Laissez-Faire Economics (Capitalism)
During the Enlightenment, physiocrats argued that natural laws should be allowed to operate without interference. As part of this philosophy, they believed that government should not interfere in the free operation of the economy. In the early 1800s, middle-class business leaders embraced this laissez-faire, or “hands-off,” approach.
As you have learned, the main proponent of laissez-faire economics was Adam Smith, author of bestseller The Wealth of Nations. Smith asserted that a free market—the unregulated exchange of goods and services—would come to help everyone, not just the rich. The free market, Smith said, would produce more goods at lower prices, making them affordable to everyone. A growing economy would also encourage capitalists to reinvest profits in new ventures. Supporters of this free-enterprise capitalism pointed to the successes of the Industrial Age, in which government had played no part.
The Struggle of the Working Class
Karl Marx and Friedrich Engels give their view on how the Industrial Revolution affected workers:
“Owing to the extensive use of machinery and to division of labor, the work of the proletarians has lost all individual character, and, consequently, all charm for the workman. He becomes [a limb] of the machine, and it is only the most simple, most monotonous, and most easily acquired knack, that is required of him. . . .”
—From The Communist Manifesto
Socialist Thought Emerges
While the champions of laissez-faire economics praised individual rights, other thinkers focused on the good of society in general. They condemned the evils of industrial capitalism, which they believed had created a gulf between rich and poor. To end poverty and injustice, they offered a radical solution—socialism. Under socialism, the people as a whole rather than private individuals would own and operate the means of production—the farms, factories, railways, and other large businesses that produced and distributed goods. Socialism grew out of the Enlightenment faith in progress, its belief in the basic goodness of human nature, and its concern for social justice.
Karl Marx Explains Class Struggles
In the 1840s, Karl Marx, a German philosopher, formulated a new theory, “scientific socialism,” which he claimed was based on a scientific study of history. He teamed up with another German socialist, Friedrich Engels, whose father owned a textile factory in England.
Marx and Engels wrote a pamphlet, The Communist Manifesto, which they published in 1848. “A spectre [ghost] is haunting Europe,” it began, “the spectre of communism.” Communism is a form of socialism advocated by Marx, in which an inevitable struggle between social classes would lead to the creation of a classless society where all means of production would be owned by the community.
In The Communist Manifesto, Marx theorized that economics was the driving force in history. He argued that there was “the history of class struggles” between the “haves” and the “have-nots.” The “haves” had always owned the means of production and thus controlled society and all its wealth. In industrialized Europe, Marx said, the “haves” were the bourgeoisie. The “have-nots” were the proletariat, or working class.
According to Marx, the modern class struggle pitted the bourgeoisie against the proletariat. In the end, he predicted, the proletariat would be triumphant. Workers would then take control of the means of production and set up a classless, communist society. Such a society would mark the end of the struggles people had endured throughout history, because wealth and power would be equally shared. Marx despised capitalism. He believed it created prosperity for only a few and poverty for many. He called for an international struggle to bring about its downfall. “Workers of all countries,” he urged, “unite!”
Marxism Briefly Flourishes
In the 1860s, Germany adapted Marx’s beliefs to form a social democracy, a political ideology in which there is a gradual transition from capitalism to socialism instead of a sudden violent overthrow of the system. In the late 1800s, Russian socialists embraced Marxism, and the Russian Revolution of 1917 set up a communist-inspired government. For much of the 1900s, revolutionaries around the world would adapt Marxist ideas to their own situations and needs. Independence leaders in Asia, Latin America, and Africa would turn to Marxism.
Marxism Loses Appeal
As time passed, however, the failures of Marxist governments would illustrate the flaws in Marx’s arguments. He predicted that workers would unite across national borders to wage class warfare. Instead, nationalism won out over working-class loyalty. In general, people felt stronger ties to their own countries than to the international communist movement. By the end of the twentieth century, few nations remained with communist governments, while nearly every economy included elements of free-market capitalism.