Fiveable
Fiveable

or

Log in

Find what you need to study


Light

Find what you need to study

5.7 Economic Developments and Innovations in the Industrial Age

6 min readmarch 16, 2023

Andrew Fultz

Andrew Fultz

VladimirGenkovski

VladimirGenkovski

Andrew Fultz

Andrew Fultz

VladimirGenkovski

VladimirGenkovski

New Economic Philosophies

The old system: Mercantilism

From roughly 1500-1750, Western European nations utilized as their dominant economic philosophy. In the mercantilist system, governments controlled trade within their borders. Governments frequently imposed (taxes on imports/exports) and other trade barriers under this system, and the goal was often to export more than import. The government's role in directing and regulating economic activity was significant and included strict control of the money supply and credit to maintain a favorable trade balance. also controlled trade by requiring that certain goods could only be transported on ships owned by a given country and manned by its citizens.

The new system: Laissez-faire

By 1750 and through 1900, Western European nations put aside in favor of and (government is “hands off”) policies. They prompted the removal of and other trade barriers to allow for the free flow of goods and services; limited government intervention; an emphasis on the rights and freedoms of individuals; deregulation and privatization within industries.

wrote (1776) on capitalism and free markets. Throughout this period, his practices gain more complete acceptance. The notions of and governments controlling trade fade away. His ideas included several innovative beliefs that are still considered valid today:

The theory of the invisible hand: Smith believed that the economy would naturally regulate itself if individuals were allowed to pursue their own self-interest. He argued that the market, guided by the "invisible hand" of competition, would naturally lead to an efficient allocation of resources and the production of goods and services that people wanted to buy.

The : Smith argued that the (the specialization of workers in specific tasks) led to increased productivity and economic growth. He observed that workers who specialized in one task could become much more efficient than those who performed multiple tasks.

: Smith believed that led to greater economic prosperity, as it allowed countries to specialize in the production of goods and services in which they had a comparative advantage and trade with other countries for goods and services in which they did not have an advantage.

Nations' wealth: He argued that the wealth of a nation could be measured by its and that economic growth could be achieved by increasing labor productivity.

approach: He advocated for minimal government intervention in the economy and for the free market to regulate itself. He believed that government intervention would lead to inefficiency and that allowing individuals and businesses to pursue their own self-interest was the best way to promote prosperity.

Innovations in Business

Equipped with government policies, businesses developed new approaches and new banking practices. Large businesses developed into with ownership from shareholders, with some even taking control over whole industries, thus becoming a .

Banking

During the Industrial Age, several innovations in banking occurred. were formed by a group of individuals who pooled their money together to start a bank. This allowed for more significant amounts of capital and allowed banks to finance more extensive projects such as industrial ventures. The concept of entered the world of banking. It meant that shareholders were only responsible for the amount of money they had invested in the bank, rather than being held liable for all of the bank's debts. One of the current leading banks, HSBC, was founded exactly during the Industria Age. Banks increased in number, especially with the advent of the .

Transnational businesses

Some companies began operating in more than one country. HSBC bank is also known as the Hongkong and Shanghai Banking Corporation, and apart from being a bank, it is also a transnational business. It initially operated as a British financial institution that conducted a lot of its business in China, including making a lot of money off the opium trading of the mid-1800s. During the industrial age, played a significant role in driving economic growth and expansion. They established factories and created jobs, and their products were traded and sold in global markets. They also significantly impacted international trade and transportation, as new technologies and infrastructure were developed to support their operations.

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2FHKStreets1865.jpg?alt=media&token=fa8dee77-b319-404c-9229-87595956ac9a

HSBC Headquarters in Hong Kong, the 1800s. Image courtesy of Wikimedia

Financial instruments

During the Industrial Age, further developed. Apart from the introduction of joint-stock and companies (as described under the advances in banking), emerged. They allowed for individuals to buy and sell stocks or shares, thus becoming part owners of companies. Stockholders were not personally liable; therefore, it decreased risk for individuals while also increasing opportunities to make a profit. The insurance industry became more prevalent as the risk and uncertainty of business activities increased. were formed, allowing investors to pool their money and invest it in a diverse portfolio of companies and securities.

