Part 1: SocialismPart 2: Global Depression

Theme: The relationship between the economy and society

Lesson 7

Part 1: Socialism

Lesson 7

Putting It All Together

CoalSteam powered machines

More incentive,more capability, more demand, more supply

Triangular trade

CottonFactories

Enlightenment Capitalism

More goods, more money, but some unpleasant social developments

Socialism EnlightenmentEquality

Word Association

• Socialism

Socialism

• Political and economic theory of social organization based on the collective ownership of the means of production; its origins were in the early nineteenth century, and it differs from communism by a desire for slow or moderate change compared to the communist call for revolution

Socialist Goals

• Socialists sought to alleviate the social and economic problems caused by capitalism and industrialization, particularly economic inequities and worker exploitation

• Expanded on the Enlightenment idea of equality, understanding it to have an economic dimension as well as political, legal, and social ones

The Utopians

• The term “socialism” appeared around 1830 to refer to the thought of social critics such as Charles Fourier and Robert Owen

• Sought to establish ideal communities that would point the way to an equitable society

Charles Fourier (1772-1837)

• Spent most of his life as a salesman but loathed the competition of the market system and called for social transformations to better serve the needs of mankind

• Planned model communities held together by love rather than coercion

• Everyone worked in accordance with personal temperament and inclination– Work would be pleasurable

Charles Fourier• Considered “civilization” to be the great enemy and

sought to replace it with social organization based on “association” and “harmony”

• The community or “phalanx” was housed in a “phalanstery” of 1,500 to 1,800 people which Fourier hoped would be “as varied as possible”

• In reality, the phalanxs were much smaller than Fourier envisioned and their practices fell short of Fourier’s ideals– “Phalanx members refused to be passionately attracted to all

the things they needed to do to run a community; and the old civilization’s corruptions, including greed and religious disputes, refused to vanish.”

• Ronald Walters, “Earth as Heaven”

Robert Owen (1771-1858)

• Was a successful businessman who transformed the squalid cotton mill town of New Lanark, Scotland into a model industrial community

• Owen raised wages, reduced the workday from 17 to 10 hours, built spacious housing, and opened a store that sold goods at fair prices

• Of the 2,000 residents, 500 were children from nearby poorhouses– Owen kept children out of the factories

and sent them to a school he opened in 1816

Robert Owen

• Despite the costs of the reforms, the New Lanark mills generated profits

• Owens’ indictment of competitive capitalism, his stress on cooperative control of industry, and his advocacy of improved educational standards for children left a lasting imprint on socialism

Mill at New Lanark

Legacy of the Utopian Socialists

• Most of the communities soon encountered economic difficulties and political problems that forced them to fold

• By the mid-19th Century, most socialists were looking to large-scale organization of working people rather than utopian communities as the best means to bring about a just and equitable society– Marx and Engels

Karl Marx (1818-1883) and Friedrich Engels (1820-1895)

• Met in Paris in 1844 and viewed the utopian socialists as unrealistic dabblers

• Developed a belief that the social problems of the 19th Century were the inevitable results of capitalism

• Combined their efforts– Marx was best when dealing

with difficult abstract concepts – Engels used his ability to write

for a mass audience

EngelsMarx

Marx and Engels

• Held that capitalism divided people into two main classes– Capitalists who owned industrial machinery and

factories (the means of production)– The proletariat who were wage earners with only their

labor to sell

• The state and its coercive institutions (police, courts, etc) were agencies of the capitalist ruling class and kept the capitalists in power and enabled them to continue their exploitation of the proletariat

Marx and Engels

• Even music, art, literature, and religion served the purposes of the capitalists by amusing the working classes and diverting their attention from their misery

• Marx considered religion especially to be “the opiate of the masses” because it encouraged workers to focus on things beyond this world rather than trying to improve their lot in society

Marx and Engels

• In 1848, Marx and Engels wrote Manifesto of the Communist Party and aligned themselves with the communists who wanted to abolish private property and institute a radically egalitarian society

• (We’ll more fully discuss communism in Lesson 11)

Communist Manifesto

• All human history has been the history of struggle between social classes

• The future lay with the working classes because the laws of history dictated that capitalism would inexorably grind to a halt– Crises of overproduction,

underconsumption, and diminishing profits would undermine capitalism’s foundation

Communist Manifesto

• At the same time, members of the constantly growing and thoroughly exploited proletariat would come to view the forcible overthrow of the existing system as their only alternative

• The socialist revolution would result in a “dictatorship of the proletariat,” which would abolish private property and destroy the capitalist order

