Commerce is the trading of something of economic value such as goods, services, information or money between two or more entities. To better understand how commerce is conducted today, a look at some of the highlights of the history of commerce and it’s influences is helpful.
Hunter Gatherer Societies
The very first human societies were hunter-gatherers, that is, they hunted for and gathered their food. Clothing was obtained in the same way, and shelter was whatever people could find. Basic tools such as clubs and spears allowed humans to hunt. Fire allowed humans to cook food which would otherwise be too difficult to eat, and also to ward off predators. In this society, there were really only three “occupations”: hunters, caregivers and dependents. The hunters were mostly men, and were responsible for providing the food for the society, however some women were also gatherers; picking fruits and berries. Most of the women were caregivers; they looked after the fire and the society in making clothes, cooking, and caring for the dependents. Dependents were almost only children; people who could be neither hunters nor caregivers. Very few people lived to old age to require caring for, and those with disabilities were unfortunately often left to die.
The technological revolution which gave rise to the Agrarian Economy was domestication and farming. Until then, people could not decide what food they consumed, they had to eat whatever they could find. With farming, societies learned to control the types of products they would consume in a much more efficient way. Domesticating animals meant that meat, a food normally very difficult to come by, could now be obtained much more easily. As people no longer needed to roam about, they could afford to invest more resources into their dwellings, and correspondingly, houses became more sophisticated. Farming also brought humans closer together, and with the higher numbers of people, more needed to be organized. A very primitive form of labor division had begun, whereby people specialized in producing one commodity. Whereas before, a hunter was a hunter and a caregiver was a caregiver, now one could afford to grow only wheat, because he could trade it with someone else for meat, and so on. In some of these economies, a system of currency began to develop, however the most widespread method of trade was through barter.
Trade Becomes International
Over 2300 years ago, during the time when the Greeks were dominant on the world stage, Mediterranean cities became trading centers. Alexander the Great founded the city Alexandria in Egypt, for example. Some Mediterranean cities had established themselves as specialists of certain commodities with practitioners of the same craft gathering in those cities. Soon after, Greece was replaced by Rome as the dominant power.
The precise origin of the city of Rome is not clear, however, much has been written about the Roman Empire. Rome began as a trading city with Latin-speaking people. Rome expanded its territories until after 265 BC most of Italy was under Roman leadership. The Romans were able to assimilate the conquered peoples by granting them citizenship. Roman expansion toward Sicily led to a conflict with the city of Carthage in North Africa. Carthage was a large, wealthy trading port. The Punic Wars were a struggle between Rome and Carthage between the years 264 and 146 BC. To the east, Rome fought Macedon, Greece, Asia Minor and the eastern shore of the Mediterranean. The Romans sacked Jerusalem in 63 BC. The empire expanded north into Gaul, to the Rhine and Danube Rivers. Administration of this vast territory became increasingly difficult to manage. Julius Caesar’s Roman victories in the Gallic Wars of 58 to 50 BC pushed the empire’s borders all the way to Europe’s Atlantic seaboard. He started a civil war by leading his troops across the stream called Rubicon. He fought other Roman leaders. Even following Caesar’s assassination, many more civil wars followed. Octavian accepted the title of Augustus and becomes the first Roman Emperor. He ruled from 27 BC to the time of his death in 14 AD. It was during the reign of Augustus that Jesus was born. Under Augustus, Rome at last achieved relative stability and peace. This opened up more opportunities for the arts and architecture to flourish, and it did. The economy of this empire was founded largely on a slave system. Slaves were captives. Some slaves were chained at night and whipped to work during the day. Some slaves were agricultural workers, learned slaves who worked as artisans, secretaries or tutors, and even armed slaves who worked as bodyguards. Eventually, some slaves were paid wages and given property rights. Some slaves later became serfs.
