Transcript Chapter 2 The Historical Development of Captialism

Historical Evolution of the
World Systems
Here evolution of world economic system refers to the
evolution of political and economic concentrations. It is
the network of linkages that tie together the various
countries of the world.
Political Economy:
The attempts to merge economic analysis with practical
politics – to view economic activity in its political context.
Much of classic economics was political economy, and
today political economy is increasingly being recognized
as necessary for any realistic examination of
development problem.
• The existing world economic and political
systems have not been developed in a
day.
• It is the result of continuous effort made by
the wealthier people for getting more and
more, on the other hand the struggle of the
people living at the subsistent level.
Medieval Feudal Economics
Feudalism(Middle age of History)
Period:1100 AD-1400 AD
The attitude and structure of feudal systems:
Feudal systems refers to an economic
relationship that existed during the middle ages
in Europe under this systems people received
land from a nobleman, and worked and fought
for him in return. This relationship were
prevailing regional context and were limited in
scope.
• Feudalism was a social, political, and
economic system that dominated all
aspects of medieval life.
• The economic portion of feudalism was
centered around the lord's estates or
manor, and is called manorialism.
• A lord's manor would include peasant
villages, a church, farm land, a mill, and
the lord's castle or manor house.
• Manors were self sufficient; all economic activity
occurred on the manor.
• This meant that little to no trade occurred during this
time period. Most of the peasants during the Middle
Ages were serfs. Serfs were generally farmers who
were tied to the land. They were not slaves because
they could not be bought or sold, but they could not
readily leave the manor either.
• Serfs were given land to farm in exchange for service to
their lord. This service usually involved working the
lord's fields, maintaining roads and the manor, and
providing military service in times of war. Serfs paid
taxes to their lord in the form of crops.
• The lords had responsibilities also under
this system.
• In return for the service and fees paid by
the peasants, they provided land and
protection to them. Lords also had to pay
fees and give service to high lords and the
king.
Effect of Feudalism
The Feudal System
Kings
Give large land grants to Upper Lords called fiefs
Give Protection
Receives money, military service, and advice
Upper Lords
Give land grants to Lesser Lords
Give Protection
Receives money, military service
Lesser Lords
Give land grants to knights
Receives money, military service
Knights
Give land to peasants/serfs
Receives crops, labor
Peasants/ Serfs
Receives land to farm
Pays with labor, crops
Features of Feudal economic structure
• Church formed the apex of socio economic structure as
It frowned on materialistic values and development of
commercial and industrial activities.
• Most societies were self content with a production
structure characterised by subsistence and self
sufficiency in all most every respect.
• Spatial interaction was essentially domestic, local and
regional at most.
• The development of technology remained at rudimentary
state
Mercantilism
Period: 1600-1800 AD
Mercantilism was the main economic theory in the
16th to 18th century. Governments regulated
their economies to limit imports and maximize
exports.
It was believed that by doing this, the nation’s
wealth would increase because of the surplus in
the country’s balance of trade.
The trade
balance was represented by how much gold and
silver bullion the country held in its treasury.
• To maximize their trade, countries made efforts
to expand overseas shipping.
•
This required a strong naval force to protect the
commercial vessels.
As a result, England,
France, Portugal and Spain were often at war in
an attempt to dominate the seas. On the positive
side, mercantilism spurred an increase in
European global exploration as countries
searched for new sources of raw materials.
• Videos
Economic benefits from Mercantilism
• The spread of mercantilism defied the reigning
of church-dominated feudal production structure
in socio economic field
• Commercial production of goods surfaced
(appeared again after hidden or wake up) as an
important economic activity.
• Land, labour and capital entered into the market
as a commodity i.e. buying and selling of factors
of production started.
• Cities become centres of production therefore
number and size of cities started to grow at a
accelerated pace.
• Capital accumulation started which is essential
for dynamic economic growth by the profits from
mercantilist trade.