Effects on Mass Culture

Wealthier populations

With people becoming wealthier, including the emerging middle class, people spent money on products they did not need to survive. This describes , and the continual improvement and efficiency of manufacturing increased the availability of consumer goods. Along with more money, people had . Biking and boating became popular activities for people, and athletics and enjoying professional sports became part of everyday life within industrialized areas. Other entertainment choices, such as music halls and parks, brought people together despite economic class designations. Additionally, the rise of and leisure activities also led to changes in and values, as people began to emphasize material possessions and . also significantly impacted the economy, as the constant demand for new goods and services sustained the industry's growth and led to the development of new marketing and advertising strategies.

Widening gap between classes

Industrialization resulted in a massive gap between the wealthy (factory owners) and everyone else. This gap resulted from several factors, including the concentration of wealth and power in the hands of a small group of , and the exploitation of the by these .

The factory owners and other business leaders, who controlled the means of production, became immensely wealthy by exploiting the , who were paid low wages and often worked in dangerous and unhealthy conditions. This led to a widening gap in terms of economic power and between the two classes.

Additionally, the had limited access to education and opportunities, which further perpetuated their lower economic status. As a result, they were often confined to low-paying jobs and had limited upward mobility. The gap between classes was also reflected in the living conditions and standard of living. Wealthy factory owners and business leaders lived in luxury. In contrast, the lived in overcrowded, unhealthy slums and tenements, with limited access to basic necessities such as clean water and sanitation.

The widening gap between classes during the industrial age also led to social tensions and conflicts. The became increasingly discontent with their living and working conditions, and began to demand better wages and working conditions. This led to the rise of and , which aimed to improve the lives of the and reduce the gap between classes.

🎥Watch: WHAP - Industrialization

Key Terms to Review (28)

Adam Smith

: Adam Smith was a Scottish economist, philosopher, and author who is considered the father of modern economics. His most famous works are "The Wealth of Nations," where he introduced concepts like division of labor, free market economy, and laissez-faire economics.

Consumerism

: Consumerism is a social and economic order that encourages the acquisition of goods and services in ever-increasing amounts.

Corporations

: A corporation is a legal entity separate from its owners that can enter contracts, sue and be sued, own assets, pay taxes and borrow money.

Division of Labor

: Division of labor refers to splitting up work so that tasks are performed by different people, often leading to increased efficiency.

Financial Instruments

: These are contracts between parties that can be created, traded, modified, and settled. They can be cash (currency), evidence of ownership interest in an entity (share), or a contractual right to receive or deliver cash (bonds).

Free Trade

: Free trade is an economic policy that allows businesses in different countries to trade without government interference, such as tariffs or import quotas.

HSBC Bank (Hongkong and Shanghai Banking Corporation)

: Founded in 1865, HSBC is a British multinational banking and financial services organization. It's one of the world's largest banks.

Industrialists

: Industrialists are individuals who own or manage large-scale industrial enterprises, often playing a significant role in the development and operation of the industry.

Insurance Industry

: The insurance industry is a business sector that provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments.

Investment Trusts

: An investment trust is a company that raises money from shareholders and invests those funds in a diversified way across various assets such as stocks, bonds, property etc., with an aim to generate profits and income for its shareholders.

Invisible Hand Theory

: The invisible hand theory is an economic concept where market demand acts as a guiding force for producers to make what consumers want. It's the idea that individuals' self-interested actions can lead to positive societal outcomes.

Joint-Stock Banks

: These are financial institutions whose capital is divided into shares. The shareholders own a portion of the bank proportional to their investment and share in the profits or losses.

Labor Unions

: Labor unions are organized associations of workers formed to protect their rights and interests. They negotiate with employers over wages and working conditions.

Laissez-faire

: Laissez-faire is a French term that translates to "let do" or "leave it be." In economics, it refers to a policy of minimal governmental interference in the economic affairs of individuals and society.