Fall of the Roman Empire
In the second century AD a pestilence spread from Asia to Europe. The Goths, a Germanic-speaking people from Sweden, migrated across Russia to the Black Sea, began to invade the Roman empire. To the Romans, a barbarian was an outsider who didn’t speak Latin. Barbarians were wandering people, seeking lands to settle who were not afraid to plunder and kill. Barbarians herded and wandered so much that it is difficult to establish their original origin for certain. This migration was a result of economic hardship and climate change. The term was most often applied to the Goths and the Vandals. The Vandals were an east Germanic tribe. The Huns rode into Europe from Mongolia. They arrived in Europe in the fourth century AD and settled along the River Danube. From there, their leader Attila launched fifth century attacks on Gaul (modern France) and Italy. Hunnish, Mongolian and Turkish peoples are all related to each other.
The Roman emperor Theodosius was the last emperor to rule over a united empire. After his death the empire was divided into an eastern and western half, corresponding roughly to the division of Greek and Latin languages. Diocletian split the empire in half to form an Eastern Roman Empire and Western Roman Empire. Rome’s western half grew more and more vulnerable to invasion by the barbarian tribes from the north – Vandals, Huns, Visigoths, Ostrogoths and others. The Visigoths sacked Rome in 410 AD. In 476 AD, barbarian invaders removed Romulus Augustus, the last Roman emperor of the West, from his throne.
The Byzantine Empire began as the eastern branch of the Roman Empire. In 324 AD the Roman Emperor Constantine built a new capital city, which he renamed Constantinople (today’s Istanbul) in 330 AD. Istanbul is in Turkey, on the Bosporus, the channel that links the Mediterranean Sea with the Black Sea. The capital of the Byzantine Empire was Constantinople. People in the Byzantine Empire spoke Greek. Constantinople was a thriving civilization that preserved much of the intellectual heritage of antiquity.
The Catholic Church
The Catholic Church credits Peter as the first bishop of Rome. The Church came to be based in Rome, where successive popes have been honored as Peter’s successors. Until the Protestant Reformation, The Roman Catholic Church was known simply as the Church. Before the Emperor Constantine the Great ordered the toleration of Christianity in the fourth century AD, may Roman emperors persecuted Christians. In the fifth century AD the Western Roman Empire fell in 476 AD. The Church however survived and helped to unify Europe. The unifying force, based on the Church, is referred to as Christendom. Constantine poured money into the Church and thus helped the Church to become wealthy.
The Middle Ages refers to a period of European history that is from the 5th century to the 16th century. The fall of the Roman Empire marks the end of Classical Antiquity and the beginning of the Middle Ages. The period referred to as the Dark Ages is from the fall of the Roman Empire to about the year 1000, which is roughly the first half of the Middle Ages. The Byzantine Empire and Eastern Roman Empire are conventional names used to describe the Roman Empire during the Middle Ages. Constantinople, now Istanbul, reached its peak somewhere between the 9th and 11th centuries. At the time it was the largest city in the world with a large marketplace. The East sold silks, spices, dyes and perfumes and the West sold furs, amber, timber and iron. During the Fourth Crusade, in 1204, Constantinople was captured. The fall of Constantinople refers to the capture of the Byzantine Empire’s capital by the Ottoman Empire in 1453. This cemented the status of the Empire as the preeminent power in southeastern Europe and the eastern Mediterranean. During this time, the Ottoman Empire entered a long period of conquest and expansion, extending its borders deep into Europe and North Africa.
Many historians place the medieval period of time as that of the Middle Ages which may be placed between the fall of Rome in 476 AD and the Renaissance (14th century). However, some historians disagree. For example, H. G. Wells places the medieval period from 300 BC to the fall of Rome. The term Middle Ages is applicable to western Europe but not applicable to the rest of the world. Many will place the time of the Roman Empire as distinct and before the Middle Ages. After the Middle Ages there was the Renaissance.
