THE DEVELOPMENT OF A WORLD ECONOMIC SYSTEM (79-104)
A Summary of Immanuel Wallerstein, The Modern World System: Capitalist
Agriculture and the Origins of the European World Economy in the Sixteenth
Century (New York: Academic Press, 1974)
In his book, The Modern World System: Capitalist Agriculture and the Origin
of the European World Economy in the Sixteenth Century, Immanual
Wallerstein develops a theoretical framework to understand the
historical changes involved in the rise of the modern world. The modern world
system, essentially capitalist in nature, followed the crisis of the feudal
system and helps explain the rise of Western Europe to world supremacy between
1450 and 1670. According to Wallerstein, his theory makes possible a
comprehensive understanding of the external and internal manifestations of the
modernization process during this period and makes possible analytically sound
comparisons between different parts of the world.
Before the sixteenth century, when Western Europe embarked on a path of
feudalism dominated West European society. Between 1150-1300, both population
as well as commerce expanded within the confines of the feudal system. However,
from 1300-1450, this expansion ceased, creating a severe economic crisis.
According to Wallerstein, the feudal crisis was probably precipitated by the
interaction of the following factors: 1. Agricultural production fell or
remained stagnant. This meant that the burden of peasant producers increased as
the ruling class expanded. 2. The economic cycle of the feudal economy had
reached its optimum level; afterwards the economy began to shrink. 3. A shift
of climatological conditions decreased agricultural productivity and
contributed to an increase in epidemics within the population.
THE NEW EUROPEAN DIVISION OF LABOR
Wallerstein argues that Europe moved towards the establishment of a capitalist
world economy in order to ensure continued economic growth. However, this
entailed the expansion of the geographical size of the world in question, the
development of different modes of labor control and the creation of relatively
strong state machineries in the states of Western Europe. In response to the
feudal crisis, by the late fifteenth and early sixteenth centuries, the world
economic system emerged. This was the first time that an economic system
encompassed much of the world with links that superseded national or other
political boundaries. The new world economy differed from earlier empire
systems because it was not a single political unit. Empires depended upon a
system of government which, through commercial monopolies combined with the use
of force, directed the flow of economic goods from the periphery to the center.
Empires maintained specific political boundaries, within which they maintained
control through an extensive bureaucracy and a standing army. Only the
techniques of modern capitalism enabled the modern world economy, unlike
earlier attempts, to extend beyond the political boundaries of any one
The new capitalist world system was based on an international division of labor
relationships between different regions as well as the types of labor
conditions within each region. In this model, the type of political system was
also directly related to each region's placement within the world economy. As a
basis for comparison, Wallerstein proposes four different categories, core, semi-periphery, periphery, and external, into
which all regions of the world can be placed. The categories describe each
region's relative position within the world economy as well as certain internal
political and economic characteristics.
The core regions benefited the most from the capitalist world economy. For the
period under discussion, much of northwestern Europe (England, France, Holland)
developed as the first core region. Politically, the states within this part of
Europe developed strong central governments, extensive bureaucracies, and large
mercenary armies. This permitted the local bourgeoisie to obtain control over
international commerce and extract capital surpluses from this trade for their
own benefit. As the rural population expanded, the small but increasing number
of landless wage earners provided labor for farms and manufacturing activities.
The switch from feudal obligations to money rents in the aftermath of the
feudal crisis encouraged the rise of independent or yeoman farmers but squeezed
out many other peasants off the land. These impoverished peasants often moved
to the cities, providing cheap labor essential for the growth in urban
manufacturing. Agricultural productivity increased with the growing
predominance of the commercially-oriented independent farmer, the rise of
pastoralism, and improved farm technology.