• All of these in turn provided the ground work for
the industrial revolution in England in the late
18th century
Slave Trade
• Period: 1700- Very early 1800 AD
• The history of the transatlantic slave
trade
• Slave trade involved a massive transfer to the
new world of able bodied young Africans, the
large majority of whom were males between
approximately 15 and 35 years of age.
• In some cases, slave traders began to transfer
younger persons- under 15 years of age, but
rarely older persons, whose productive potential
was limited
• Between about 1500 and 1900, Europeans
forcibly uprooted millions of people from
throughout West Africa and West Central Africa
and shipped them across the Atlantic in
conditions of great cruelty.
• To refer to the Africans who were enslaved only
as 'slaves' strips them of their identity.
• They were, for instance, farmers, merchants,
priests, soldiers, goldsmiths and musicians.
They were husbands and wives, fathers and
mothers, sons and daughters.
• European slavers dispersed them across
the Americas to lead lives of degradation
and brutality, without thought for their
personal lives.
• Millions died in the process. As a result,
people of African descent are spread
throughout the Americas and Western
Europe.
• Almost 30 million people were removed
from Africa during the slave trade area.
• The slave trade movement not only
created a systematic linkage between
Africa and the new world of South and
North America and the West Indies, but it
made possible the European-based
exploitation of resources in the new world.
Capitalism
Characteristics of Capitalism
• Markets: buyers and sellers of goods & services
at agreed upon prices
• Market types: perfect competition –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
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
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
Market is rigid
“Pure” Monopoly
Oligopoly
Similar Products
Several sellers divide the
market
Prices set through pricing
strategies
High Barriers to Entry
Oligopolists engage in
strategic behavior—
competitive or collusive
Market may be unstable,
competitive strategies to
create stability: product
differentiation,
advertising, industry
agreements
Quick Reference to Basic Market Structures
Market
Structure
Buyer
Seller Entry Seller
Entry Buyer Number
Barriers Number
Barriers
Perfect
Competition
No
Many
No
Many
Monopolistic
competition
No
Many
No
Many
Oligopoly
Yes
Few
No
Many
Oligopsony
No
Many
Yes
Few
Monopoly
Yes
One
No
Many
Monopsony
No
Many
Yes
One
Characteristics of Capitalism
• 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.”
The Industrial Revolution
• The industrial revolution, which began in
England in the late eighteenth century.
• These new advances changed production
technology dramatically, and in the
process the role of capital shifted to a
central position.
• The textile industry- probably the most
important industrial sector in England at
that time- was greatly affected by this
production technology change.
• The revolution that has made the
development of Britain & USA , as well
other European nations into industrial
societies in 18th century.
• It gave birth to industrial systems. The
revolution that made transformation of
agricultural population into industrial
population.
Industrial change
• Things started to be done with machine
rather than manual labour that enabled the
division of labor.
• A variety of goods started to manufacture
in a large quantity in factories rather than
at home
• Growth of capitalist industries, Created
surplus wealth and owned by capitalist
• Growth of textile industries
Contd.
• Roads and sea transport for easier
transfer of goods even heavier
• Arise the necessity of co-operative efforts
i.e formation of corporations and private
ltd. Company as capital goods become
more expensive
• Britain and other European country
established themselves as not only a
workshop but also the shipper, trader & to
a great extent a banker of the world
Contd.
• The production of coal and iron was
speeded up during this period
• Machines produced much more than what
was necessary for domestic market and
hence arise the necessity of foreign
market for the disposal of the surplus
output
• It led to the international economic
dependence (England exported industrial
goods in exchange of food.)
Contd.
• Production of industrial goods along with
consumer goods started.
• It led to the production of capital at such a
pace that there was a capital glut.
• Industry become big field for investment.
Colonialism
• Colonialism
is
the
establishment,
exploitation, maintenance, acquisition, and
expansion of colony in one territory by a
political power from another territory.
• It is a set of unequal relationships between
the colonial power and the colony and
often between the colonists and the
indigenous population.
• The European colonial period was the era from
the 16th century to the mid-20th century when
several European powers (particularly, but not
exclusively, Portugal, Spain, Britain, the
Netherlands, Russia, and France) established
colonies in Asia, Africa, and the Americas.
