As trade flourished and grew, new practices in business were developed, and a
fundamental change in European society took place. This time period is known as
the Commercial Revolution.
Let’s look at the map!
Exploration also helped as new trade routes were discovered.
1- List two new trade routes:
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2- Do you remember the Silk Road? Describe the Silk Road.
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3- Can you name the Western European “nation” that benefitted from Silk
Road trade? (Hint: The Renaissance began in this “country”.)
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4- Look at the map. Which Western European nations can now benefit from
the new trade routes?
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5- How does increased trade benefit a nation?
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6- The Commercial Revolution is the beginning of a global economy. What is a
global economy?
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It takes a lot of money to provide an explorer with ships. It is also important to
remember that just because the ships are provided does not mean that the
journey will be successful. Of course, it is possible that the money will be spent
and the ships will sink! An investor (the person who provided the money) can
never be certain of the outcome.
So, where does all the money for the ships come from?
Yes, it could come from a king or queen. Kings and queens have lots of money.
But it also could come from many individuals. It could come from a
corporation. A corporation is a business owned by many individuals. In a
corporation, each individual owns a part of the business. Stocks are sold
representing partial ownership in the corporation. Some investors own more of
the corporation. Some investors own less. Like a pie, each investor owns a
different slice.
With increased trade and an increased need for money, joint stock companies
(an early model for corporations) were formed. People began to realize that
money could make money. For example, by investing money in ships for an
explorer, an investor could receive a portion of the money made from trade.
Modern capitalism was born.
In capitalism, individuals use capital (money and resources) to hopefully create
more wealth. Think of the ships. By investing in the ships, the investor receives
a portion of the profits from trade. Hopefully, he makes more money than he
invests.
Questions:
1- What do investors do?
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2- What is a stock?
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3- Why do individuals buy stocks?
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4- What is capital?
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5- How can capital create wealth?
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Understanding Capitalism
An early form of capitalism is "mercantilism”. It originated in Rome and the
Middle East. Mercantilism can be defined as the movement of goods (objects) in
order to realize a profit (to make money). Goods are bought at one site for a certain
price and moved to another site and sold at a higher price.
Questions:
1- What is mercantilism?
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2- Where did mercantilism develop?
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3- How does a person make money in mercantilism?
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With the fall of Rome, trade decreased. However, Arabic cultures continued to
trade, living as they did on the trade routes between three great empires: Egypt,
Persia, and later Byzantium. Medieval Europeans learned mercantilism from their
Islamic neighbors, in fact a number of economic words in European languages come
from the Arabic language, such as tariff and traffic.
4- When did trade in Western Europe decrease?
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5- Why did trade continue in the Arabic world?
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6- Who did Medieval Europeans learn about mercantilism from?
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7- What economic words in the English language come from Arabic?
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The voyages of discovery encouraged mercantilism. As time went on in Europe,
mercantilism became capitalism. Capitalism is based on the same principle as
mercantilism: making profits by acquiring goods for lower prices than selling the
goods for higher prices.
8- What events encouraged mercantilism in Western Europe?
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9- How is capitalism similar to mercantilism?
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Of course, there is more to capitalism than just making profits. Capitalists are
people who own the means of production (materials, land, and tools). Workers
(labor) receive wages for their work and consumers buy products.
10- Who are capitalists?
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11- Define labor.
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12- Who are consumers?
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In capitalism, the individual is very important. Individuals are free to buy and sell.
The goal of capitalism is to produce wealth. The goal of nations is to become
wealthier.
Questions:
1- How did the man become rich?
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2- Why did the man invest in health food stocks?
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3- How does the man define himself?
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4- How can buying stocks make a person rich?
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5- Of course, a person could lose the money he invested too. Why would a person
who bought stock lose money?
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Analyze this quote by Adam Smith:
“It is not from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest.”
Explain the meaning of the quote:
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Do you agree with the quote?
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Why?
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