There is some disagreement as to exactly what feudalism is as there is so many variations of it throughout history. Some of the more common European feudal arrangements are discussed here. Feudalism is a hierarchical system where the majority of the labor power is dedicated to producing food; that being the peasants or serfs. A peasant is an agricultural worker who works on a small plot of ground. Serfdom is the socio-economic status of un-free peasants under feudalism. It was a form of slavery developed during the Middle Ages. A proportion of the food produced by the peasant or serf is taken by the lord of the manor, who in return, provides the serfs with land to live on, shelter, and defense against external dangers. It is still an unjust system in that there is a highly wealthy class living next to an extremely poor class, but it was the standard way of life for many people throughout the Middle Ages. Although this system was not dominated by a strong central government, there was a king who ultimately ruled all. A lord was a noble who owned land. A vassal is a person who entered into a mutual obligation with a lord. The lord provides some physical benefit to the vassal, such as the use of land or the right to hunt or fish on that land or some other payment in exchange for allegiance to the lord which would include military service. Fiefs are usually revenue-producing properties that lords gave to their vassals. However, anything of value could be held in fief, such as money or the rights to hunt and fish on the lord’s land. The center of the feudal system in medieval Europe was the king. Until the rise of powerful monarchies with central bureaucracies, it was the lord of the manor who was the real ruler of society.
The Divine Right of Kings
The Divine Right of Kings is a political and religious doctrine of royal absolutism. This doctrine believes in God. It asserts that God has given authority to the the monarch and that the monarch is subject to no earthly authority. The king is thus not subject to the will of his people, the aristocracy, or any other estate of the realm, including the church. The king is believed to be most high, except for God. The implication is that any opposition to the king runs contrary to the will of the God. It is often expressed in the phrase “by the Grace of God”, attached to the titles of a reigning monarch.
During middle period of the Middle Ages, China was more technically advanced and better governed than Europe. Many Europeans began to believe that wealth could be found in trade, particularly trade with China. Chinese fabrics and spices were desired. Marco Polo, from Venice, in the thirteenth century, wrote a book about his travels in China that helped to create interest in what China had to offer. Also, The Crusades, gave some Europeans a sample of what Asia had to offer. The Mongol Empire opened up northern trade routes that helped to bring eastern goods west.
A guild is an association of craftsmen in a particular trade. It is also sometimes called a craft corporation. Guilds were groups of self-employed skilled craftsmen with ownership and control over the materials and tools they needed to produce their goods.
Medieval Guilds – Medieval guilds were designed to provide welfare assistance to their members and to protect the craft as a whole by regulating production and setting standards, possibly even controlling prices and wages. Some became monopolistic, manipulating prices by secret agreements, aiming to protect the guild’s market and to prevent unfair competition.
Merchant Guilds – By the 11th century, merchant guilds came into existence when traveling merchants organized themselves to protect themselves against highway dangers. As local trade became less predominant and international trade more predominant, ancient craft guilds were overshadowed by merchant guilds. Trade routes became more important. Power and profit had shifted somewhat from the producers of the product to the distribution of the product.
Early in the 13th century, Genghis Khan and his Mongols conquered a huge part of Asia stretching from the Pacific Ocean all the way to northeastern Europe above the Black Sea. Genghis Khan was born between 1162 and 1167 AD and he died in 1227 AD. He overran the empire of North China and other East Asian territories. The Mongol Empire helped to clear northern trade routes between East and West. The Vikings were already using these trade routes for centuries. Now, Northern Europeans could take advantage of these routes. Hamburg (on Elbe River) and Lubeck (on Baltic Sea) greatly benefited commercially from these routes. Since there was no reliable, unified, centralized German government, these routes were not safe from thieves. In 1241 AD these two towns formed a hansa. This is an association for mutual protection. Later, it grew into the Hanseatic League.
