienced three major crises but still saw overall growth in wealth.
  • 🚀 The increased wealth in industrialized societies led to a rising standard of living, greater access to consumer goods, and the emergence of a new middle class.
Q & A

  • What was the first major economic change during the period of the Industrial Revolution?

    -The first major economic change was the slow death of mercantilism, which was a state-driven system, and the rise of free market economics that were market-driven and better suited the realities of industrialization.

  • Who is credited with criticizing mercantilism and advocating for free market economics?

    -Adam Smith is credited with criticizing mercantilism and advocating for free market economics in his publication of 'The Wealth of Nations.'

  • What is the term used to describe the idea that market forces will naturally guide economic activities for the benefit of all?

    -The term used to describe this idea is 'The Invisible Hand.'

  • What was one of the outcomes of the shift towards free market capitalism after 1815?

    -After 1815, several Western governments abandoned state regulations on trade, resulting in increased trade and greater wealth, which supported Adam Smith's theories.

  • What was one of the criticisms of free market capitalism?

    -One of the criticisms was that it created a working class that was exceedingly poor and labored under great duress, which was not in line with the idea that free markets would distribute wealth more evenly.

  • Who argued for government legislation to address social problems as a solution to the suffering of the working class?

    -Jeremy Bentham argued for government legislation to address social problems as a solution to the suffering of the working class.

  • What was Friedrich List's criticism of global free market principles?

    -Friedrich List criticized global free market principles as a trick by the British to dominate other economies and advocated for protectionist measures to foster domestic industrial projects.

  • What was the Zollverein and how did it contribute to the economic unity of German states?

    -The Zollverein was a customs union that bound many German states together into an economic unit, reducing trade barriers between them and erecting tariffs on imported goods to protect their own industrial projects.

  • What are transnational corporations and how did they arise during the period of industrialization?

    -Transnational corporations are companies established and controlled in one country but also establishing large operations in many other countries. They arose during the period of industrialization as economic practices and the global nature of trade became more normalized.

  • What role did the stock market play in financing the growth of transnational corporations?

    -The stock market played a crucial role by allowing these corporations to raise funds by selling stocks, which represented small portions of ownership in the corporation. This enabled the public to invest in these businesses, and as the companies profited, so did the stockholders.

  • How did the concept of limited liability corporations protect the financial investment of business owners?

    -The concept of limited liability corporations protected the financial investment of business owners by limiting their liability to the amount of money they invested. This meant that they could only lose the amount they put into the venture and no more, thus encouraging risk-taking and investment in corporate ventures.

  • What was one of the main effects of the rising standard of living in industrialized societies?

    -One of the main effects was the creation of a new and growing middle class that was wealthy enough to purchase a wide array of mass-produced consumer goods, leading to greater access to everyday goods that improved their lives.

Outlines
00:00
📚 The Transition from Mercantilism to Free Market Economics

This paragraph discusses the shift in economic systems from mercantilism to free market economics during the Industrial Revolution. Mercantilism, a state-driven system, was gradually replaced by market-driven free market economics, which was better suited to industrialization. Adam Smith's 'The Wealth of Nations' played a significant role in this transition, criticizing mercantilism and advocating for policies that would allow the market to operate freely, guided by the 'Invisible Hand.' However, despite Smith's arguments for more equitable wealth distribution, critics like Jeremy Bentham and Friedrich List pointed out the negative impacts of capitalism on the working class and the potential for economic domination by powerful nations. The paragraph also touches on the rise of transnational corporations and the financial innovations that supported their growth, such as the stock market and limited liability corporations.

