The Historical Development of Capitalism

The Historical Development Development of  Capitalism • Feudalism and the Birth of Capitalism • The Emergence and Nature of Capitalism • The Industrial Revolution • Creation of an Industrial Working Class, Population Effects • Growth of Global Markets and Colonialism: Capitalism on a World Scale • Effects of Colonialism

Feudalism and the Birth of  Capitalism • From hunting & gathering to domesticated agriculture (animals and crops) • Slave-based empires (e.g. Roman) and their feudal successors (ca. 5th Century) • A form of economic and social so cial relations that extended in Europe to 15 th century • Settlement in North America did not succeed feudalism, but was capitalist in character from the outset

Characteristics of Feudalism • Tradition shaped life and work • In Europe the church was the dominant political and ideological institution • Aristocratic land-owners formed the ruling class, who extracted rents from tenant farmers (often serfs) in low productivity agriculture • Feudal cities – often fortified – with guilds – markets, where universities were established • A hierarchy of feudal towns, mostly small trading centers, with negligible interregional trade

Characteristics of Early Capitalism • Markets: buyers and sellers of goods & services at agreed upon prices • Market types: perfect competition – perfect monopoly  – oligopoly (and other types) • The profit incentive = revenue – cost • Dynamic behavior of buyers and sellers, including incentives from innovation in products and production processes • Class relations: merchants & burghers vs. the old aristocracy. “Unlike feudal Europe, workers under  capitalism must sell their labor power power to survive. Thus the process of commodification extended to include the capacity to labor.”

Alternative Models of Competition Barriers to Entry - High One Seller A Few Sellers Limited Quantity of Sellers Many Sellers

One Buyer Monopsony

A Few Buyers Oligopsony

Many Buyers Monopoly Oligopoly Monopolistic Competition Perfect Competition

Barriers to Entry - Low

Attributes of Alternative Market Types Perfect Competition Homogeneoous products Each producer makes a small share of output No one seller influences influences Prices Entry to market is is easy Flow of information is Perfect, eliminating excess profit M arkets are fluid

M onopoly Unique Product One producer makes all of  the product Prices set to maximize profit High Barriers to Entry Monopolist is able to control the market M arket is rigid

“Pure” Monopoly

Oligopoly Similar Products Several sellers divide the market Prices set through pricing p ricing strategies High Barriers to Entry Oligopolists engage in strategic behavior—  competitive or collusive M arket may be unstable, competitive strategies to create stability: product differentiation, advertising, industry agreements

Early Capitalism, Continued • Financ Finance: e: repla replacin cing g barter barter with with mone money, y, and and instit instituti utions ons to handle and regulate money • Uneven Uneven develo developm pment ent as an an inevi inevitab table le outc outcome ome,, historically persistent, at scales ranging from local to global • Long-d Long-dist istanc ance e trade trade – fuele fueled d by trans transpor portt innov innovati ation on – allowing regional specialization based on principle of  comparative advantage • Ideological change – printing/reading, religion, science, the Enlightenment – “a worldview that stressed secularism, individualism, individualism, rationality, progress, and democracy.”

Early Capitalism, Continued • Feudal empires with multiple nation-states • Replaced feudal monarchies with nation-states • Nation states supporting development of  capitalism through regulations, public investment and programs (e.g. education, defense, trade protectionism… • BUT: these institutions do not preclude transnational capitalist development, evident in this era of globalization

The Industrial Revolution • Industrialization as a process with multiple transformations in inputs, output, and technologies. Driven by:  – Harnessing inanimate sources of energy

wood-coal-petroleum & gas  – Technological innovation  – Rising Productivity

• Spatial diffusion of the Industrial Revolution

Cycles of Industrialization – Kondratiev Long Waves

The Fifth Wave – IT & producer  Services

Consequences of the Industrial Revolution • Creation of an Industrial Working Class  – Rise of organized labor 

• Urbanization – industry as “city forming” activity • Population Effects: Malthus’ warning vs. productivity increases, health improvements, lowered birth rates • Growth of Global Markets & International Trade  – transport improvement, international finance, timing of development