The Chinese emperor Kublai Khan created the first paper money in the 13th century. Kublai Khan, a Mongol, was the grandson of Genghis Khan. This first paper money was actually a precious metal certificate that could be taken to a government vault and redeemed for gold. These certificates were as good as gold and a lot easier to carry around and trade with. When Marco Polo came back from China, after having worked for the diplomatic service of Kublai Khan, according to the book he wrote called The Travels of Marco Polo, he reported the use of paper money to the Europeans. The idea did not catch on until later. However, this book was one of the most influential contemporary books of its time.
The Hanseatic League was a commercial association of northern German cities that flourished between 1250 and 1500. At one point It had about 70 cities in all, stretching from part of Northern France to Russia. This league was a group of merchant associations that gained control of northern trade. At its height, during the late 14th century, the league included all the important towns on the Baltic shore and along the main rivers of northern Germany. It virtually monopolized trade on the Baltic and North seas, especially in cod and herring, furs, lumber, grain, cloth, and minerals. It linked trade between Germany and Russia and other Baltic countries. It developed maritime and commercial laws. It had it’s own navy that would use force if necessary to ensure it’s continued operation. The last general assembly was held in 1669.
Imperialism is the belief in the desirability of the extension of sovereignty and dominion over other territories, often overseas, to increase a state’s control and power.
Mercantilism is an ideology that dominated post-Feudalism Europe, especially the colonial period. From the 16th to the 18th century, mercantilism influenced European thought. It was heavily based on protectionism, and promoted the acquiring of captive markets. Exports were encouraged. Imports were discouraged. Any export surpluses should be stored as gold with the central government. The focus of mercantilism is on production, not on consumption. The lower classes were encouraged to work to produce goods and services and only consume what was absolutely necessary. This lead to the colonial powers (England, Spain, France and so on) that dominated the world stage for hundreds of years. Mercantilism had its critics, including a Scotsman named Adam Smith.
At the beginning of the 16th century, trade was dominated by the Hanseatic League in the north, by England and the Netherlands in west and by Venice in the south. Venice had been the dominant player in the spice trade for centuries. However, Venice’s agreements with the Arabs and the Ottoman Turks had essentially cut off trade routes. During the 16th century, with the Ottomans blockading sea-lanes to the East and South, the European powers were driven to find another way to the ancient silk and spice routes, now under Ottoman control. For the other merchants, finding a new route to the Far East was necessary to compete. In the 1490’s, the pope gave Portugal and Spain the go-ahead to venture out to the new world of the Americas. Many left in search of gold. For many Europeans the Americas offered the availability of land and work. Religious freedom was another reason that some people left Europe for the Americas.
The Protestant Reformation
During the 16th century Protestant Reformation in Europe, Martin Luther’s (1483 – 1546) ideas changed work values. His Ninety-Five Theses, posted on the doors of the Castle Church in Wittenberg Germany, was a catalyst for the Protestant Reformation. He argued that work was a central component of human life and that in order to serve God, people should take pride in working hard and conscientiously do the best that they could do. He argued that people had a moral obligation to work. The Protestant movement’s idea that each of us was responsible for his or her own salvation was in opposition to the Church’s idea of the necessity of being part of the one true church. Max Weber, in his book The Protestant Ethic and the Spirit of Capitalism, illustrated how Calvinists, a Protestant group that had broken away from mainstream churches, had embraced hard work and rejected worldly pleasures.
The commercial revolution refers to a shift of the commercial center of Europe from the Mediterranean to the Atlantic seaboard. The merchant marine of both the British and Dutch increased so rapidly during the early 1600’s that the balance of power shifted. In 1602 the Dutch amalgamated a number of trading companies directed by their merchants and formed the Dutch East India Company. By the 17th century, the Netherlands had become the wealthiest state per capita in Western Europe. Amsterdam became the financial center of the Western World. In 1600, the English East India Company was formed and later went on to supplant the French and Portuguese in India. Later, the English gained commercial power in China as well. In the Western Hemisphere, the Dutch West India Company was trading sugar, tobacco and furs. The English incorporated the Hudson’s Bay Company in 1670.
