The Workshop and the Factory

• New towns, like Manchester, Leeds

• Bigger machines made putting-out system impractical

• Bringing workers in to the shop allowed the owner of the machines to supervise and demand a certain speed of work

• Technology• Wage laborers

Theorizing a Capitalist Economy:Classical Liberalism

Defining Liberalism

• Liber- free

• The American and the French Revolutions have often been described as liberal revolutions.

• Political freedom, freedom of conscience, and economic freedom, all coming from the ideas of natural rights.

• What rights? Whose freedom? Compare to tributary system

Who were the Liberals?

The gentry, the urban class (bourgeoisie), the factory owners, and those who recognized the power of the Industrial Revolution.

They were not the upper nobility, and they were not the poor or peasants.

Think the Third Estate in the French Revolution, or our members of the House of Commons in England.

Economics Classical Liberalism:

• Classical Liberalism, also known as laissez-faire economics

• Absolute believe in the power of market forces to regulate economic life.

• Predominant economic theory of the later eighteenth and nineteenth centuries.

Classical Economics: Adam Smith

• Scotland, 1723-1790• An Inquiry into the Nature

and Causes of the Wealth of Nations, 1776

Adam Smith on Human Nature:

This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another. ..... Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them…It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. --Adam Smith, Wealth of Nations

Adam Smith on Market Forces

...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. --Adam Smith, Wealth of Nations

How the Invisible Hand is supposed to benefit all of society

"The rich ... consume little more than the poor, and in spite of their natural selfishness ... They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and ... advance the interest of the society, and afford means to the multiplication of the species." --Adam Smith, Theory of Moral Sentiments

The new economic system:Capitalism

• What is capital? Principally money used to purchase labor power in order to make more money (by paying less for labor than the productive output of that labor)

• A process, not a thing

• The emerging economic order of the nineteenth century and the industrial revolution.

What’s so interesting about Labor?

• John Locke

• Human nature and work

• Humans must change their environment to live.

• Adam Smith and human nature: “to truck, barter, and trade”.

Adam Smith and the Labor Theory of Value

“Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities. The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.”

--Adam Smith, Wealth of Nations

The Market and Labor

• Labor viewed as the source of all value• In the tributary system, command of the fruits of

peasant labor is the mainstay of the wealth of the nobility.

• According to Smith’s model, command of labor is the way to create wealth.

• Money can only command labor if it is freely sold on a market.

• Accomplished by abolishing other models of labor, feudalism, subsistence agriculture dependent on common property, etc.

• Only wage-labor meets Smith’s model of a free, self-interest driven market.

How should a labor market work? The Invisible Hand

David Ricardo on Wages:

The market price of labour is the price which is really paid for it, from the natural operation of the proportion of the supply to the demand; labour is dear when it is scarce, and cheap when it is plentiful. However much the market price of labour may deviate from its natural price, it has, like commodities, a tendency to conform to it…

--Ricardo, The Iron Law of Wages, 1817

When the market price of labour is below its natural price, the

condition of the labourers is most wretched: then poverty deprives

them of those comforts which custom renders absolute necessaries. It

is only after their privations have reduced their number, or the demand

for labour has increased, that the market price of labour will rise to its

natural price, and that the labourer will have the moderate comforts

which the natural rate of wages will afford.

These, then, are the laws by which wages are regulated, and by which

the happiness of far the greatest part of every community is governed.

Like all other contracts, wages should be left to the fair and free

competition of the market, and should never be controlled by the

interference of the legislature.

--David Ricardo, The Iron Law of Wages, 1817

Liberalism and Utopia

• Free markets of the sort called for by the liberals did not exist in the eighteenth century

• The political projects of the merchants and industrialists therefore broadly became liberal projects, designed to create free markets in England.

• Money as social power

How do you build a labor market?

1) Enclosures: “In agriculture the years between

1760 and 1820 are the years of wholesale enclosure in which, in village

after village, common rights are lost“

– E.P Thompson

2) Abolish tributary institutions, such as restrictions and tolls on markets, corvée labor, common lands, etc.

3) Make it illegal to not work: Vagrancy Laws in England, sixteenth to nineteenth centuries

4) Abolish social protections which impede a free labor market…

England’s Poor Laws

• In the Middle Ages, poor relief was the responsibility of the Church• In the Sixteenth century, England began taxation policies for poor

relief• 1601 Poor Law made provisions for a foster-home system for

orphans, and a food subsidy to those unable to work. It also had a provision to help the unemployed find work as apprentices.

• Speenhamland System, 1795, granted subsidies to poor families allowing wages to keep up with grain prices.

• Parishes (the church of England) also funded workhouses, housing the unemployed and allowing them to pay for shelter through organized work projects.

But Liberal economic thinkers did not like these laws…

England’s Corn Laws

• Laws designed to protect domestic production of food, especially grain (called corn) from cheaper foreign imports.

• Under a lot of attacks throughout 1700s• Napoleonic Wars delayed any real changes• Conservative politicians (representing the

interests of the old land-owing nobility rather than the urban classes) tended to support the corn laws

Liberal Reactions to the Poor Laws

“[The Poor Laws of England] though they may have alleviated a little the intensity of individual misfortune…have spread

the general evil over a much larger surface.”-- Malthus, Essay on the Principle of Population (1798)

“Hunger will tame the fiercest animals, it will teach decency and civility, obedience and subjection, to the most perverse. In general it is only hunger which can spur and goad them [the poor] on to labor; yet our laws have said they shall never hunger.” —Townsend, Dissertation on the Poor Laws (1780)

Hunger as social policy

“The laws, it must be confessed, have likewise said, they shall be compelled to work. But then legal constraint is attended with much trouble, violence, and noise; creates ill will, and never can be productive of good and acceptable service: whereas hunger is not only peaceable, silent, unremitting pressure, but, as the most natural motive to industry and labor, it calls forth the most powerful exertions….”

—Townsend, Dissertation on the Poor Laws (1780)

Theorem of the goats and the dogs…

The Liberal Political effort

• Tory (conservative) governments throughout the 1700s support the rights of the aristocracy, land-owners.

• Kept in power through 1815 by the Napoleonic wars.

• Liberals attacked the Tories based on certain problems in the voting system:– Voting rights restricted to males owning a certain

amount of property (40 shillings worth of land), effectively limiting the vote to about 200,000.

– “Rotten boroughs” caused by peasant migrations became a prime liberal issue

Liberals in Power

• In 1832, the Liberals (as the Whig Party) won the Parliamentary elections for the first time, and enacted a number of changes:

1) Parliament Reform Act of 1832 redrew the electoral districts, granting more representative to the industrial cities, and expanding the voting pool from 200,000 to 650,000 (1 in 5), all males who owned any property.

2) Poor Law Amendment Acts, 1834, 1840- Banned all forms of poor relief except the Workhouse, which was nationally organized.

Now poor relief was only available in the workhouse. Workhouses were intentionally made to be degrading and unpleasant, to discourage the poor from seeking help. Most people avoided workhouses, because they were segregated. Also, entering a workhouse meant that you had to give up your children.

Liberalism and Food: The Corn Laws

In the 1846, the Liberal politicians who controlled

Parliament abolished the Corn Laws, in favor of free-

market principles and open trade.

The effect was massive importation of grain from the Empire (India

mainly), and a major reduction in the remaining farmers in England,

providing more labor to the industrial sector.

From Peasant to Laborer: The creation of the Working Class