World Economic History�

​

Topic 3: Varieties of Capitalism

Altuğ Yalçıntaş, Ankara University, PolEcon

2025/2026 Academic Year

​

Reading assignments (so far)

• 1.1, 1.2, 1.3, 1.5, 1.8, 1.10, 1.11, 1.12, 1.13
• 2.7, 2.8, 2.9, 2.11, 2.12
• Additional readings (and watchings) will be assigned later.

The emergence of capitalism

​

The emergence of capitalism brought two major changes:

• Specialisation
• Technology

Did capitalism cause the upward kink?

• A causal statement is one where we say that change X causes Y to happen.
• Scientists use experiments to test causal statements. This is difficult for economists. We make use of natural experiments.
• A natural experiment is a situation where we use an external event, such as a change in institutions or a natural disaster, to compare the outcomes for economic actors who were affected by this event and those who were not.
• A counterfactual event is what would have happened if there had been no change.

Source: World Bank

Source: World Bank

2008 Financial Crisis

Oil Crisis

Covid Pandemic

Collapse of the Soviet Block

Source: World Bank

Invention of blockchain

Personal computers

Release of ChatGPT3.5

Commercialization of the Internet

The Capitalist Revolution

Capitalism led to growth in living standards because of:

​

• specialization: the growth of firms and the expansion of markets linking the entire world allowed historically unprecedented specialization in tasks and production
• impact on technology: firms competing in markets had strong incentives to adopt and develop new technologies

​

Together with the technological revolution, this increased worker productivity.

Specialisation

The gains from specialization

Specialization increases productivity of labour because we become better at producing things when we each focus on a limited range of activities

• learning by doing
• taking advantage of natural differences in skill and talent
• economies of scale

​

People can only specialize if they have a way to acquire the other goods they need. In a capitalist society, this is done via markets.

Adam Smith (Kirkcaldy, 1723-1790)

1749-1746: U of Oxford, Balliol College

1751: U of Glasgow, Professor Logic and Moral Philosophy

1764: Moves to France to act as a tutor of a French Duke. Meets Quesnay, Voltaire, and Maribau.

1773: Member of Royal Society of London.

1797-1789: Lord Rector, U of Glasgow

​

Adam Smith (Kirkcaldy, 1723-1790)

Division of labour and specialization

​

Why does division of labour exist?

​

• “The propensity to truck, barter, and exchange one thing for another is common to all men, and to be found in no other race of animals” (WN: I: 2: 13)
• “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest” (WN: I: 2: 14).

​

Adam Smith (Kirkcaldy, 1723-1790)

Division of labour and specialization

​

Why does division of labour exist?

​

“Division of labour is limited by the extent

of the market” (WN):

• The larger the markets,
• the larger the efficiency
• the higher the rates of growth

​

Adam Smith (Kirkcaldy, 1723-1790)

Division of labour and specialization

Why does division of labour exist?

​

​

​

​

• Capabilities and skills
• Time saving methods and techniques
• Mechanization

Outcome: Economic growth

Outcome: Capital accumulation

Adam Smith (Kirkcaldy, 1723-1790)

Division of labour and specialization

​

Example: Pin factory

• In a workshop:
• 1 worker 1 day 20 pins
• In a factory:
• 18 workers 1 day 48000 pins
• 1 worker 1 day average: 2666 pins

​

Interchangeable Parts and proto-industrialisation

Capitalism

Capitalism = an economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labour to produce goods and services for sale on markets with the intent of making a profit. The main economic institutions in a capitalist economic system, then, are private property, markets, and firms.

Capitalist institutions

Key Concepts: Private Property & Markets

Private property = something is private property if the person possessing it has the right to exclude others from it, to benefit from the use of it, and to exchange it with others.

John Locke (1632-1704)

Two Treatises on Civil Government (1690)

​

• Natural Property: Property rights in the absence of laws and governments.

​

• The labour theory of value

Enclosure Movement

Key Concepts: Private Property & Markets

Capital goods = the durable and costly non-labour inputs used in production (machinery, buildings) not including some essential inputs, e.g. air, water, knowledge that are used in production at zero cost to the user

Key Concepts: Private Property & Markets

Markets = a way that people exchange goods and services by means of directly reciprocated transfers (unlike gifts), voluntarily entered into for mutual benefit (unlike theft, taxation), that is often impersonal (unlike transfers among friends, family)

What is a market?