Thirty Years War
(1618–1648) Meanwhile, the Thirty Years War was being fought. It was a religious war principally fought in Germany involving many European powers. The conflict was started by the Protestants and Catholics and broke out after the Protestants in Bohemia tried to appoint a Protestant king in place of the Catholic emperor of the Holy Roman Empire. It gradually spread to involve most of Europe and become political.
The Renaissance began in the early 15th century Italy, centered around Italian art. The Renaissance was all about a creative explosion of not just art, but philosophy, religion, literature, architecture, technology, science, music and politics. During the Renaissance, new thinking emerged that said a person should strive to be all that you can be. People were encouraged to be the best that they could in more than one discipline. The Renaissance gradually spread from Italy to to all of Europe through the 14th and 16th centuries. People became very wealthy and many people became much more wealthy than their families were. International trade had opened up and many Europeans could afford foreign luxuries.
Humanism The concept of Humanism made it not just acceptable but virtuous to pursue individual human achievement and to push the boundaries of human potential. According to Humanism, it is up to humans to find the truth, as opposed to seeking it through revelation, mysticism, tradition, or anything else that is incompatible with the application of logic to the observable evidence. This view of human beings as creators led to the belief that work should be a fulfilling and liberating activity.
Latin During the Renaissance, more and more writers began writing in common languages such as English, French and Italian. Ordinary people could understand the common (vernacular) languages, but not Latin. Latin faded away along with the old prejudice that people who were formally educated should not be writing in the vernacular.
Bubonic Plague The bubonic plague, also known as the Black Death or Black Plague, was a devastating epidemic that was carried in the fleas of rats. When a rat died, the fleas jumped to another rat or to a human if another rat was unavailable. The bubonic plague was so devastating that it changed the makeup of the population. Fewer people were available to work and as a result worker’s wages rose. Now there was a middle class, not just a rich and poor class.
Greek Philosophy Ancient Greeks coined the term philosophy. Philosophy however was something practiced by people long before the Greeks coined the term. For example, the Indian philosopher Ajita of the Hair Blanket said that the world consisted of four elements: earth, air, fire and water. The Renaissance borrowed much of its inspiration from these ancient philosophers.
Renaissance thinking provided encouragement for the scientific revolution which really accelerated after the year 1600. Scientific and engineering inventiveness can be traced back to ancient Greek philosophers who asked questions about the nature of the world and how it worked. The scientific revolution paved the way for the Industrial Revolution which followed. Francis Bacon (1561 to 1626) promoted the concept of induction. With induction, you could work from observed or demonstrated specifics to a general principal. Bacon asserted that nature could be both understood and to some extent controlled. There were many inventions and discoveries during this period of time, some of which are mentioned below.
Some Important Scientific Advancements
Galileo Galileo (1564 to 1642) used the telescope to view heavenly visions that were never seen before. He saw that Copernicus’ earlier ideas were true.
Thomas Savery, in about 1700, built a practical steam pump.
Thomas Newcomen (1663 to 1729) invented the atmospheric steam engine that used the force of atmospheric pressure to do the work. In 1712, Thomas Newcomen together with John Calley built their first engine on top of a water filled mine shaft and used it to pump water out of the mine.
Jethro Tull (1674 to 1741) invented the seed drill which allowed crops to be planted more quickly and in neat rows that could be more easily weeded. Crop production increased as a result of his invention.
Robert Bakewell (1725 to 1795) introduced the scientific breeding of cattle and sheep.
James Hargreaves (d.1778) in the second half of the 18th century built a machine that put several spindles on to a frame to spin several threads at once. This expanded production well beyond that of the spinning wheel. He called it the spinning jenny.
James Watt (1736 to 1819) in 1769 patented a more efficient steam engine that was fine tuned by 1970, allowing for even more efficient production.
Eli Whitney (1765 to 1825) invented the cotton gin.
Samuel F.B. Morse (1791 to 1872), in 1836, invented the telegraph.