Leisure Time

: Leisure time refers to the period during which an individual is free from work, duties, or responsibilities and can engage in activities of personal interest or relaxation.

Limited Liability

: This legal structure protects shareholders' personal assets if the company fails; they can only lose as much as they invested into it.

Mercantilism

: Mercantilism is an economic theory that advocates for a positive balance of trade, where a country exports more than it imports. It was popular during the 16th to 18th centuries and often involved the mother country exploiting its colonies for resources.

Monopoly

: A monopoly is a market structure characterized by a single seller selling a unique product with no close substitutes.

National Income

: National income is the total value of all goods and services produced by a country's economy in a given period. It includes the sum of wages, rents, interest, profits, and pension payments to residents of the nation.

Navigation Acts

: The Navigation Acts were a series of laws passed by the British Parliament in the 17th and 18th centuries that regulated trade between England and its colonies. The acts required all goods imported into Britain or its colonies to be shipped on British-owned vessels.

Social Movements

: Social movements are organized efforts by large groups of people to bring about or impede social, political, economic, or cultural change.

Social Norms

: Social norms are unwritten rules about how to behave in a particular social group or culture. They define acceptable behavior within society.

Stock Markets

: These are public markets for buying and selling shares of publicly-traded companies. Prices fluctuate based on supply and demand dynamics related to each company’s performance and broader economic trends.

Tariffs

: Tariffs are taxes imposed on imported goods and services. They're used to increase the price of foreign products in order to make domestic products more competitive.

The Wealth Of Nations

: This is an influential book written by Adam Smith in 1776. It discusses concepts like division of labor, productivity, and free markets. It's considered one of the foundational texts in the field of economics.

Transnational Businesses

: These are large corporations that operate and have assets in more than one country. They're often involved in various activities, including manufacturing, marketing, and sales.

Wealth Gap

: The wealth gap refers to the economic differences that exist between specific populations such as the rich versus poor or different racial groups. It's often measured through indicators like income inequality and wealth distribution.

Working Class

: The working class is made up of people employed for wages, especially manual laborers and blue-collar workers.

5.7 Economic Developments and Innovations in the Industrial Age

6 min readmarch 16, 2023

Andrew Fultz

Andrew Fultz

VladimirGenkovski

VladimirGenkovski

Andrew Fultz

Andrew Fultz

VladimirGenkovski

VladimirGenkovski

New Economic Philosophies

The old system: Mercantilism

From roughly 1500-1750, Western European nations utilized as their dominant economic philosophy. In the mercantilist system, governments controlled trade within their borders. Governments frequently imposed (taxes on imports/exports) and other trade barriers under this system, and the goal was often to export more than import. The government's role in directing and regulating economic activity was significant and included strict control of the money supply and credit to maintain a favorable trade balance. also controlled trade by requiring that certain goods could only be transported on ships owned by a given country and manned by its citizens.

The new system: Laissez-faire

By 1750 and through 1900, Western European nations put aside in favor of and (government is “hands off”) policies. They prompted the removal of and other trade barriers to allow for the free flow of goods and services; limited government intervention; an emphasis on the rights and freedoms of individuals; deregulation and privatization within industries.

wrote (1776) on capitalism and free markets. Throughout this period, his practices gain more complete acceptance. The notions of and governments controlling trade fade away. His ideas included several innovative beliefs that are still considered valid today:

The theory of the invisible hand: Smith believed that the economy would naturally regulate itself if individuals were allowed to pursue their own self-interest. He argued that the market, guided by the "invisible hand" of competition, would naturally lead to an efficient allocation of resources and the production of goods and services that people wanted to buy.

The : Smith argued that the (the specialization of workers in specific tasks) led to increased productivity and economic growth. He observed that workers who specialized in one task could become much more efficient than those who performed multiple tasks.

: Smith believed that led to greater economic prosperity, as it allowed countries to specialize in the production of goods and services in which they had a comparative advantage and trade with other countries for goods and services in which they did not have an advantage.

