9/20/2024

The Capitalist Market Economy

Instructor: dr. Frank van der Wouden

GEOG1012 – 1st semester 2024-2025

Content
1. THE (ECONOMIC) LOGIC OF GLOBAL CAPITALISM
• Modes of production
• Essential character of capitalism
• Linking capitalism & globalization
• Death of geography?

2. THE CHANGING GEOGRAPHY OF CAPITALIST PRODUCTION

• Capitalist production (in space)
• Geography of Production
• Division of labor
• Technical Change
• Changes in ‘organizational form’
• Artisan Production
• Factory Production
• Fordist Mass Production
• Global Production
• Conclusion

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Mode of Production
• The way in which a society is organized
to produce goods and services.

Mode of Production
• The way in which a society is organized
to produce goods and services.

1. Means of production (factories,

machinery, tools, technology & raw
materials)

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Mode of Production
• The way in which a society is organized
to produce goods and services.

1. Means of production (factories,

machinery, tools, technology & raw
materials)

2. Social relations of production

(relationships between different
classes, such as workers & capitalists)

Mode of Production
• The way in which a society is organized to
produce goods and services.

1. Means of production (factories, machinery,

tools, technology & raw materials)

2. Social relations of production (relationships

between different classes, such as workers &
capitalists)

• Shapes the economic structure, social

relations, and even the cultural and political
life of a society

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Mode of Production

•Primitive / Subsistence
•Slavery
•Feudalism
•Capitalism
•Socialism / communism?

Primitive Mode
• When?
• Homo Sapiens ~ 150.000 years BP

• Basic Characteristics
• Production for consumption
• Few tools
• Tribal groups → egalitarian?
• Primitive division of labor:
• Hunters & gatherers

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Primitive Mode
• When?
• Homo Sapiens ~ 150.000 years BP

• Basic Characteristics
• Production for consumption
• Few tools
• Tribal groups → egalitarian?
• Primitive division of labor:
• Hunters & gatherers

• Transitions
• Farming → 7.000 years BP
• Surplus & Settlement → 3.000 years BP

Slave Mode
• When?
• From 5.000 years to 500 – 1.000 years BP

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Slave Mode
• When?
• From 5.000 years to 500 – 1.000 years BP

• Basic Characteristics
• Production for consumption, but some trade
• More tools & increased sophistication
• Power & Class
• Master & Slave
• Distinct division of labor
• Growth through conquest
• Limited productivity gains

Slave Mode
• When?
• From 5.000 years to 500 – 1.000 years BP

• Basic Characteristics
• Production for consumption, but some trade
• More tools & increased sophistication
• Power & Class
• Master & Slave
• Distinct division of labor
• Growth through conquest
• Limited productivity gains

• Transitions
• Implosion, war & stagnation

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Feudalism
• When?
• From 800 to 1300 – 1400

Feudalism
• When?
• From 800 to 1300 – 1400

• Basic Characteristics
• Agricultural production for consumption;
urban production for trade
• Even more tools & increased sophistication
• Class based hierarchy
• Rising division of labor
• Specialization

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Feudalism
• When?
• From 800 to 1300 – 1400

• Basic Characteristics
• Agricultural production for consumption; urban
production for trade
• Even more tools & increased sophistication
• Class based hierarchy
• Rising division of labor
• Specialization

• Transitions
• Improvements in agriculture allows for urban
growth & markets
• Deepening for commodity trade & class relations
• Political change into parliamentary democracy

Proto-Capitalism
Merchant Capitalism
• When?
• From 16th to 18th century

• Basic Characteristics
• Mercantilism – trading to accumulate
wealth

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Proto-Capitalism
Merchant Capitalism
• When?
• From 16th to 18th century

• Basic Characteristics
• Mercantilism – trading to accumulate wealth
• Trading empires: state-sponsored trading
companies (VOC / East Indies Co. & Hudson’s
Bay Co.)
• Growing political support for trade (& free
market in later years)
• Development of private property rights
• Agricultural & technological improvements:
start of industrial revolution

Capitalism
• When?
• About 18th century onward

• Basic Characteristics
• Production for exchange
• Aim of production = profit

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Capitalism
• When?
• About 18th century onward

• Basic Characteristics
• Production for exchange
• Aim of production = profit
• Laborers:
• class of individuals without control over means of
production → wages
• Capitalists:
• class of individuals with control of production

Capitalism
• When?
• About 18th century onward

• Basic Characteristics
• Production for exchange
• Aim of production = profit
• Laborers:
• class of individuals without control over means of
production → wages
• Capitalists:
• class of individuals with control of production

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• Competition between capitalists

• Uncertainty of markets
• Who/what will profit?