Cyrus McCormick (1809 to 1884) patented the reaper. The combine, a harvesting machine that threshed the grain as it was reaped was developed later in the nineteenth century.
Henry Bessemer (1813 to 1898), in 1856 developed the Bessemer converter, the first efficient method of the mass production of steel.
Rudolf Diesel (1858 to 1913), in 1892, patented an engine that burned oil directly in its cylinders to produce power instead of using it to make steam. Diesel engines were far more efficient than coal-burning steam engines.
Gottlieb Daimler (1834 to 1900) used a gasoline motor to power a bicycle, creating the first motorcycle.
Alexander Graham Bell (1847 to 1922) invented the telephone and the Bell Telephone Co. was founded the following year.
Thomas Edison (1847 to 1931) developed the first successful incandescent light bulb in 1879. In 1882 he developed a plan for construction of central electric power stations. The major urban centers of America and Europe soon became electrified and electric light replaced gas lighting and kerosene. Kerosene was used in kerosene lamps and today the most common type of jet fuel is based on kerosene.
Wilbur and Orville Wright, in 1903, made the first successful flights in an airplane.
The Enlightenment, or the Age of Enlightenment, or The Age of Reason, is a phase in Western philosophy and cultural life in which empiricism was the philosophical focus. It was the dominant intellectual movement of the 18th century. The Scientific Revolution had demonstrated the ability of humankind to reveal some of the secrets of the physical universe. The discovery of natural physical laws encouraged thinkers of the time to explore the existence of laws that might help to reveal the secrets of the human being and society. They were generally critical of existing institutions, such as the Church and the absolute monarchy. They promoted the concept of individual freedom. John Locke (1632 to 1704), a medical doctor and philosopher introduced empiricism in his 1689 Essay Concerning Human Understanding. Empiricism is a philosophy based in part on the idea that knowledge is based on experience, derived from the senses. He argued that at birth, each person’s mind was a blank page and that all knowledge comes from experience. He argued that the authority of government comes from the governed. He argued that if the government was not serving the needs of society as the people saw fit, the people have the right to rebel against the government. John Locke’s ideas conflicted with the notion of the divine right of kings and that conflict eventually led to political upheaval. For example, Locke’s ideas of natural rights of the people influenced those who led the American Revolution and ultimately Thomas Jefferson, who wrote the American Declaration of Independence. Voltaire (1694 to 1778), through his writings and plays helped to popularize the ideas of the Enlightenment. Jean-Jacques Rousseau (1712 to 1778) rebelled against the restrictions of the Calvinist ways of thought and urged government and educational reforms. He promoted the ideas of individual freedom. He did however recognize the necessity of governmental restrictions and stressed the importance of the individual’s part of a collective society and the creation of a collective will of the people. Baron de Montesquieu (1689 to 1755) did not believe in any single ideal political system. He advocated for a separation of political powers between executive, legislative and judicial branches of the government. Voltaire, Rousseau, Montesquieu and many others contributed to the Encyclopedia, a collection of knowledge and a means of spreading new ideas.
Rationalism is a theory that is based on the idea that you could use reasoning in the process of seeking the truth, rather than experience. The theory states that one could use deductive reasoning to acquire knowledge. Varying degrees of emphasis is put on this theory by those who advocate it. Some may say that rationalism is the only path to truth, while other say it is the primary route. Rationalism is often contrasted with empiricism.
The Industrial Revolution marks a time when for the first time many people began to stop making things by hand and start to work on assembly lines in factories mass producing products using power-driven machines. It began in the 18th century and changed the world as few things had done before. Technical know-how, sufficient capital, the availability of raw materials, the possibility of transporting them and finished products cheaply-these and other prerequisites for industrial advancement. Three main things that brought about the Industrial Revolution were the invention of machines to do work, the use of steam and other forms of power and the adoption of the factory system. This set off an unprecedented and rapid increase in the production of goods. By 1750 large quantities of goods were being traded between the European nations.