• Merchant (en): tradesman
• Mercury: god of commerce
• Market (en, fr, tr…): a place where buyers and sellers meet
• To market (en): “buying cheap, selling dear”
• Marcher (fr): to walk
• Piedi (it): to walk
• Piyasa (tr): “piyasa yapmak” (which has smt to do with walking, too)
• Car (persian): four (4)
• Çarşı: square (which has smt to do with four, too)

Robert L. Heilbroner (1919-2005)

Markets:

• are the public spheres where a number of individuals meet to exchange goods and services
• have existed since the homo sapiens emerged as a specie
• are a necessity of interaction, communication, and cooperation among individuals.

Robert L. Heilbroner (1919-2005)

• Markets vs. market systems

​

“Markets have existed as far back as history goes … Markets, …, are not the same as the market systems. For the market system is not just a means of exchanging goods; it is a mechanism for sustaining and maintaining an entire society” (The Worldly Philosophers, p 26 and 27.)

Robert L. Heilbroner (1919-2005)

​

Market systems:

• are unique forms of society where land, labour, and capital become commodities.
• are what we call “capitalism” or “market societies” today.
• have existed since the Economic Revolution of the 16^th century.
• are contingent events in history of human civilisation.

​

* Attention: Goods vs. commodities

Robert L. Heilbroner (1919-2005)

Markets vs. market societies

​

• Claim (1): non-human species also exchange goods and services; therefore, markets existed before the humans.
• Claim (2): one can be an activist against the market system but one cannot be against markets per se.
• Anti-capitalism vs. agoraphobia

Key Concepts: Firms

• Firms = Economic organizations in which private owners of capital goods hire and direct labour to produce goods and services for sale on markets to make a profit.

​

Key Concepts: Firms

• Other forms of economic organization coexist with firms in a capitalist economic system, but they are not firms:
• Family or individual production (they do not hire others)
• Nonprofit organizations (they do not seek to make profit or sell their output on a market)
• Cooperatives (labour is not hired, work is done by members)
• Government bodies (they do not seek profit; capital goods are not privately owned)

​

Varieties of capitalism

Capitalism is dynamic when:

• Private property is secure
• Markets for firms’ output are competitive
• Firms are not controlled by people because of government connections or privileged by birth
• Markets, private property and firms are all regulated by laws and policies
• There is a well functioning legal system and government provides essential goods and services

​

Political systems

Capitalism coexists with many political systems.

​

A political system determines how governments will be selected, and how those governments will make and implement decisions.

​

In most countries today, capitalism coexists with democracy

• individual rights of citizens (e.g. freedom of speech)
• fair elections

​

But capitalism has coexisted with non-democratic systems, too.

Market power and monopoly

• A firm will be in a strong position if few firms produce close substitutes for its own brand. It faces less competition, and its demand elasticity will be lower.
• We say that such a firm has market power: sufficient bargaining power to set a high price without losing its customers to competitors.
• A monopoly is when there is a single seller of a good.
• Economists use this word to cover a variety of situations in which a good or service is to some extent unique.
• A natural monopoly arises when one firm can produce at lower average costs than two or more firms e.g. electricity, water.

​

Technology

Why technology?

Acemoğlu et al 2026 on the impact of technology on economic development

What is technology?

Technology = The description of a process using a set of materials and other inputs, including the work of people and machines, to produce an output.

​

By reducing the amount of work-time it takes to produce the things we need, technological changes allowed significant increases in living standards.

​

Remarkable scientific and technological advances occurred more or less at the same time as the upward kink in the hockey stick in Britain in the middle of the 18th century.

Modelling technology

There are 5 different ways to produce 100 metres of cloth, using labour (number of workers) and energy (tonnes of coal) as inputs.

​

E-technology is relatively labour-intensive; A-technology is relatively energy-intensive.

Technology = A process that uses inputs to produce an output.

Firm’s choice: minimising cost

Firms aim to maximise their profit, which means producing cloth at the least possible cost.

​

This is why the firms’ choice of technology depends on economic information about relative prices of inputs.

​

Technological change in Industrial Revolution

One of the first sectors to undergo technological change was textiles

• Before the Industrial Revolution, making clothes for the household were time-consuming tasks
• By the late 19th century, a single spinning mule operated by a very small number of people could replace more than 1,000 spinsters
• These machines were powered by water wheels and later coal-powered steam engines instead of using human labour

Spinning mule

Spinster

Technological change in Industrial Revolution

One of the first sectors to undergo technological change was textiles

• Before the Industrial Revolution, making clothes for the household were time-consuming tasks
• By the late 19th century, a single spinning mule operated by a very small number of people could replace more than 1,000 spinsters
• These machines were powered by water wheels and later coal-powered steam engines instead of using human labour

Information technologies (IT) in the twentieth c.