Nations' wealth: He argued that the wealth of a nation could be measured by its and that economic growth could be achieved by increasing labor productivity.

approach: He advocated for minimal government intervention in the economy and for the free market to regulate itself. He believed that government intervention would lead to inefficiency and that allowing individuals and businesses to pursue their own self-interest was the best way to promote prosperity.

Innovations in Business

Equipped with government policies, businesses developed new approaches and new banking practices. Large businesses developed into with ownership from shareholders, with some even taking control over whole industries, thus becoming a .

Banking

During the Industrial Age, several innovations in banking occurred. were formed by a group of individuals who pooled their money together to start a bank. This allowed for more significant amounts of capital and allowed banks to finance more extensive projects such as industrial ventures. The concept of entered the world of banking. It meant that shareholders were only responsible for the amount of money they had invested in the bank, rather than being held liable for all of the bank's debts. One of the current leading banks, HSBC, was founded exactly during the Industria Age. Banks increased in number, especially with the advent of the .

Transnational businesses

Some companies began operating in more than one country. HSBC bank is also known as the Hongkong and Shanghai Banking Corporation, and apart from being a bank, it is also a transnational business. It initially operated as a British financial institution that conducted a lot of its business in China, including making a lot of money off the opium trading of the mid-1800s. During the industrial age, played a significant role in driving economic growth and expansion. They established factories and created jobs, and their products were traded and sold in global markets. They also significantly impacted international trade and transportation, as new technologies and infrastructure were developed to support their operations.

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2FHKStreets1865.jpg?alt=media&token=fa8dee77-b319-404c-9229-87595956ac9a

HSBC Headquarters in Hong Kong, the 1800s. Image courtesy of Wikimedia

Financial instruments

During the Industrial Age, further developed. Apart from the introduction of joint-stock and companies (as described under the advances in banking), emerged. They allowed for individuals to buy and sell stocks or shares, thus becoming part owners of companies. Stockholders were not personally liable; therefore, it decreased risk for individuals while also increasing opportunities to make a profit. The insurance industry became more prevalent as the risk and uncertainty of business activities increased. were formed, allowing investors to pool their money and invest it in a diverse portfolio of companies and securities.

Effects on Mass Culture

Wealthier populations

With people becoming wealthier, including the emerging middle class, people spent money on products they did not need to survive. This describes , and the continual improvement and efficiency of manufacturing increased the availability of consumer goods. Along with more money, people had . Biking and boating became popular activities for people, and athletics and enjoying professional sports became part of everyday life within industrialized areas. Other entertainment choices, such as music halls and parks, brought people together despite economic class designations. Additionally, the rise of and leisure activities also led to changes in and values, as people began to emphasize material possessions and . also significantly impacted the economy, as the constant demand for new goods and services sustained the industry's growth and led to the development of new marketing and advertising strategies.

Widening gap between classes

Industrialization resulted in a massive gap between the wealthy (factory owners) and everyone else. This gap resulted from several factors, including the concentration of wealth and power in the hands of a small group of , and the exploitation of the by these .

The factory owners and other business leaders, who controlled the means of production, became immensely wealthy by exploiting the , who were paid low wages and often worked in dangerous and unhealthy conditions. This led to a widening gap in terms of economic power and between the two classes.

Additionally, the had limited access to education and opportunities, which further perpetuated their lower economic status. As a result, they were often confined to low-paying jobs and had limited upward mobility. The gap between classes was also reflected in the living conditions and standard of living. Wealthy factory owners and business leaders lived in luxury. In contrast, the lived in overcrowded, unhealthy slums and tenements, with limited access to basic necessities such as clean water and sanitation.

The widening gap between classes during the industrial age also led to social tensions and conflicts. The became increasingly discontent with their living and working conditions, and began to demand better wages and working conditions. This led to the rise of and , which aimed to improve the lives of the and reduce the gap between classes.

🎥Watch: WHAP - Industrialization

Key Terms to Review (28)

Adam Smith

: Adam Smith was a Scottish economist, philosopher, and author who is considered the father of modern economics. His most famous works are "The Wealth of Nations," where he introduced concepts like division of labor, free market economy, and laissez-faire economics.