Prerequisites of the Industrial Revolution
In order for there to be such a change in the way goods were produced during the Industrial Revolution, there were several things that needed to be already in place. Money and letters of credit were already in use and being traded between countries. Technologies such as the windmill, gun powder and cast iron had already been around for hundreds of years before the Industrial Revolution. Also, the ability to construct large buildings had been around for thousands of years. When the steam engine became efficient, it became possible to locate factories away from local streams or rivers. Early factory’s main source of power were wheels turned by water. Factories could now be located in more convenient places. The coal and iron industries were the first significant users of the steam engine. Both industries, by 1720, had started using steam engines to pump water. Coal mines pumped water out of the shafts and the iron industry pumped water to create draft in the blast furnaces. Many other inventions accelerated the Industrial Revolution.
In the late 18th and early 19th centuries, as an outgrowth of the Industrial Revolution, labor unions originated in Britain and the United States as associations of workers with the same skills. Started partly as social clubs, they developed into protest movements against the prevailing social and political system. Today, some unions strive simply to determine wages, hours, working conditions, and job security for their members, achieving this either by collective bargaining or by resorting to strikes.
By the early 18th century the English ruled Great Britain, having united all of the British isles and established important colonies and outposts around the world. Britain had a reliable source of coal and a superior banking system. Previously banned trade unions were legalized. British workers were paid for piecework. British universities were well established. By the 19th century they controlled the world’s largest empire and were the first nation to industrialize. The use of machines and the mastery of certain industrial processes gave the country economic leverage over competitors.
When new weaving methods made possible the production of cotton goods by machine, the demand for raw cotton increased. But so much time was needed to process it by hand that supply could not keep up with demand. The U.S. cotton crop grew at a furious pace after Eli Whitney, in 1793, invented the cotton gin. From the 17th to the 19th century, millions of Africans were sold into slavery by the Americas. Many of these Africans worked on the cotton fields.
The Industrial Revolution helped create a system of large factories in the hands of the wealthy. Only the rich could afford expensive machines, whose size and weight demanded that they be installed in permanent, well-constructed buildings. These were built where energy was readily available and where raw materials could be delivered at low cost. So businesses tended to concentrate in huge industrial centers. These social changes that resulted from the Industrial Revolution more clearly defined the rich and poor. This helped in the creation of a way of thinking that helped in the creation of a new field of study called economics.
The Stock Market
Many new businesses were started in the 17th century and after by combining the wealth of several investors to form a company that issued stock. As this form of business became increasingly popular, stockbrokers began to appear and make stock trade arrangements. The London Stock Exchange was formed in 1773. Many years before that a stock exchange was opened in Amsterdam and Antwerp. A financial system was in place to concentrate wealth. This concentration of wealth was necessary to build large factories and purchase expensive machinery that allowed companies to produce larger volumes of goods at a cheaper cost per unit than before. This increase of output combined with a decrease in average costs is called economies of scale.
Shortcomings of Capitalism
Three shortcomings of capitalism are: business cycles, environmental destruction and extreme uneven distribution of wealth. Economic growth under capitalism is unreliable. Its instability periodically causes economic ups and downs, business booms and business depressions. The Great Depression of the 1930’s is an example of this. A second weakness is that while producing goods, capitalism often produces bad side effects – smoke, toxic wastes, or unhealthy working conditions. The Industrial Revolution made this all too apparent. Other more modern problems include the rapid destruction of rainforests and other ecosystems and the so-called global warming problem. A third drawback is that capitalism does not ensure fair distribution of wealth or products. An analysis of the distribution of wealth in many countries will attest to that. Economists use the Gini coefficient to gain some insight into the uneven distribution of wealth. The problem lies in the cases of extreme uneven distribution, not just that wealth is unevenly distributed. When people are dealing with the ups and downs of the economy, the environmental problems that affect physical health and living conditions and the uneven distribution of wealth, its no surprise that some people also suffer emotional, social and spiritual problems.
