The Historical 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 relations
that extended in Europe to 15th 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 to survive. Thus
the process of commodification extended to include
the capacity to labor.”
Alternative Models of Competition

Barriers to Entry - High

One Buyer A Few Buyers Many Buyers
One Seller Monopsony Monopoly
A Few Sellers Oligopsony Oligopoly
Limited Quantity Monopolistic
of Sellers Competition
Many Sellers 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
Prices
Entry to market is easy
Flow of information is
Perfect, eliminating excess
profit
Markets are fluid
Monopoly Oligopoly
Unique Product Similar Products
One producer makes all of Several sellers divide the
the product market
Prices set to maximize Prices set through pricing
profit strategies
High Barriers to Entry High Barriers to Entry
Monopolist is able to Oligopolists engage in
control the market strategic behavior—
competitive or collusive
Market is rigid Market may be unstable,
competitive strategies to
“Pure” Monopoly create stability: product
differentiation,
advertising, industry
agreements
 Early Capitalism, Continued
• Finance: replacing barter with money, and institutions
to handle and regulate money
• Uneven development as an inevitable outcome,
historically persistent, at scales ranging from local to
global
• Long-distance trade – fueled by transport innovation –
allowing regional specialization based on principle of
comparative advantage
• Ideological change – printing/reading, religion,
science, the Enlightenment – “a worldview that
stressed secularism, 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