Rise of Modern Capitalism:Chapter 1, Section 2

Humans have created various economic systems. Our economic system is usually referred to as free enterprise, or capitalism. Capitalism is based on

individual economic freedom, and was developed gradually from economic & political changes in

medieval & early modern Europe over 100s of years.

The Commercial Revolution

● Main idea: New ways of doing business developed to raise money to finance trade.

How Capitalism Developed● London grew wealthy as a result of Age of

Exploration (empires and overseas trade)● Growing population needed more goods/services

that were met by new contacts around world● Search for wealth created rise of modern

capitalism, money → business = profit○ Commercial Revolution changed financial/business life to

invest money differently, increase wealth, and reduce risk

Growth of Banking

● In order to trade overseas, merchants needed $$$○ Goods, warehouses, ships, crews○ Only govn’t/rich could afford investment

● Merchants turned to banks to finance ventures○ Medici and Fugger families took deposits, made loans,

transferred $ overseas, and set up various branches around Europe

Changes in Banking

● Jews fleeing persecution settled in port cities and became financiers/investors

● Governments began to charter (support) banks in return for loans○ These new banks accepted deposits, charged interest,

issued banknotes/checks, and exchanged currency between countries

What are Joint-Stock Companies?

● Merchants who wanted to invest in exploration raised money by combining resources in joint-stock companies (shares)○ Enabled large/small investors to share profits, limit losses○ Few actually became rich/powerful (ex: Dutch)

■ Created Dutch East India Company had great power, but gave government customs (taxes)

New Business Class

● More gold/silver = greater supply of coins● Goal of business = make profits● Entrepreneurs combined money, ideas,

materials, labor to make goods/profits used to expand business and ventures○ “Cottage industry” when entrepreneurs employed laborers

who worked from home (cloth etc.)○ Could lose investment too...

1. What risks did merchants face when launching an overseas trading venture? Given these risks, why were they willing to start new businesses?

2. Why do you think Lorenzo de’ Medici thought it important to support the arts, literature, and learning?

3. What was the advantage of investing in a joint-stock company?

Government and Trade

● Main idea: Nations competed to establish colonies in the Americas.

● Govn’ts became closelt involved in trade, believing nation’s power came from wealth/trade○ Portugal, Spain, England, Netherlands (Atlantic coast)○ Italy, no longer the top dog

What is Mercantilism? How did it work?● Europe’s trading nations based policies on

mercantilism, get lots of bullion (gold/silver) have lots of power

● Wanted to gain wealth through trade (unlike Spain’s mining conquistadors)○ Export more than import, more goods out = more gold in

● Mercantilism provided great opportunities to make money, govn’t helped by selling monopolies (free up competition), and setting taxes/tariffs

Quest for Colonies

● Mercantilism increased nation rivalry○ Believed nations should set up colonies overseas to

produce goods to be sent back to their home country, eliminating need to import■ England and Spain both wanted colonies in

Americas for gold, silver, raw materials, and to sell European products

1. How did mercantilism increase the wealth of countries like Spain?

Global Exchange

● Main idea: Exploration and trade led to a worldwide exchange of products, people, and ideas.○ Columbian Exchange - global exchange of people,

goods, technology, ideas, diseases, etc.

Trade in Goods

● Exchanging goods globally, changed the world○ TO Americas FROM Europe: various grains, new animals

(chicken changed diet, horses changed travel)○ FROM Native Americans to Europe: veggies, chocolate

■ Corn fed animals produced more meat/material■ Potatoes fed more people■ Tomatoes changed Italy (Pizza!)■ Milk/sweet chocolate created

Trade Grows

● For the first time Europe/Asia/Africa brought together with the Americas○ Peanuts/chilli peppers moved to Asia/became popular○ American tobacco plant taken to Europe/Asia○ Corn created a population boost○ Asia/Africa sent tropical fruits, coffee/tea, sugarcane, and

luxury goods to Europe

Movement of Peoples and Cultures

● Global trade increased people movement○ Seeking wealth/fleeing economic distress/religious

persecution people left home for new lands■ Bringing food, ideas, practices

● Europe spread languages, religion/values, arts, more goods, weaponry, diseases that killed millions

Beginnings of Slave Trade● Europeans began growing sugarcane in the

Caribbean, enslaved millions of Africans and moved them to work fields

● Spain developed plantation system for tobacco/sugarcane production, using enslaved Native Americans○ Priest Bartolome de Las Casas wanted to replace N.A.

with Africans● Portugal also brought enslaved Africans to Brazil

○ Brutally brought by boat, sold into slavery

1. How did the slave trade come into being?2. What was the Commercial Revolution?3. What were some of the things Europeans

introduced to Native Americans?

For next time...Anton van LeeuwenhoekJohn LockeThomas AquinasMartin LutherCalvin“rule of law”scientific methodMagna Carta