Mindmap
Keywords
💡Industrial Revolution
The Industrial Revolution refers to the period from the 18th to 19th century during which agrarian, rural societies in Europe and America became industrial and urban. It marked a major turning point in history as it led to new manufacturing processes, the rise of the factory system, and significant changes in social, economic, and cultural conditions. In the video, the Industrial Revolution sets the stage for discussing the economic changes that occurred from 1750 to 1900.
💡Mercantilism
Mercantilism was an economic theory and practice that promoted government regulation of a nation's economy to strengthen the power of the state. It was prevalent before the Industrial Revolution and involved the belief that a nation's wealth and power were best served by accumulating gold and silver through a trade surplus. In the video, the narrator discusses the decline of mercantilism and its replacement by free market economics.
💡Free Market Economics
Free market economics is an economic system where prices for goods and services are self-regulated by the open market and the forces of supply and demand. It contrasts with mercantilism and is characterized by little to no government intervention in economic affairs. The video highlights how free market economics became more prevalent during the Industrial Revolution, aligning with the needs of industrialization.
💡The Wealth of Nations
The Wealth of Nations, written by Adam Smith, is a seminal work in economic theory that was published in 1776. It argued against mercantilism and for the benefits of a free market economy. In the video, the publication of this book is identified as a significant influence on the shift from mercantilism to free market economics, with Smith advocating for less government control and more market-driven economic decisions.
💡Invisible Hand
The Invisible Hand is a metaphor introduced by Adam Smith to describe the unintended social benefits resulting from the accumulation of wealth by individuals in a free-market economy. Smith argued that when individuals pursue their own interests, they inadvertently promote the good of society as a whole. The video uses this concept to illustrate Smith's argument for the efficiency and fairness of free market capitalism.
💡Transnational Corporations
Transnational corporations are business entities that operate in multiple countries simultaneously. They are characterized by a global scale of operations and have significant economic influence. In the video, transnational corporations like the Hong Kong and Shanghai Banking Corporation and Unilever are presented as examples of economic entities that emerged due to the new economic practices and global nature of trade post-Industrial Revolution.
💡Stock Market
The stock market is a platform where the shares of publicly-held companies are bought and sold. It allows companies to raise capital by selling ownership stakes in the form of stocks. The video explains that the rise of the stock market was crucial for financing the large-scale businesses that emerged during the Industrial Revolution, as it allowed for the spreading of risk and the sharing of profits among many investors.
💡Limited Liability Corporations
Limited liability corporations (LLCs) are business structures that protect their owners from personal liability for the company's debts and obligations. The video discusses the expansion of the scope of LLCs, which allowed for greater investment in corporate ventures with the assurance that personal assets would be protected, thus encouraging risk-taking and economic growth.
💡Capitalism
Capitalism is an economic system based on private ownership of the means of production, with the goal of generating profit. It is characterized by competition and the accumulation of capital. The video points out that despite the rise of free-market capitalism, it faced criticism for creating a working class that suffered from poverty and harsh working conditions, leading to calls for government intervention and social reform.
💡Zollverein
The Zollverein was a customs union established in 1834 that significantly reduced trade barriers between various German states and erected tariffs on imported goods, particularly from Britain, to protect their own industrial development. The video mentions the Zollverein as an example of economic nationalism and protectionism in response to the dominance of British free-market principles.
💡Middle Class
The middle class refers to a social group that falls between the working class and the upper class, often defined by their income, education, and occupation. The video discusses the rise of a new and growing middle class during the Industrial Revolution, which was able to purchase mass-produced consumer goods due to their increased wealth, leading to a higher standard of living and greater access to goods and services.
Highlights

The Industrial Revolution from 1750 to 1900 saw a shift from mercantilist economics to free market economics.

Mercantilism, a state-driven system, was gradually abandoned in favor of market-driven free market economics.

Adam Smith's publication 'The Wealth of Nations' criticized mercantilism and advocated for less government intervention in the economy.

Smith proposed the concept of 'The Invisible Hand', where market forces of supply and demand would guide economic decisions.

Free market capitalism was expected to distribute wealth more evenly and lead to widespread prosperity.

After 1815, Western governments began to deregulate trade, leading to increased trade and wealth.

Critics of free market capitalism, such as Jeremy Bentham, argued for government legislation to address social problems.

Friedrich List rejected global free market principles, viewing them as a means for British economic domination.

List's work contributed to the creation of the Zollverein, a customs union that reduced trade barriers between German states and protected local industries.

Transnational corporations emerged, operating in multiple countries and contributing to the globalized nature of trade.

The Hong Kong and Shanghai Banking Corporation and Unilever are examples of early transnational corporations.

Transnational corporations relied on new banking and financial practices, including the rise of the stock market and limited liability corporations.

The stock market allowed for the raising of funds by selling stocks, which represented small portions of ownership in a corporation.

Limited liability corporations protected investors from losing more than their initial investment, encouraging risk-taking in corporate ventures.

The 19th century experienced three major economic crises, but overall, industrialized nations became significantly richer.

The rising standard of living and increased access to consumer goods characterized the period, leading to a growing middle class.

Developments in manufacturing technology made goods more affordable and accessible to a wider population.

Mechanized farming led to abundant harvests, increasing the variety and quantity of food available and contributing to longer lifespans.

Transcripts

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Industrial RevolutionEconomic ShiftMercantilismFree MarketAdam SmithThe Wealth of NationsInvisible HandCriticsJeremy BenthamFriedrich ListTransnational CorporationsHong Kong and Shanghai Banking CorporationUnileverStock MarketLimited LiabilityGlobal TradeCapitalismWorking ClassConsumer GoodsMiddle ClassMechanized FarmingStandard of Living