Continuous technological revolution

• Huge number of scientific and technological advances coincided with the upward kink in the hockey stick in Britain in the middle of the 18^th century.
• New technologies emerged in textiles, energy and transportation which themselves became obsolete quite quickly.
• This period of cumulative innovation is called the Industrial Revolution.
• Technology is a process that takes a set of inputs and creates an output.

Industrial (r)evolution(s) and technology

Year

Explaining the Industrial Revolution

Why did the Industrial Revolution happen first in the 18th Century, on an island off the coast of Europe?

​

There are many alternative explanations

• relatively high cost of labour & cheap local sources of energy
• Europe’s scientific revolution and Enlightenment
• political and cultural characteristics of nations as a whole
• cultural attributes such as hard work and savings
• abundance of coal and access to colonies

Explaining the Industrial Revolution

Why did the Industrial Revolution happen first in the 18th Century, on an island off the coast of Europe?

​

There are many alternative explanations

• relatively high cost of labour & cheap local sources of energy
• Europe’s scientific revolution and Enlightenment
• political and cultural characteristics of nations as a whole
• cultural attributes such as hard work and savings
• abundance of coal and access to colonies

Joel Mokyr and the 2025 Nobel Prizes

Source: Robert C. Allen. 2009. The British Industrial Revolution in Global Perspective. Cambridge University Press: p. 53.

Source: Joel Mokyr. 2005. “The Intellectual Origins of Modern Economic Growth” Journal of Economic History 65(2): 285-351.

Source: Joel Mokyr. 2005. “The Intellectual Origins of Modern Economic Growth” Journal of Economic History 65(2): 285-351.

Source: Joel Mokyr. 2005. “The Intellectual Origins of Modern Economic Growth” Journal of Economic History 65(2): 285-351.

Source: Joel Mokyr. 2005. “The Intellectual Origins of Modern Economic Growth” Journal of Economic History 65(2): 285-351.

The Ottoman case

Refer to Ahmet Kuru Chapter 7: the 1800s Ottoman literacy: %1

Timur Kuran. 2011. The Long Divergence (p. 193): “Non-muslims: %20, economically %60”

Refer to Tezel on the power of non-muslims in trade

Change in relative prices in Britain

Technology was labour-intensive before the Industrial Revolution (technology B).

​

Increase in wages relative to price of coal in Britain create the incentive to innovate more capital-intensive technologies (technology A).

Why was Britain first?

English wages were higher than wages elsewhere, and coal was cheaper in Britain than in the other countries in the chart (Fig.2.10)

The Industrial Revolution in Britain

The price of labour relative to energy was very high in Britain for two reasons:

• English wages were higher than wages elsewhere
• Coal was cheaper in coal-rich Britain than in the other countries

​

The Industrial Revolution

For example, today the productivity of labour in producing light is half a million times greater than it was among our ancestors around their campfire.

Industrial Revolution = a wave of technological advances starting in Britain in the 18th century, which transformed an agrarian and craft-based economy into a commercial and industrial economy.

A Connected World

Technological progress also greatly improved the speed at which information travels, making the world more connected.

A timeline (UK)

• The First Industrial Revolution: 1750s (UK)
• The first railways (wooden rails): 1750s
• The first railway lines: 1825, Stockton and Darlington; 1830, Liverpool and Manchester [Europe: 1835, Brussels and Mechelen]
• Steam engines: 1713, Newcomen; 1764, Watt 🡪 mining, ships, trains, and factories
• The first steam locomotive: 1804, Richard Trevithick
• The first telegraph line: 1836, William F. Cooke
• The first transatlantic telegraph line: 1866 (1858 and 1865, failed attempts)

A Timeline (the Ottoman Empire)

• The first telegraph line: 1855, Edirne and İzmir (by the UK)
• The first railway line (Africa): 1856, Cairo and Alexandria (by the UK)
• The first railway line (Anatolia): 1860, İzmir and Aydın (by Germany)

Source: Orhan Hayal. 2024. “Ottomanist Infrastructures: A Path to Colonialist Resource

Extraction or Imperial State Building and Territorial Integrity?” Journal of Humanity, Peace and Justice, 1 (1): 18–36

Gaining market power (1/2)

Firms can increase their market power by:

1. Innovating – Technological innovation can allow firms to differentiate their products from competitors’ e.g. hybrid cars. Firms that invent a completely new product may prevent competition altogether through patents or copyright laws.