• After the revolution, the state would wither away– Coercive institutions would disappear since there would no

longer be any exploitation of the working class

• Socialism would lead to a fair, just, and egalitarian society infinitely more humane than capitalism

Impact

• Marx and Engel’s ideas came to dominate European and international socialism

• Socialist political parties, trade unions, newspapers, and educational associations all worked to advance the socialist cause

• However, the cause was not fully united

Different Ideas

• Revolutionary socialists (Marx, Engels, et al)– Urged workers to seize control of the state,

confiscate the means of production, and distribute wealth equitably throughout society

• Evolutionary socialists– Doubted a revolution would succeed– Instead advocated representative

governments and called for the election of legislators that supported socialist reforms

Social Reforms

• Even before socialists won control of the Russian government in 1917, socialist ideas impacted society– Improved protections for

female and children workers– Expanded suffrage– Improved representation to

reflect expanding populations

– Medical insurance– Unemployment

compensation– Retirement pensions Children Workers

Trade Unions

• Trade unions sought to eliminate abuses of early industrial society and improve workers’ lives through higher wages and better working conditions

• Throughout most of the 19th Century, employers and governments considered trade unions as illegal

• Police and military forces often intervened when unions went on strike

Pinkerton’s Detective Agency was active in suppressing the

coal miners’ union in Pennsylvania

Trade Unions

• Over the long run, unions came to be an integral part of capitalist society because they addressed workers’ needs so that a disgruntled proletariat wasn’t driven to mount a revolution against industry

Part 2: Global Depression

Lesson 7

World Economy in the 1920s

• Beginning to return to normal after World War I

• Beneath the surface however there were some serious flaws– Tangled financial system– Second order effects of technological

advances– Weakened agricultural base

Tangled Financial System

• The Treaty of Versailles imposed heavy reparation payments on Germany and Austria to France and Britain

• Germany and Austria relied on US loans and investment capital to finance these reparations

• The French and British, in turn, relied on these reparations to repay loans to the US taken out during World War I

• By the summer of 1928, US lenders and investors started to withdraw capital from Europe which placed an intolerable strain on the system

Germany Austria

Loans

Reparations required by Versailles

Repayment of war loans

Britain and France

US

Second Order Effects of Technological Advances

• Improvements in industrial processes reduced demand for some raw resources, causing an increase in supplies and a drop in demand– Tires could now be made with reclaimed rubber which

crippled the economies of the Dutch East Indies, Ceylon, and Malaysia which relied on exports of rubber

– Increased use of oil reduced demand for coal– Synthetics reduced demand for cotton– Artificial nitrogen reduced demand for nitrates from

Chile

Weakened Agricultural Base

• Agricultural production in Europe declined significantly during World War I, so farmers in the US, Canada, Argentina, and Australia increased their production

• After World War I, European farmers restored their production which created worldwide surpluses

• The situation was exacerbated by above average global harvests between 1925 and 1929

• By 1929 the price of a bushel of wheat was its lowest in 400 years

Crash of 1929

• The US had enjoyed an economic boom after World War I

• Many people began buying stock on margin (paying as little as 3% of the stock’s price in cash and borrowing the remainder)

• By October 1929, indications of a worldwide economic slowdown and overvalued stock prices prompted investors to pull out of the market

Black Thursday (October 24)

• Panic selling on the New York Stock Exchange caused stock prices to plummet

• Thousands lost their lifesavings

• By the end of the day, eleven financiers had committed suicide

• When lenders called in their loans, investors were forced to sell their securities at any price

Economic Contraction Spreads

• There was no longer consumer demand for all the goods businesses produced

• Businesses cut back on production and laid off workers

• A vicious downward spiral of business failures and unemployment followed

• By 1932, industrial production was half of its 1929 level– National income was down approximately 50%– 44% of US banks had closed

Global Effects

• Much of the world depended on the export of US capital and the strength of US imports, so the US economic contraction had worldwide impact– Germany and

Japan were especially hard hit

Toronto Stock Market after the day after the New York Stock

Market crashes

Economic Nationalism

• The Great Depression destroyed international economic cooperation and governments began practicing economic nationalism– Trade barriers, import

quotas, import prohibitions– US passed the Smoot-

Hawley Tariff in 1930 raising duties on most manufactured products to prohibitive levels

– Governments of other nations retaliated with their own tariffs on US products

Congressman Willis Hawley

Economic Nationalism

• The world economy was too interdependent for protectionism to work– Between 1929 and

1932, world production went down 38% and trade dropped over 66%

– By 1933, unemployment in industrialized nations was five times higher than in 1929

Unemployed men vying for jobs at the American Legion

Employment Bureau in Los Angeles during the Great

Depression.

