Capitalism and Democracy

Capitalism and Democracy

A Fragile Alliance

New Horizons in Institutional and Evolutionary Economics series

Theo C.M.J. van de Klundert

Capitalism is driven by technological revolutions, leading to alternating periods of regulation and deregulation in leading economies. Technologically backward countries face a different situation as they have to catch up with the leaders. Against this backdrop, Theo van de Klundert examines the relationship between capitalism and democracy, combining economic theory and historical description to analyse long-run economic development. Emphasis is placed on the interrelation between economic and political power, and a robust state-of-the-art overview of today’s political economy is presented.

Chapter 1: Emerging markets

Theo C.M.J. van de Klundert

Subjects: economics and finance, economic psychology, institutional economics, political economy


Markets have been ever-present. However, the dominant role of the market system in the process of production, allocation and distribution of goods started with the (first) Industrial Revolution in England. Karl Polanyi (1944) speaks of the ‘Great Transformation’. Since then, markets have no longer been embedded in social relations. On the contrary, after this radical transformation the market system has determined social relations. Polanyi’s ideas are partly based on anthropological studies. He distinguishes between different forms of what he refers to as economic integration. The latter concerns the way the process of production, allocation and distribution of goods is organized and economic activities are coordinated. Before the (first) Industrial Revolution, economic systems were based on the fundamental principle of either reciprocity or redistribution, or on a combination of these two. Reciprocity or mutuality rests on the exchange of gifts in a symmetric situation. Redistribution presupposes a central authority that coordinates economic activity.

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