The focus of commerce shifted from Mediterranean to Atlantic ports, chartered companies were organized, and continued improvements in navigation and ship construction sped long voyages. As a worldwide trade evolved, the principles of mercantilism were adopted, and local trade barriers were abrogated, stimulating internal commerce. Modern credit facilities also appeared; new institutions included the state bank, the bourse, and the futures market, and the promissory note and other new media of exchange were created. Quickened commercial activity brought economic specialization, thus leading to the transformations in production associated with modern capitalism. By 1700 the stage was set for the Industrial Revolution.
See H. A. Miskimin, The Economy of Early Renaissance Europe, 1300-1460 (1969); J. Gies, Merchants and Moneymen (1972); M. M. Postan, Medieval Trade and Finance (1973); P. Spufford, Power and Profit: The Merchant in Medieval Europe (2003).
A combination of factors drove the Age of Discovery. Among these were geopolitical, monetary, and technological factors. The Europeans involved in the Age of Discovery were mainly from Britain, France, the Netherlands, Spain, and Portugal. During this period (1450-1600s), the European economic center shifted from the Islamic Mediterranean to Western Europe (Portugal, Spain, France, the Netherlands, and to some extent England). This shift was caused by the successful circumnavigation of Africa opening up sea-trade with the east: after Portugal's Vasco Da Gama rounded the Cape of Good Hope and landed in Calicut, India, a new path of eastern trade was possible ending the monopoly of the Ottoman Turks and their European allies, the Italian city-states. Following this, Portugal became the controlling state for trade between east and west, followed later by the Dutch city of Antwerp. Direct maritime trade between Europe and China started in the 16th century, after the Portuguese established the settlement of Goa in India, and shortly thereafter that of Macau in southern China. Since the English came late to the transatlantic trade, their commercial revolution was later as well.
Banks, stock exchanges, and insurance became ways to manage the risk involved in the renewed trade. New laws came into being. Travel became safer as nations developed. Economic theories began to develop in light of all of the new trading activity. The increase in the availability of money led to the emergence of a new economic system, and new problems to go with it. The Commercial Revolution is also marked by the formalization of pre-existing, informal methods of dealing with trade and commerce.
On the other hand, the increase in the availability of silver coin allowed for commerce to expand in numerous ways. Inflation was not all bad.
Various legal and religious developments in the late Middle Ages allowed for development of the modern banking system at the beginning of the 16th century. Interest was allowed to be charged, and profits generated from holding other people's money.
Banks in the Italian Peninsula had great difficulty operating at the end of the 14th century, for lack of silver and gold coin. Nevertheless, by the later 16th century, enough buillion was available that many more people could keep a small amount hoarded and used as capital.
In response to this extra available money, northern European banking interests came along; among them was the Fugger family. The Fuggers were originally mine owners, but soon became involved in banking, charging interest, and other financial activities. They dealt with everyone, from small time individuals, to the highest nobility. Their banks even loaned to the emperors and kings, eventually going bankrupt when their clients defaulted. This family, and other individuals, used Italian methods which outpaced the Hanseatic League's ability to keep up with the changes occurring in northern Europe.
Antwerp had one of the first money exchanges in Europe, a Bourse, where people could change currency. After the Siege of Antwerp (1584-1585), the majority of business transactions were moved to Amsterdam. The Bank of Amsterdam, following the example of a private Stockholm corporation, began issuing paper money to lessen the difficulty of trade, replacing metal (coin and bullion) in exchanges. In 1609 the Amsterdamsche Wisselbank (Amsterdam Exchange Bank) was founded which made Amsterdam the financial center of the world until the Industrial Revolution. In a notable example of crossover between stock companies and banks, the Bank of England, which opened in 1694, was a joint-stock company.
Banking offices were usually located near centers of trade, and in the late 17th century, the largest centers for commerce were the ports of Amsterdam, London, and Hamburg. Individuals could participate in the lucrative East India trade by purchasing bills of credit from these banks, but the price they received for commodities was dependent on the ships returning (which often did not happen on time) and on the cargo they carried (which often was not according to plan). The commodities market was very volatile for this reason, and also because of the many wars that led to cargo seizures and loss of ships.
Other ways of dealing with the risk and expense associated with all of the new trade activity include insurance and joint stock companies which were created as formal institutions. People had been informally sharing risk for hundreds of years, but the formal ways they were now sharing risk was new.