Consumerism

: Consumerism is a social and economic order that encourages the acquisition of goods and services in ever-increasing amounts.

Corporations

: A corporation is a legal entity separate from its owners that can enter contracts, sue and be sued, own assets, pay taxes and borrow money.

Division of Labor

: Division of labor refers to splitting up work so that tasks are performed by different people, often leading to increased efficiency.

Financial Instruments

: These are contracts between parties that can be created, traded, modified, and settled. They can be cash (currency), evidence of ownership interest in an entity (share), or a contractual right to receive or deliver cash (bonds).

Free Trade

: Free trade is an economic policy that allows businesses in different countries to trade without government interference, such as tariffs or import quotas.

HSBC Bank (Hongkong and Shanghai Banking Corporation)

: Founded in 1865, HSBC is a British multinational banking and financial services organization. It's one of the world's largest banks.

Industrialists

: Industrialists are individuals who own or manage large-scale industrial enterprises, often playing a significant role in the development and operation of the industry.

Insurance Industry

: The insurance industry is a business sector that provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments.

Investment Trusts

: An investment trust is a company that raises money from shareholders and invests those funds in a diversified way across various assets such as stocks, bonds, property etc., with an aim to generate profits and income for its shareholders.

Invisible Hand Theory

: The invisible hand theory is an economic concept where market demand acts as a guiding force for producers to make what consumers want. It's the idea that individuals' self-interested actions can lead to positive societal outcomes.

Joint-Stock Banks

: These are financial institutions whose capital is divided into shares. The shareholders own a portion of the bank proportional to their investment and share in the profits or losses.

Labor Unions

: Labor unions are organized associations of workers formed to protect their rights and interests. They negotiate with employers over wages and working conditions.

Laissez-faire

: Laissez-faire is a French term that translates to "let do" or "leave it be." In economics, it refers to a policy of minimal governmental interference in the economic affairs of individuals and society.

Leisure Time

: Leisure time refers to the period during which an individual is free from work, duties, or responsibilities and can engage in activities of personal interest or relaxation.

Limited Liability

: This legal structure protects shareholders' personal assets if the company fails; they can only lose as much as they invested into it.

Mercantilism

: Mercantilism is an economic theory that advocates for a positive balance of trade, where a country exports more than it imports. It was popular during the 16th to 18th centuries and often involved the mother country exploiting its colonies for resources.

Monopoly

: A monopoly is a market structure characterized by a single seller selling a unique product with no close substitutes.

National Income

: National income is the total value of all goods and services produced by a country's economy in a given period. It includes the sum of wages, rents, interest, profits, and pension payments to residents of the nation.

Navigation Acts

: The Navigation Acts were a series of laws passed by the British Parliament in the 17th and 18th centuries that regulated trade between England and its colonies. The acts required all goods imported into Britain or its colonies to be shipped on British-owned vessels.

Social Movements

: Social movements are organized efforts by large groups of people to bring about or impede social, political, economic, or cultural change.

Social Norms

: Social norms are unwritten rules about how to behave in a particular social group or culture. They define acceptable behavior within society.

Stock Markets

: These are public markets for buying and selling shares of publicly-traded companies. Prices fluctuate based on supply and demand dynamics related to each company’s performance and broader economic trends.

Tariffs

: Tariffs are taxes imposed on imported goods and services. They're used to increase the price of foreign products in order to make domestic products more competitive.

The Wealth Of Nations

: This is an influential book written by Adam Smith in 1776. It discusses concepts like division of labor, productivity, and free markets. It's considered one of the foundational texts in the field of economics.

Transnational Businesses

: These are large corporations that operate and have assets in more than one country. They're often involved in various activities, including manufacturing, marketing, and sales.

Wealth Gap

: The wealth gap refers to the economic differences that exist between specific populations such as the rich versus poor or different racial groups. It's often measured through indicators like income inequality and wealth distribution.

Working Class

: The working class is made up of people employed for wages, especially manual laborers and blue-collar workers.


© 2024 Fiveable Inc. All rights reserved.

AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.


© 2024 Fiveable Inc. All rights reserved.

AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.