• At first the countries followed mercantilist policies
designed to strengthen the home economy at the
expense of rivals, so the colonies were usually
allowed to trade only with the mother country.
• By the mid-19th century, however,
powerful British Empire gave
mercantilism and trade restrictions
introduced the principle of free trade,
few restrictions or tariffs.
the
up
and
with
• Colonialism allowed Britain to monopolize
the markets and raw materials of its
colonies, thereby neutralizing competition.
Economic Benefits from
Colonialism
• As Mill pointed out, the colonization of
resource-rich territories in Africa, Asia,
Latin America, and elsewhere guaranteed
a productive outlet for the use of excess
capital generated in industrial countries.
• In addition, Mill discussed many other
benefits that the colonial power of Western
Europe derived from formal colonization.
• First, the employment of capital in the
colonies helped increase Europe’s profits
by maintaining the productivity level of
capital that remained behind in Europe.
• Second, colonization provided guaranteed
access to raw materials and markets for
Europe’s industries.
• Third, aristocratic consumers in Europe
head come to savor exotic, high-quality
foreign products, for example, silk and
porcelain from China, tea and spices from
India , not to mention gold and diamonds.
• Colonization allowed Europeans ready
access to all these products at minimal
prices.
• Fourth, colonization provided a crucial
safety value releasing an increasing
number of domestic unemployment and
underemployed people for work in the
colonies.
• Finally, colonies became a cheap source
of food products for the colonial powers.
By shipping cheap agricultural products
back home to feed the industrial labor
force, inflation was controlled and wages
could be kept lower.
Mechanisms of the Modern
World Systems
• We can identify several mechanisms of
the modern world system that maintain the
dependency relationship established in a
previous era.
• This
include
international
trade,
multinational corporations, international
labor migration, foreign aid(both economic
and military), and technology transfer.
Multinational Corporations
• Multinational Corporations(MNCs), also
known as transnational corporations, are
interrelated with international trade, foreign
trade, foreign aid, and technology transfer
in many ways.
• In a sense MNCs are a modern version of
the mercantilist trade but the mode of
operation is very different.
• MNCs are primarily private firms and
companies that have legitimately, and with
the consent of host governments,
established branch operations in foreign
countries.
• These companies command vast amounts
of resources in the form of capital,
technology, managerial expertise and
information. Many of these firms are on
the forefront of product innovation,
research, and development.
Functions/Operations of
Multinational Corporations
• Direct foreign investment, and the trade of
goods and services, provide examples of
how multinational firms operate across
national boundaries.
• From the locational perspective of
economic geography, multinationals have
truly internationalized the space economy.
• The fundamental concern in the locational
decision of MNCs is to select a location or
locations that minimize the total cost of
production,
including
the cost
of
transportation, and thus maximize the total
volume of profit.
• In this regard, multinationals provide a
classical example of efficient and effective
locational decision making concerning the
establishment of their activities at the
international scale.
• MNCs often separate the various
operations of the firm locationaly in such a
way that they can take advantages of
inexpensive raw materials, a cheap labor
force and the large markets of the third
world.
• Each firm maintains a global operating
network.
• MNCs
invest
excess
capital
in
underdeveloped countries where this
resource is scare and lobor and raw
materials are readily available.
Economic Benefit from
Multinational Activities
• It enhances accessibility to necessary
production inputs,
• reduces total production costs,
• including the cost of transportation;
enlarges markets;
• and thus increases the margin of profit for
multinational
• MNCs play an important role in the
development process of under developed
countries.
• MNCs make direct investments in these
countries, transfer advanced technologies,
create jobs for their unemployment, and
help them harness natural resources.
• Some MNCs are involved in primary and
extractive activities, such as agriculture,
forestry and mining.
• Others are engaged in manufacturing
activities, such as textiles, apparel,
automobiles or electronics.
• The capital and technology that MNCs
transfer to host countries are very
specialized.
• The increasing expansion of MNCs into
the third world also affects the
employment situation in home countries.