The Economics of the Commercial Revolution

Essential Questions How was mercantilism an essential part of European trade and profit? How did trading practices change due to expansion and establishment of colonies? What foundations of capitalism were established by European trading practices?

What do you remember… The trafficking of humans was not new. However, which of the following of the event in the 1490s would effectually change the history of slavery? Trade routes were made available. King Julian from Madagascar assassinated. Discovery of the Americas and the planting of sugarcane. The Catholic church ideas were challenged.

What is this map depicting?

Europeans started to colonize the Americas. What is a colony? Look on page 440 of your book (13.2) and write down the essential elements of a colony. From Dictionary.com: A group of people who leave their native country to form in a new land a settlement subject to, or connected with, the parent nation. Europeans started to colonize the Americas.

Mercantilism Based on the idea that a nation’s power was determined by its wealth (bullion or gold and silver). The accumulation of wealth was equal to a ruler’s power. This appeared in the luxury of their court and size of military.

The Palace of Versailles in France is a great example

Which is the favorable balance? Balance of Trade In order to bring in gold and silver payments, nations needed to have a favorable balance of trade. Which is the favorable balance? Option #1 Exports: 2 million worth Imports: 3 million worth 1 million difference Option #2 Exports: 2 million worth Imports: 1 million worth 1 million difference

Trade with colonies Colonies supposed to supply wealth in either gold and silver or raw materials. Colonies made to buy products from home country, no competition. Why so bad? -Often more expensive -Reason U.S. left

Changing Trade Practices Joint Stock Companies: Ships and journeys are expensive. Great loss if they never made it. Sold stock in trading company to lessen risk to one person, paid profits. Example: Dutch East India Company and today’s corporations. Strengthening Middle Class: Make your money earn more money, don’t just save it. Hard work ethic, drove a hard bargain to maximize profits.

Changing Trade Practices Caused rivalries at sea between countries who established trade monopolies with colonies. Pirates plunder the Caribbean, especially Spanish ships with Aztec gold and silver.

Problems created in Europe’s Economy Middle class has more money and buys more food and goods. Greed takes a hold. Higher population means less food and goods which causes inflation!

The Foundations of Capitalism Trade creates world capitalist economy. Economic system based on private ownership and use of capital (ships, land, etc.). Three major features: 1. Private ownership: Capital belongs to individuals who can do what they want with it = “free-enterprise system.” What is capitalism?

The Foundations of Capitalism 2. Profit Motive: The desire to make a profit. Law of supply and demand. The less of something there is the higher the price. 3. Market Economy: All forms of capital can be assigned a price and bought or sold. Value = supply and demand. Traded in free market = “market economy.”