In the late 1700’s, legend has it that a laborer Ned Ludd destroyed some machinery that was used to make stockings. Ludd blamed the machinery for putting local hand-knitters out of work. Even today, people who blame or fear technology have been called Luddites.
In a socialist economy, the government controls key industries such as transportation, communications, banking, steel, utilities and natural resources. Private ownership of businesses that are not in key industries is permitted to a limited extent. Socialist countries place a high priority on achieving an equitable distribution of income and providing a high level of medical and social services.
(1818 to 1883) Karl Marx condemned capitalism, calling for its replacement by a controlled or centrally planned economy. He and his supporters advocated that the government should set production goals, regulate prices, and manage business largely to the exclusion of the individual’s want and needs. Yet today, after decades of trial in the Soviet Union and Eastern Europe, this system has lost its appeal. Central planning works best when crash planning is required, such as in fighting wars or in developing space programs. In the daily consumer market, it falls short. He is credited as the founder of communism.
When the principles of the command economy (centrally planned economy) and free enterprise are combined, you have an economy that is mixed. Mixed economies have capitalism and some form of government intervention. The government intervenes in an attempt to smooth out the worst features and inequities of the economy to create a mixed economy. Canada, the United States and the European Union have mixed economies. Even in these three examples of mixed economies we have may examples of the effects of the shortcomings of capitalism.
Second Industrial Revolution
The technological changes during the Industrial Revolution were so wide spread that some have called the period after 1870 the Second Industrial Revolution. New discoveries in the fields of chemistry and physics benefited the steel, chemical and petroleum industries. New discoveries in electricity and magnetism were applied to create an electrical industry. The age of electricity began in 1882 when Thomas Edison introduced a system of electric lighting in New York City, USA. Electricity later drove machinery, trains and streetcars. Large multinational companies such as Westinghouse and General Electric began to sell their products worldwide. Electricity greatly helped communication over large distances as the telegraph was invented in 1844 and the telephone was patented by Alexander Graham Bell in 1876. More efficient machines were developed and more products could be produced in less time. For example, in 1913, Henry Ford introduced the assembly line in his car manufacturing plant.
Alvin Toffler wrote The Third Wave in 1980. The third wave is characterized by mass customization rather than mass production. Third wave manufacturing is characterized by short runs of partially or completely customized products. The Second Wave is characterized by long runs of millions of identical products. The Industrial Revolution produced the second wave. The First Wave is the phase of agriculture.
Technology, economics and business management advances have transformed our world. We live in a world much different from even a few hundred years ago. Many other factors have also played a role. Politics, wars, religion and law have also shaped the landscape of the world. An effective business owner today will keep their eye on global events and business trends and make appropriate changes to how they run their businesses.
What are some of the most important trends? Increasing globalization has created much larger markets and has increased competition. Scientific advancements are creating new products and industries. For example, improvements in electronics and batteries has created entrepreneurial opportunities that have resulted in new mobile phone and PDA products. Productivity will continue to increase as more information becomes available. Information is becoming more available more quickly and at less cost than ever before. Information-dependent industries, such as banking, finance, media and retail stand to benefit the most.
From a business perspective, technology is an important input and tool of business value creation. It includes knowledge, work methods, physical equipment, electronics, telecommunication and other systems. Technology is the application of science that enables people to do new things or perform tasks in new and more efficient ways. The innovation process includes research and development (R&D). Pure R&D involves improving knowledge without being focused on an application of the knowledge in the marketplace, such as working in a laboratory experimenting on chemical compounds. Applied R&D focuses on developing new knowledge for the purpose of applying it in the marketplace, Technology transfer is the process of getting new technology out of the lab and into the marketplace. Process technologies are used to improve performance of internal operations such as production, assembly, accounting, advertising materials management and so on. It includes enterprise resource planning (ERP), for example.