• Uncertainty drives innovation

• Better / cheaper products & services

Capitalism & Globalization

• Capitalism is ‘growth oriented’:
• $$$ invested to increase production… in chase for profits ( more $$$$ )

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Capitalism & Globalization

• Capitalism is ‘growth oriented’:
• $$$ invested to increase production… in chase for profits ( more $$$$ )

• Results:
• New products deepening of the
• New technologies market system

Capitalism & Globalization

• Capitalism is ‘growth oriented’:
• $$$ invested to increase production… in chase for profits ( more $$$$ )

• Results:
• New products deepening of the
• New technologies market system

• New markets
• Demand for labor / inputs → locations? widening of the
• Supply (sale) of product → locations? market system

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Capitalism & Globalization

Limits on growth?

• Technological constraints?

• Environmental constraints?

• Political constraints?

Globalization & “the end of geography”?

“Borderlessness” of capitalism

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Globalization & “the end of geography”?

“Borderlessness” of capitalism

•Commodities
•Services
•Resources

Globalization & “the end of geography”?

“Borderlessness” of capitalism

•Commodities
•Services
•Resources
•People?

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Wrap up – part 1
• Mode of Production: useful concept for thinking about the
history of human production

• Capitalism
• Controlled by firm owners in pursuit of profit
• People sell their labor power in return for a wage
• Production for exchange → profit

• Capitalism is a growth-oriented economic system

• Commodification
• Geographical expansion
• Globalization is one form of capitalist production

Wrap up – part 1
• Mode of Production: useful concept for thinking about the
history of human production

• Capitalism
• Controlled by firm owners in pursuit of profit
• People sell their labor power in return for a wage
• Production for exchange → profit

• Capitalism is a growth-oriented economic system

• Commodification
• Geographical expansion
• Globalization is one form of capitalist production

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Capitalist Production in Space

• Production of exchange & aims for profits
• Minimizing costs, maximize revenues or both

Capitalist Production in Space

• Production of exchange & aims for profits
• Minimizing costs, maximize revenues or both

• Costs influenced by supply & demand of inputs at different locations

• Resources (only) available in specific locations
• Availability of kinds of labor (low/high skill) in different locations?
• Access to capital & technology varies over space

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Capitalist Production in Space

• Production of exchange & aims for profits
• Minimizing costs, maximize revenues or both

• Costs influenced by supply & demand of inputs at different locations

• Resources (only) available in specific locations
• Availability of kinds of labor (low/high skill) in different locations?
• Access to capital & technology varies over space

• Revenue influenced by demand for output at different locations

• Incomes of consumers
• Example: Heaters / AC

Capitalist Production in Space

• Production of exchange & aims for profits
• Minimizing costs, maximize revenues or both

• Costs influenced by supply & demand of inputs at different locations

• Resources (only) available in specific locations
• Availability of kinds of labor (low/high skill) in different locations?
• Access to capital & technology varies over space

• Revenue influenced by demand for output at different locations

• Incomes of consumers
• Example: Heaters / AC

• Firms will decide

• What to produce
• How to produce
• Where to produce

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Capitalist Production in Space

• Production of exchange & aims for profits
• Minimizing costs, maximize revenues or both

• Costs influenced by supply & demand of inputs at different locations

• Resources (only) available in specific locations
• Availability of kinds of labor (low/high skill) in different locations?
• Access to capital & technology varies over space