Gaining market power (2/2)

Firms can increase their market power by:

2. Advertising – Firms can attract consumers away from competing products and create brand loyalty. Advertising can be more effective than discounts in increasing demand for a brand.

Product vs labour contracts

Product

​

• Permanently transfer ownership of the good from seller to buyer.
• Our interactions with individual sellers or buyers are short-lived and often not repeated.

Labour

​

• Temporarily transfer authority over a person’s activities from the employee to the manager or owner.
• An employment contract typically establishes a long-term relationship that may last years, decades, or even a lifetime.

Separation of ownership and control

• Large corporations usually have many owners. They are individuals and institutions that own the shares issued by the firm. Strategic and operational decisions are left to a relatively small group of specialized managers.
• When managers decide on the use of other people’s funds, this is referred to as the separation of ownership and control.
• The owners receive the profits while the managers receive salaries, so it is not always in the interest of managers to maximize profits.

Largest (international) corporations in history

• The Catholic Church
• …
• East India Company
• …
• Amazon
• …

Sources: stockanalysis.com (November 2024) and worldbank.org (2023) [Accessed: November 2024]

NVIDIA < US, China, Germany, Japan, India, UK

Luxemburg GDP per capita: 135,000 USD

Prices = 0, Revenues and Profits > 0

Sources: stockanalysis.com (November 2024) and worldbank.org (2023) [Accessed: November 2024]

NVIDIA < US, China, Germany, Japan, India, UK

Luxemburg GDP per capita: 135,000 USD

Prices = 0, Revenues and Profits > 0

Did capitalism cause the upward kink?

• A causal statement is one where we say that change X causes Y to happen.
• Scientists use experiments to test causal statements. This is difficult for economists. We make use of natural experiments.
• A natural experiment is a situation where we use an external event, such as a change in institutions or a natural disaster, to compare the outcomes for economic actors who were affected by this event and those who were not.
• A counterfactual event is what would have happened if there had been no change.

Karl Polanyi (1886-1964)

• Austrian-Hungarian economist
• Selected publications:
• The Great Transformation (1944)
• Trade and Market in the Early Empires (1957)
• Conceptions: embeddedness, fictitious commodities, market society, double movement,
• Criticism of Marx
• Christian socialism and liberal socialism

Double Movement

• First movement: Marketization
• Second movement: Social protection

​

“… while laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not” (The Great Transformation, 1944)

Did capitalism cause the upward kink?

Entrepreneurial state

Governments’ role in the emergence of

• mass production’ system, aviation technologies, space technologies, IT, internet, nuclear power, nanotechnology, and more.

Question is: To what extent is the state an entrepreneur - rather than just a regulator - in driving the emergence of technologies like the internet, nanotechnology, and mass production?

Varieties of capitalism

A developmental state is where the government plays a leading role in economic take-off.

Size of government, 1870-2025

Did capitalism cause the downward kink?

In India, colonization reduced living standards because:

• Colonial rulers developed infrastructure for exporting goods, not for the benefit of local producers.
• Colonial rulers established institutions that involved local elites focusing on collecting taxes rather than improving the economy.

​

Colonialism in nature and in society

Colonialism is not only a humanly phenomenon!

Colonialism is a strategy to struggle for survival!

​

• Termites
• Bacteria
• Grasshoppers
• …
• Humans 🡪 imperialism

Source: http://www.iyimiboyle.com/anadolu-ve-osmanlida-cekirge-ve-bocek-istilalari.html

Colonialism and the commonwealths

• Purpose: import gold from Americas, Africa, and Asia

​

​

Source: https://www.britannica.com/summary/Transatlantic-Slave-Trade-Key-Facts [Accessed March 2021]

A world map where countries are scaled according to their geographical sizes

Source: http://www.travelsupermarket.com/travelmap/img/TS_Map_Blue2.png

A world map where countries are scaled according to their sizes of per capital income

Source: http://worldmapper.org/display.php?selected=169

Decoloniality / postcolonialism

Underrepresentation of

​

• Non-Western cultures and ethnicities
• Non-Christian religions and values
• Non-European geographies
• Non-male perspectives
• Non-mainstream explanations

Webpage of the book: https://www.elgaronline.com/edcollbook/book/9781035329649/9781035329649.xml