On the other end of the scale lay the peripheral zones. These areas lacked
strong central governments or were controlled by other states, exported raw
materials to the core, and relied on coercive labor practices. The core
expropriated much of the capital surplus generated by the periphery through
unequal trade relations. Two areas, Eastern Europe (especially Poland) and
Latin America, exhibited characteristics of peripheral regions. In Poland,
kings lost power to the nobility as the region became a prime exporter of wheat
to the rest of Europe. To gain sufficient cheap and easily controlled labor,
landlords forced rural workers into a "second serfdom" on their commercial
estates. In Latin America, the Spanish and Portuguese conquests destroyed
indigenous authority structures and replaced them with weak bureaucracies under
the control of these European states. Powerful local landlords of Hispanic
origin became aristocratic capitalist farmers. Enslavement of the native
populations, the importation of African slaves, and the coercive labor
practices such as the encomienda and forced mine labor made possible the
export of cheap raw materials to Europe. Labor systems in both peripheral areas
differed from earlier forms in medieval Europe in that they were established to
produce goods for a capitalist world economy and not merely for internal
consumption. Furthermore, the aristocracy both in Eastern Europe and Latin
America grew wealthy from their relationship with the world economy and could
draw on the strength of a central core region to maintain control.
Between the two extremes lie the semi-peripheries. These areas represented
either core regions in
decline or peripheries attempting to improve their relative position in the
world economic system. They often also served as buffers between the core and
the peripheries. As such, semi-peripheries exhibited tensions between the
central government and a strong local landed class. Good examples of declining
cores that became semi-peripheries during the period under study are Portugal
and Spain. Other semi-peripheries at this time were Italy, southern Germany,
and southern France. Economically, these regions retained limited but declining
access to international banking and the production of high-cost high-quality
manufactured goods. Unlike the core, however, they failed to predominate in
international trade and thus did not benefit to the same extent as the core.
With a weak capitalist rural economy, landlords in semi-peripheries resorted to
sharecropping. This lessened the risk of crop failure for landowners, and made
it possible at the same time to enjoy profits from the land as well as the
prestige that went with landownership. According to Wallerstein, the
semi-peripheries were exploited by the core but, as in the case of the American
empires of Spain and Portugal, often were exploiters of peripheries themselves.
Spain, for example, imported silver and gold from its American colonies,
obtained largely through coercive labor practices, but most of this specie went
to paying for manufactured goods from core countries such as England and France
rather than encouraging the formation of a domestic manufacturing sector.
These areas maintained their own economic systems and, for the most part,
managed to remain outside the modern world economy. Russia fits this case well.
Unlike Poland, Russia's wheat served primarily to supply its internal market.
It traded with Asia as well as Europe; internal commerce remained more
important than trade with outside regions. Also, the considerable power of the
Russian state helped regulate the economy and limited foreign commercial
STAGES OF GROWTH
The development of the modern world economy lasted centuries, during which time
different regions changed their relative position within this system.
Wallerstein divides the history of the capitalist world system into four
stages, which for our purposes can be simplified and divided into two basic
Stages 1 and 2: This period follows the rise of the modern world system between
1450-1670. When the Hapsburg Empire failed to convert the emerging world
economy to a world empire, all the existing western European states attempted
to strengthen their respective positions within the new world system. In order
to accomplish this move, most of the states consolidated their internal
political economic and social resources by:
a) Bureaucratization. This process aided the limited but growing power of the
king. By increasing the state power to collect taxes, the kings eventually
increased state power to borrow money and thereby further expand the state
bureaucracy. At the end of this stage, the monarch had become the supreme power
and instituted what has been called "absolute monarchy."
b) Homogenization of the local population. To underline state involvement in
the new capitalist system and encourage the rise of indigenous capitalist
groups, many core states expelled minorities. These independent capitalist
groups, without deep rooted local ties, were perceived as threats to the
development of strong core states. The Jews in England, Spain, and France were
all expelled with the rise of absolute monarchy. Similarly, Protestants, who
were often the merchants in Catholic countries, found they were targets of the
Catholic Church. The Catholic Church, a trans-national institution, found the
development of capitalism and the strengthening of the state threatening.
c) Expansion of the militia to support the centralized monarchy and to protect
the new state from invasions.
d) The concept of absolutism introduced at this time related to the relative
independence of the monarch from previously established laws. This distinction
freed the king from prior feudal laws.
e) Diversification of economic activities to maximize profits and strengthen
the position of the local bourgeoisie.