• Revenue influenced by demand for output at different locations

• Incomes of consumers
• Example: Heaters / AC

• Firms will decide

• What to produce At the same time &
• How to produce all influenced by
• Where to produce available technology

Characteristics of Industrial Production

• Labor intensive

• Capital/technology intensive

• Resource intensive

• Transport intensive

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Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high

Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry = clothing

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Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry = clothing
• High-skilled labor-intensive industry = biotech, semi-conductors

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Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry = clothing
• High-skilled labor-intensive industry = biotech, semi-conductors

• Capital/technology intensive
• Capital and/or technology inputs & cost are relatively high

Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry = clothing
• High-skilled labor-intensive industry = biotech, semi-conductors

• Capital/technology intensive
• Capital and/or technology inputs & cost are relatively high
• Example: chemicals industry

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Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry (example: clothing)
• High-skilled labor-intensive industry (example: biotech, semi-conductors)

• Capital/technology intensive
• Capital and/or technology inputs & cost are relatively high
• Example: chemicals industry

• Resource intensive
• Raw material inputs relatively high

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Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry (example: clothing)
• High-skilled labor-intensive industry (example: biotech, semi-conductors)

• Capital/technology intensive
• Capital and/or technology inputs & cost are relatively high
• Example: chemicals industry

• Resource intensive
• Raw material inputs relatively high
• Example: pulp & paper industry, mining

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Characteristics of Industrial Production

• Labor intensive
• Labor inputs & cost relatively high
• Low-skilled labor-intensive industry = clothing
• High-skilled labor-intensive industry = biotech, semi-conductors

• Capital/technology intensive
• Capital and/or technology inputs & cost are relatively high
• Example: chemicals industry

• Resource intensive
• Raw material inputs relatively high
• Example: pulp & paper industry, mining

• Transport intensive
• Transport inputs & costs are relatively high

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Content
1. THE (ECONOMIC) LOGIC OF GLOBAL CAPITALISM
• Modes of production
• Essential character of capitalism
• Linking capitalism, globalization & urbanization
• Death of geography?

2. THE CHANGING GEOGRAPHY OF CAPITALIST PRODUCTION

• Capitalist production (in space)
• Geography of Production
• Division of labor
• Technical Change
• Changes in ‘organizational form’
• Artisan Production
• Factory Production
• Fordist Mass Production
• Global Production
• Conclusions

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Geography of Production

• Firm location is determined by the character of production

Geography of Production

• Firm location is determined by the character of production

– Resource intensive industries
• Close to material resources or in locations where transport costs can be reduced
– Labor intensive industries
• Close to abundant sources of labor (skilled vs. unskilled labor)
– Capital/technology intensive industries
• Close to sources of capital/technology
• Example: high tech industries near sources of venture capital & skilled labor (Silicon Valley)

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Geography of Production

• Firm location is determined by the character of production

– Resource intensive industries
• Close to material resources or in locations where transport costs can be reduced
– Labor intensive industries
• Close to abundant sources of labor (skilled vs. unskilled labor)
– Capital/technology intensive industries
• Close to sources of capital/technology
• Example: high tech industries near sources of venture capital & skilled labor (Silicon Valley)

• Technology & transport costs: changes potential sites of production change.

• Firms seek new products & processes of production – they also seek new locations

Geography of Production

• Firm location is determined by the character of production

– Resource processing industries
• Close to material resources or in locations where transport costs can be reduced
– Labor intensive industries
• Close to abundant sources of labor (skilled vs. unskilled labor)
– Capital/technology intensive industries
• Close to sources of capital/technology
• Example: high tech industries near sources of venture capital & skilled labor (Silicon Valley)

• Technology & transport costs: changes potential sites of production change.

• Firms seek new products & processes of production – they also seek new locations

“All in search of profit”

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Job Growth Increasingly

Driven by Technology

Job Growth Increasingly

Driven by Technology

How does technology

relate to education?