Great Depression Images

• Dorothea Lange, Resettlement Administration photographer, in California.

Great Depression Images

• Dorothea Lange’s famous photograph, “Migrant Mother” taken during the Great Depression, 1936

Great Depression Images• A shanty built of refuse near the

Sunnyside slack pile, Herrin, Illinois. Many residences in southern Illinois coal towns were built with money borrowed from building and loan associations. During the depression building and loan associations almost all went into receivership. Their mortgages were sold for whatever they would bring, and the purchasers demolished houses by the hundreds in order to salvage the scrap lumber. The result is a serious overcrowding and high rents in all the coal towns. A number of people can find no houses to rent, and are living in tents and shanties on the fringes of the town.

Great Depression Images

• Mississippi Delta plantation store

Great Depression Images

• Part of an impoverished family of nine on a New Mexico highway. Depression refugees from Iowa. Left Iowa in 1932 because of father's ill health. Father an auto mechanic laborer, painter by trade, tubercular. Family has been on relief in Arizona but refused entry on relief roles in Iowa to which state they wish to return. Nine children including a sick four-month-old baby. No money at all. About to sell their belongings and trailer for money to buy food. “We don't want to go where we'll be a nuisance to anybody.”

Great Depression Images

• Dwellers in Circleville’s “Hooverville,” central Ohio

Great Depression Images

• Oklahoma “Dust Bowl” refugees arrive in California

Great Depression Images

• Virtually abandoned town in Caddo, Oklahoma

Great Depression Images

• Mexican woman and children looking over side of truck which is taking them to their homes in the Rio Grande Valley from Mississippi where they have been picking cotton. Filling station, Neches, Texas.

Great Depression Images

• During the Great Depression, the destitute stood in breadlines like this one in San Francisco, set up by a wealthy woman known as the “White Angel.”

Great Depression Images

• Cotton hoers are taken from the Delta cotton towns to the cotton fields. Most of them are displaced sharecroppers swept off the plantations by tractor farming, depression, crop reduction program, etc. Greenville, Mississippi.

Impact on Economic Theory

• Classical economic thought held that capitalism was self-correcting and worked best when left to its own devices (Remember Lessons 4 and 6 and Adam Smith)

• John Maynard Keynes argued in The General Theory of Employment, Interest, and Money (1936) that the fundamental cause of the Depression was not excessive supply but inadequate demand

John Maynard Keynes (1883-1946)

• Urged governments to play an active role and stimulate the economy by increasing the money supply, thereby lowering interest rates and encouraging investments

• Advised governments to undertake public works projects to provide jobs and redistribute incomes through tax policy even if that caused governments to run deficits and maintain unbalanced budgets

New Deal

• Even before Keynes wrote his book, President Franklin Delano Roosevelt began following such an aggressive policy

• The fundamental premise of Roosevelt’s New Deal was that the federal government was justified in intervening to protect the social and economic welfare of the people– Represented a major shift in US government policy and started a

trend toward social reform legislation that continued long after the Depression

• Eventually, increased military spending during World War II would be the most significant factor in ending the Depression

New Deal Initiatives

• Works Progress Administration (WPA)– Coordinated all public works endeavors. Spent over $10.5 billion

of Federal money and employed 3.8 million men from 1935 to 1941. Built 77,000 bridges, 24,000 miles of sewers, 664,000 miles of road, 285 airports, 122,000 public buildings and 11,000 schools.

• Tennessee Valley Authority (TVA)– Designed to redevelop the Tennessee Valley which

encompassed 7 states and 40,000 square miles.

• Civilian Conservation Corps (CCC)– Employed jobless single men between the ages of 18 and 25.

They worked for 6 months in mountains and forests where they were taught forestry, flood control and fire prevention. Nearly 3 million men took part from 1933 to 1941.

New Deal in Mississippi

• WPA mural in Ocean Springs, MS by Walter Inglis Anderson

New Deal in Mississippi

• The CCC began digging the lake at Paul B. Johnson State Park (German POWs completed it)

New Deal in Mississippi

• TVA provides power to the East Mississippi Electric Power Association and 27 other local utilities and electric power associations – Serves more than 305,000

homes and nearly 70,000 business and industrial customers in 36 counties in Mississippi.

• About 10 % of TVA power sales are in Mississippi.

Next

• Economic Globalization and Travel

• Media

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