Key Terms – The Commercial Revolution Capitalism Capital Domestic System Joint-Stock Companies Dividends Mercantilism Balance of Trade Tariffs Imports Exports

The Shift With the growth of cities came a need to change the way merchants and traders did business. The older feudal systems were not suitable for the movement of goods and wealth. The shift from the manorial or feudal system to business and trade is known as the Commercial Revolution

The Rise of Capitalism The new economic system that replaced the old feudal systems is known as capitalism. Capitalism → economic system in which money is invested in a specific business and the investor is allowed to manage his business as he sees fit. Capital → money invested in business. Initially, capitalists invested in raw materials and would then hire labor to manufacture the finished product in their homes (domestic system) and then sell the goods at a profit.

Joint-Stock Companies As a means of maximizing profits, capitalists started joint-stock companies → companies in which many investors place their capital within a specific business or venture and then yield larger profits due to larger investments. Once the profits are acquired, they are shared and given in the form of dividends → total profit divided by the number of shares. If the venture failed or had problems, the losses were shared which reduced the risk.

The Middle Class As more and more businesspeople became successful, they formed a new middle class. The Church denounced the new middle class as they were considered profit seekers with poor moral character. Ultimately, the nobles who had already grown to hate the middle class borrowed from them extensively to move away from the manorial system. The middle class became even more important since they paid more taxes and numbered higher than the nobility.

Rise of the Atlantic Powers The rise of colonialism brought countries such as Portugal, Spain, France, England and the Netherlands to new heights of wealth. The colonized were subjected to harsh conditions: disease, enslavement, loss of land and rights were common in the colonies. European colonizing powers became much more dependent on their colonial investments and sought to protect them. Gold and silver flooded Europe and helped increase the amount of money in circulation in Europe. The Italian City-States lost great amounts of wealth during this time as their importance lessened more and more.

Mercantilism Mercantilism → economic system in which colonies were used solely as a source of raw materials which were extracted and then sent back to the colonizing country. Colonizers believed this would help achieve balance of trade → when a country sells more than it purchases. Colonies were not allowed to manufacture goods or sell goods to other countries other than the colonizers.

Imports, Exports and Tariffs Imports → goods bought by a country from another territory Exports → goods sold and sent out to other countries. To protect balance of trade, tariffs were used → tax on imports. Tariffs made goods from other countries more expensive hence making domestic goods significantly more attractive to buy, even if the quality was not equivalent.

Portugal

Spain

Britain

France