By 1640, northwestern European states secured their position as core states in
the emerging economy. Spain and northern Italy declined to semi-peripheral
status, while northeastern Europe and Iberian America became peripheral zones.
England gained ground steadily toward core status.
During this period, workers in Europe experienced a dramatic fall in wages.
This wage fall characterized most European centers of capitalism with the
exception of cities in north and central Italy and Flanders. The reason for
this exception was that these cities were relatively older centers of trade,
and the workers formed strong politico-economic groups. The resistance of
workers broke down the ability of employers to accumulate the large surplus
necessary for the advancement of capitalism. Meanwhile, employers in other
parts of Europe profited from the wage lag by accumulating large surpluses for
Long-distance trade with the Americas and the East provided enormous profits,
in excess of 200%-300%, for a small merchant elite. Smaller merchants could
not hope to enter this profiteering without substantial capital and some state
help. Eventually, the profits of the trans-Atlantic trade filtered down and
strengthened the merchants' hold over European agriculture and industries.
Merchants with sufficient power accumulated profits through the purchase of
goods prior to their production. By controlling the costs of finished products,
merchants could extend their profit margin and control the internal markets.
This powerful merchant class provided the capital necessary for the
industrialization of European core states.
Stages 3 and 4 (18th century and beyond): Industrial rather than agricultural
capitalism represented this era. With the shifting emphasis on industrial
production, the following reactions characterized this period.
a) European states participated in active exploration for the exploitation of
b) Competitive world systems such as the Indian Ocean system were absorbed into
the expanding European world system. With the independence of the Latin American countries,
these areas as well as previously isolated zones in the interior of the
American continent entered as peripheral zones in the world economy. Asia and
Africa entered the system in the nineteenth century as peripheral zones.
c) The inclusion of Africa and the Asian continents as peripheral zones
increased the available surplus, allowing other areas such as the U.S. and
Germany to enhance their core status.
d) During this phase, the core regions shifted from a combination of
agricultural and industrial interests to purely industrial concerns. Between
1700, England was Europe's leading industrial producer as well as the leader in
agricultural production. By 1900, only 10% of England's population was engaged
e) By the 1900s, with the shift toward manufacturing, core areas encouraged the
rise of industries in peripheral and semi-peripheral zones so that they could
sell machines to these regions.
The capitalist world economy, as envisioned by Wallerstein, is a dynamic system
which changes over time. However, certain basic features remain in place.
Perhaps most important is that when one examines the dynamics of this system,
the core regions of northwestern Europe clearly benefited the most from this
arrangement. Through extremely high profits gained from international trade and
from an exchange of manufactured goods for raw materials from the periphery
(and, to a lesser extent, from the semi-peripheries), the core enriched itself
at the expense of the peripheral economies. This, of course, did not mean
either that everybody in the periphery became poorer or that all citizens of
the core regions became wealthier as a result. In the periphery, landlords for
example often gained great wealth at the expense of their underpaid coerced
laborers, since landowners were able to expropriate most of the surplus of
their workers for themselves. In turn in the core regions, many of the rural
inhabitants, increasingly landless and forced to work as wage laborers, at
least initially saw a relative decline in their standard of living and in the
security of their income. Overall, certainly, Wallerstein sees the development
of the capitalist world economy as detrimental to a large proportion of the
Through this theory, Wallerstein attempts to explain why modernization had such
wide-ranging and different effects on the world. He shows how political and
economic conditions after the breakdown of feudalism transformed northwestern
Europe into the predominant commercial and political power. The geographic
expansion of the capitalist world economy altered political systems and labor
conditions wherever it was able to penetrate. Although the functioning of the
world economy appears to create increasingly larger disparities between the
various types of economies, the relationship between the core and its periphery
and semi-periphery remains relative, not constant. Technological advantages,
for example, could result in an expansion of the world economy overall, and
precipitate changes in some peripheral or semi-peripheral areas. However,
Wallerstein asserts that an analysis of the history of the capitalist world
system shows that it has brought about a skewed development in which economic
and social disparities between sections of the world economy have increased
rather than provided prosperity for all.