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The division of labor

• The division of labor:

– “The way different kinds of labor are allocated to the production of different commodities and across different
stages of the production process (e.g. design vs assembly)

The division of labor

• The division of labor:

– The way different kinds of labor are allocated to the production of different commodities and across different
stages of the production process (e.g. design vs assembly)

• Spatial division of labor:

– The geographical distribution o f different stages of production and labor processes across various locations

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The division of labor

• The division of labor:

– The way different kinds of labor are allocated to the production of different commodities and across different
stages of the production process (e.g. design vs assembly)

• Spatial division of labor:

– The geographical distribution of different stages of production and labor processes across various locations

• For Adam Smith – economic growth was fueled by the division of labor
– “as economies became larger, so efficiencies in production increase”
– the division of labor depends on the extent of the market

The division of labor

• The division of labor:

– The way different kinds of labor are allocated to the production of different commodities and across different
stages of the production process (e.g. design vs assembly)

• Spatial division of labor:

– The geographical distribution of different stages of production and labor processes across various locations

• For Adam Smith – economic growth was fueled by the division of labor
– “as economies became larger, so efficiencies in production increase”
– the division of labor depends on the extent of the market

• In a global economy, the world is the market → HUGE DIVISIONS OF LABOR

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Technological change

Technological Change: Central Feature of the Capitalist Economy

• Innovation dynamics are an integral part of the capitalist market economy.

– New products
– New processes
– New markets
– New technologies

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Technological Change: Central Feature of the Capitalist Economy

• Innovation dynamics are an integral part of the capitalist market economy.

– New products
– New processes
– New markets
– New technologies

• Remember: Struggles between owners of capital and labor over profits and wages

Technological Change: Central Feature of the Capitalist Economy

• Innovation dynamics are an integral part of the capitalist market economy.

– New products
– New processes
– New markets
– New technologies

• Remember: Struggles between owners of capital and labor over profits and wages

• Competition between firm owners over the allocation of profits

– Main driver of competition & innovation

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Technological Change: Central Feature of the Capitalist Economy

• Competition & innovation: How does this work?

Technological Change: Central Feature of the Capitalist Economy

• Competition & innovation: How does this work?

Schumpeter’s “gales of creative destruction”

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Technological Change: Central Feature of the Capitalist Economy

• Competition & innovation: How does this work?

Schumpeter’s “gales of creative destruction”

• “We’re happily riding our horse & buggy and then along comes the railway”
– What happens to firms making buggies?

Technological Change: Central Feature of the Capitalist Economy

• Competition & innovation: How does this work?

Schumpeter’s “gales of creative destruction”

• “We’re happily riding our horse & buggy and then along comes the railway”
– What happens to firms making buggies?

• Or: What happens to CD manufacturers when the digital storage comes

along?

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Technological Change: Central Feature of the Capitalist Economy

• Competition & innovation: How does this work?

Schumpeter’s “gales of creative destruction”

• Is location of horse & buggy production the same

as railway & auto production?

• Not always → different rounds of growth may occur

in different places

Geographies of creative destruction?

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Geographies of creative destruction?

When
new technologies
appear in
new locations,
what happens to
older sites
of creativity and
production?

Technological Change: Central Feature of the Capitalist Economy

• Where does new technology for creative destruction come from?

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Technological Change: Central Feature of the Capitalist Economy

• Where does new technology for creative destruction come from?

– It does not float down “like manna from heaven”

Technological Change: Central Feature of the Capitalist Economy

• Where does new technology for creative destruction come from?

– It does not float down “like manna from heaven”

– New technology (ideas & knowledge) are like new commodities – they
must be produced in private firms, universities and elsewhere
• What is the role of the government / nation-state here?

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Technological Change: Central Feature of the Capitalist Economy

• Where does new technology for creative destruction come from?

– It does not float down “like manna from heaven”

– New technology (ideas & knowledge) are like new commodities – they
must be produced in private firms, universities and elsewhere
• What is the role of the government / nation-state here?

– New technologies can be bought & sold like regular commodities

• What happens if a company can’t buy a technology?

Technological Change: Central Feature of the Capitalist Economy

• New technologies: potential to dramatically change the nature of production
– What we produce
– How we produce
– Where we produce

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Technological Change: Central Feature of the Capitalist Economy

• New technologies: potential to dramatically change the nature of production
– What we produce
– How we produce
– Where we produce

• Example: new tele-communications technologies → customer service (i.e. help-desks)

→ high labor wages in USA → new firms in India and Philippines etc.

