Up through the 1400s, Italian city-states had a big advantage over other European cities. Italians controlled the trade between Asia and Europe. Italian control of the Mediterranean trade and with Asian products ended when the Atlantic countries explored and colonized much of the world, beginning with Columbus discovering America in 1492. Power shifted from the south of Europe to the Atlantic countries. New ways of thinking and acting regarding money led what historians call The Commercial Revolution.
Perhaps most important to the Commercial Revolution was capitalism. Capitalism is an outlook and behavior taken by people who freely make, buy, and sell goods. In capitalism, people take risks in the hopes of improving their financial situation. Money that is earned is called profit. Individuals who earn a profit reinvest for more profit. In capitalism, hard work and risk taking is rewarded. Individuals tend to work harder for themselves because they get to enjoy the benefit of their labor. Bankers are ready to loan people capital in the hopes that they will be repaid with interest. The government’s role in capitalism is to be a sort of umpire, who makes sure that each citizen has a fair chance of competing. Government is not supposed to become an active participant in the affairs of the economy under capitalism.
Generally, material ambition became more accepted in European society. It had once been that all Christians were forbidden to earn interest from loaned money. Some elements in society were against the drive for wealth, as William Shakespeare expresses in his play “The Merchant of Venice,” set in 16th century Europe. Johannes Fugger of Augsburg was the head of a very successful banking family. The Fuggers funded the quest of Spanish King Charles I (1500-1558) to become Holy Roman Emperor Charles V.
New kinds of businesses emerged. The idea of the corporation emerged: a legal entity that had the rights of an individual. A joint-stock company was one where business people could put their money together to raise huge amounts of capital. Each person bought stock in the company and owned a share of it. These large amounts of capital were used to fund large enterprises, take huge risks, and reap or lose great amounts of wealth. Insurance products came into existence that guaranteed business ventures.
Merchants used their money to build new businesses, like manufacturing things. Cloth manufacturing was one such business. In a company that worked as a “domestic system,” weavers were paid to make cloth in their homes. Capitalists paid weavers with wages and raw materials. They then sold the goods in the market for a profit. Over time, they brought the raw materials and workers in one location, called the factory system.
Global trade increased the European standard of living in the 1700s and 1800s. Europeans invested in tobacco and sugar plantations in America and in coffee plantations in Asia. Owners took the profits from these businesses and reinvested them. The standard of living of citizens who lived in countries that followed some practices of capitalism greatly increased, while the standard of living of people who lived in countries that did not adopt capitalism either stagnated or decreased. From the 1500s on, Europeans, though not representing the largest population of the world, enjoyed the fruits of capitalism and rapidly modernized.
- What will happen on November 8th, 2016?
- Why did power shift from Italy to other European countries after 1492?
- What is capitalism?
- What is a corporation?
- What happened to the European standard of living in the 1700s and 1800s?
- Do some research. How do the different political candidates view capitalism?