In this lesson, we'll discuss the Commercial Revolution sparked by Europe's interaction with the New World colonies. We'll learn about how mercantilism, banking and joint-stock companies transformed the economic face of the European continent.
Introduction to Commercial Revolution
Growing up in the United States' school system, I don't remember being taught much about Europe after the explorers hit the scene. In fact, as soon as good old Chris Columbus and his cronies made shore, Europe almost ceased to exist in our textbooks. When European countries were mentioned, they were usually typecast as the bad guys. Textbooks went from Europeans exploring to England playing the villain in the American Revolution. After that, Europe got little to no mention until the World Wars.
In treating Europe like this, our textbooks completely skipped one of the defining periods of the modern world, known as the Commercial Revolution. For those of you who have no idea what this is, I'm guessing your history classes were a lot like mine! Never fear; today's lesson will catch us up to speed on 16th century Europe during the Commercial Revolution. Now, since it'd be impolite to mention any of our teachers' names, I'll simply invite you to join me as we fill in the gaps left by Mr. Smith, Ms. Jones, Mr. John Deer and Ms. Jane Doe.
For starters, the Commercial Revolution was a period of European economic expansion, which began in the 16th century. The catalyst for this expansion was Europe's discovery and colonization of the Americas. As trade routes grew between the New World colonies and Old World Europe, the European continent was transformed. Although there were many factors that led to this, today we're going to highlight mercantilism, banking and joint-stock companies.
If we all had textbooks, this is where I'd tell you to turn to Chapter 1, entitled Mercantilism. Mercantilism is an economic system used to unify and increase the power and monetary wealth of a country by strict government regulation of trade and foreign trading monopolies. Under this system, colonies existed merely for the benefit of their mother country. Like a young girl forced to fork over her babysitting money to her parents, all wealth accumulated by a colony went to its European parent.
Also under mercantilism, colonies were only allowed to import from or export to the European country that governed them. For instance, if Jamestown, governed by England, wanted to import wool from the Dutch, they could not. Even if the Dutch price was substantially cheaper, Jamestown was stuck buying wool from England. Further hamstringing the Jamestown colonists, all the goods produced by the colonies went to England. England then sold the goods to other countries at a substantial markup, which the crown, not the colonists, kept! In other words, the colonies did the work, while England reaped the profit.
Again, it's like a poor kid squeezing fresh lemons for eight hours, only to have her parents commandeer the lemonade stand! For those of us growing up in the American school system, this ill-treatment of the colonists is a familiar tale. However, we weren't told how the system of mercantilism transformed Europe.
Industry and Population Growth
First, the Commercial Revolution changed Europe from a local economy to a global one. Before the revolution, most goods were produced for family use or to be sold within local towns and villages. Other than a few traveling merchants, there was really no way to peddle goods to a larger population. However, once trade routes blossomed between European countries and their colonies, a whole new market opened up. Realizing there was money to be made, people began producing goods to be sold outside of their small communities. In other words, the incentive for profit replaced simply producing for survival.
These new markets and their high demand for goods led to large businesses replacing individual production of goods. As money poured in from this new global trade, Europe continued to transform. The Commercial Revolution also caused a population explosion. Simply put, as wealth flooded the continent, it allowed for larger families. In turn, these larger families created a work force to sustain and grow Europe's new global economy. Of course, as these new markets opened up, European business owners needed a way to deal with all their money! This brings us to the formation of banks and joint-stock companies.
Banks and Joint-Stock Companies
The Commercial Revolution created the need for more banks within Europe. These banks provided money-lending services to parties interested in getting in on the blossoming trade. They also began issuing bills of exchange. These worked like our modern-day checking accounts. Rather than lugging around piles of gold, banks allowed merchants to deposit their earnings and receive a bill of exchange. Merchants could then turn these documents in when they needed to withdraw their gold. Not only was this more convenient, it was much safer than carrying gold along trade routes.
Along with banks, the Commercial Revolution saw the creation of joint-stock companies. A joint-stock company is a business owned by shareholders. Each shareholder owns a part of the company determined by the amount of their initial investment. Since most individual Europeans didn't have the capital needed to launch large trading ventures, joint-stock companies were used to raise capital for larger projects. This also made starting a business less risky! An excellent example of this was England's East India Company, a joint-stock company that monopolized England's trade with the East Indies. Yes, the investors had to share their profits, but they also got to spread out their losses!
With money flowing and new companies being formed, it seems like the Commercial Revolution was about the greatest thing to ever happen to Europe. Although it did have many positive effects, it also had some negatives. One of these negatives came in the form of inflation. Inflation is an increase in prices accompanied by a fall in the purchasing value of money. Like we've all heard our grandpas say, 'Money just doesn't go as far as it used to!'
As goods were traded in greater quantities, money flowed into the European economy. Since more money was available, industries and merchants began asking higher prices for their goods. In short, inflation soon occurred. For the wealthy merchant class, inflation was a bump in the road; for the poor it was insurmountable.
As inflation took hold, the production levels within Europe became static. With this, salaries were lowered, but the cost of living kept rising. Those who could no longer afford to survive on their own lands, or rented lands, were forced into the cities to find work. Of course, these jobs paid very little, and the gap between the very poor and the very rich widened. Yes, the Commercial Revolution brought great wealth into Europe, but it was not spread evenly among the peoples of the continent.
With this we come to the end of our pretend textbook. For those of you who grew up in history classes like mine, I hope it gave you a better picture of Europe and the Commercial Revolution. Before we say goodbye to its pages, let's do a quick review.
The Commercial Revolution was a period of European economic expansion, which began in the 16th century. The catalyst for this expansion was Europe's discovery and colonization of the Americas. As trade routes grew between the New World colonies and Old World Europe, the European continent was transformed through mercantilism, banking and joint-stock companies.
Under mercantilism, the colonies existed solely for the good of their mother country. As the colonies produced goods, they were only allowed to import and export from their governing European countries. This setup saw great wealth pour into Europe.
This newfound wealth created the need for more banks within Europe. During this time, banks began issuing bills of exchange, which were similar to our modern-day checking accounts. In addition, this newfound wealth led to the creation of many joint-stock companies, or companies owned by stockholders instead of individual entities.
Although the Commercial Revolution brought great wealth to Europe, this wealth was not spread evenly among the continent's people. As more money entered the economy, inflation crippled the poorer classes of Europe.
Upon completing this video, students should be able to:
- Understand what the Commercial Revolution was in Europe
- Recall how mercantilism transformed Europe
- Compare the use of bills of exchange to a checking account of today
- Give an example of a joint-stock company
- Apply knowledge of this period to explain the causes and effects of inflation