Technological Change: Central Feature of the Capitalist Economy

• New technologies: potential to dramatically change the nature of production
– What we produce
– How we produce
– Where we produce

• Example: new tele-communications technologies → customer service (i.e. help-desks)

→ high labor wages in USA → new firms in India and Philippines etc.

• Industrialized economies (US, Japan, EU and increasingly China) can’t compete by

lowering costs, they must innovate to stay competitive

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Long Waves of Technological Innovation

• Kondratieff cycles – 50 years between peaks and busts
• Each cycle powered by new technology (systems)
• These new technologies fuel economic growth → new jobs
• Recessions: periods of technology exhaustion

Long Waves of Technological Innovation

• Kondratieff cycles – 50 years between peaks and busts
• Each cycle powered by new technology (systems)
• These new technologies fuel economic growth → new jobs
• Recessions: periods of technology exhaustion

• New growth spurred by new radical new technologies:

– 1st wave - Textiles & early industrial machinery
– 2nd wave - Iron & steel, railways, steam-ships
– 3rd wave - Electrical/chemical sectors
– 4th wave - Automobiles
– 5th wave - Information Communication Technologies (ICT)
– 6th wave - Artificial Intelligence?

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Changes in ‘organizational form’

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The Changing Organizational Forms

• Pre-1850: Artisanal production Small scale, primarily local
– High transport costs and technology constraints
– People lived next to factories

The Changing Organizational Forms

• Pre-1850: Artisanal production Small scale, primarily local
– High transport costs and technology constraints
– People lived next to factories

• End of 1800s/Early 1900s: Fordist mass production Large scale, Integrated plants
– Improvements in transport technologies → efficient distribution of products + obtaining materials

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The Changing Organizational Forms

• Pre-1850: Artisanal production Small scale, primarily local
– High transport costs and technology constraints
– People lived next to factories

• End of 1800s/Early 1900s: Fordist mass production Large scale, Integrated plants
– Improvements in transport technologies → efficient distribution of products + obtaining materials

– Mass production concentrated in large plants generating “scale economies” + divisions of labor
• Economies of scale: Benefits that arise from increasing the size of production
• Division of labor: in this case – each worker specific task along assembly line

The Changing Organizational Forms

• Pre-1850: Artisanal production Small scale, primarily local
– High transport costs and technology constraints
– People lived next to factories

• End of 1800s/Early 1900s: Fordist mass production Large scale, Integrated plants
– Improvements in transport technologies → efficient distribution of products + obtaining materials

– Mass production concentrated in large plants generating “scale economies” + divisions of labor
• Economies of scale: Benefits that arise from increasing the size of production
• Division of labor: in this case – each worker specific task along assembly line

– After 1945: Mass production + mass consumption – connecting productivity with wages
• Hugely productive factories generating lots of profits
• Lots of profits allow for high wages
• High wages allow for high consumption

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The Changing Organizational Forms

• 1970s: Breakdown of mass production

– Rising competition (with new technologies)
– Wages increasing faster than productivity

– Technologies reduced cost of moving information

– This allows for separation of production and control
– Decentralization of production → closed circle breaks down…

The Changing Organizational Forms

• 1970s: Breakdown of mass production

– Rising competition (with new technologies)
– Wages increasing faster than productivity

– Technologies reduced cost of moving information

– This allows for separation of production and control
– Decentralization of production → closed circle breaks down…

• Late 20th century: Global capitalism

– New technologies with even lower transport & communication costs
– Leading to further fragmentation of production
– Firm owners seek profit → where in the world? → job losses?
– Globalization and integration across national borders

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• Competition & technological change key

to understanding the organization &
geography of production

• New technologies allowing new forms of

production, organization & new spatial
divisions of labor to be profitable

Conclusions • Capitalism is always mutating

• Is globalization the most efficient way to

organize the geography of capitalist
production and consumption?

• What might follow globalization?

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