Even though the ruling classes would not often directly assist in trade endeavors, and individuals were unequal to the task, rulers such as Henry VIII of England established a permanent Royal Navy, with the intention of reducing piracy, and protecting English shipping.
Historian Fernand Braudel suggests that in Cairo in the 11th century Muslim and Jewish merchants had already set up every form of trade association and had knowledge of every method of credit and payment, disproving the belief that these were invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. In late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurse, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.
In the middle of the 13th century Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This practice was only possible, because these independent city states were not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.
The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them.
Lloyd's of London came into being in 1688 in English coffee shops that catered to sailors, traders, and others involved in trade. Interestingly, Lloyd's coffeehouse published a newspaper, which gave news from various parts of the world, and helped the underwriters of the insurance at the coffeehouse to determine the risk. This innovation was one of many that allowed for the categorization of risk. Another innovation was the use of ship catalogs and classifications.
Laws were changed to deal with insurance issues, such as l'Ordonnance de la Marine (by Colbert in 1681).
As the economy grew through the Commercial Revolution, so did attempts to understand and influence it. Economic theory as a separate subject of its own came into being as the stresses of the new global order brought about two opposing theories of how a nation accumulates wealth: mercantilistic and free-trade policies. Mercantilism inflamed the growing hostilities between the increasingly-centralized European powers as the accumulation of precious metals by governments was seen as important to the prestige and power of a modern nation. This involvement in accumulating gold and silver (among other things) became important in the development of the nation-state. Governments' involvement in trade had an impact on the nobility of western European nations, because increased wealth by non-nobles threatened the nobility's place in society.
Mercantilism was the theory that trade existed for the good of the state, discouraging imports, and encouraging exports. The idea behind it was an outgrowth of the guild system, as guilds were monopolistic enterprises: they regulated trade within towns by controlling the creation of goods, regulated themselves through their system of apprenticeship, kept outside traders from selling goods in the town, forced outsiders to pay tolls and other types of payments for the privilege of doing business in that town. Laws were passed to enforce this concept, such as the English Navigation Acts, and edicts issued by French Minister of Finance Jean-Baptiste Colbert.
An early critic of mercantilism was Nicholas Barbon.
The English, for their part, used the British East India Company as an agent of the crown, which was expected to govern and protect the people and commerce of the colony. The English also developed a commercial empire in North America, India, and Australia, creating colonies, with the intention of making a profit.
As a result of high demand for tea, silk, and porcelain in Britain and the low demand for British commodities in China, Britain had a large trade deficit with China and had to pay for these goods with silver. Britain began illegally exporting opium to China from British India in the 18th century to counter its deficit. The opium trade took off rapidly, and the flow of silver began to reverse. The Yongzheng Emperor prohibited the sale and smoking of opium in 1729 because of the large number of addicts.
The French followed the English to the New World, and settled Quebec in 1608. They did not populate North America as much as the English did, as they did not allow the Huguenots to travel to the New World. In addition, the heavy governmental regulations placed on trade in France discouraged settlement.
The Portuguese Empire was created through commerce bases in South America, Africa, India, and across southeast Asia.
Because of the massive die-off of the indigenous people, the Atlantic Slave Trade, as part of the Triangular Trade was established to import the labor required for the extraction of resources (such as gold and silver) and farming.
The Commercial Revolution, coupled with other changes in the Early Modern Period, had dramatic effects on the globe. Christopher Columbus and the conquistadors, through their travels, were indirectly responsible for the massive depopulation of South America. They were directly responsible for destroying the civilizations of the Inca, Aztec, and Maya in their quest to build the Spanish Empire. Other Europeans similarly impacted the peoples of North America as well.
An equally important consequence of the Commercial Revolution was the Columbian Exchange. Plants and animals moved throughout the world due to human movements. For example, Yellow fever, previously unknown in North and South America, was imported through water that ships took on in Africa. Cocoa (chocolate), coffee, corn, cassava, and potatoes moved from one hemisphere to the other.
For more than 2000 years, the Mediterranean Sea had been the focus of European trade with other parts of the world. After 1492, this focus shifted to the Atlantic Ocean by routes south around the Cape of Good Hope, and by trans-Atlantic trade.
Another important change was the increase in population. Better food and more wealth allowed for larger families. The migration of peoples from Europe to the Americas allowed for European populations to increase as well. Population growth provided the expanding labor force needed for industrialization.
Another important outcome of Europe's "commercial revolution" was a foundation of wealth needed for the industrial revolution. Economic prosperity financed new forms of cultural expression during this period.
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