The World
Economy
Early Modern World
1450-1750 CE
Commercial Revolution
• period of European economic expansion,
colonialism, and mercantilism which lasted
from approximately 1450 until 1650
• Increase in…
– general commerce
– non-manufacturing jobs
– banking, insurance, and investing
• build vast, international trade networks
• New sources of wealth
• New ways to spend wealth
Commercial Revolution
• New Business Methods
– Banking families
– Joint-stock companies
• Increase in Money
– Led to inflation
Mercantilism
• Theory that a state’s power depended on
its wealth
• Mercantilism fueled colonialism under the
belief that a large empire was the key to
wealth
• Sought to export more than importbalance of trade
2 ways to gain wealth/power
1. Extract gold/silver from your (or others who
you have conquered) mines
2. Sell more goods to other countries to get
their gold
- Balance of Trade: difference in value between
imports and exports over time
Problems to Mercantilism
• Not sustainable: inflation
• Not a way to increase wealth or benefits to all
societies
– Zero sum: your benefits/costs come directly from
another
Mercantilism developed as an
economic system based on:
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private property.
the use of markets for basic organization of
economic activity.
a focus on self-interest of the state,
the government exercising control over
production, exchange, and consumption.
the state being preoccupied with
accumulating national wealth in form of gold
and silver.
the best way to acquire gold and silver being
through trade
Why Colonize?
• -Raw Materials for Core Zone
• -Sell manufactured goods in
Dependent Zones
• -Restrict Colonies from developing
manufactured goods
Early Capitalism
– Mercantilism leads to form of early
capitalism
• Private parties offer goods and services
• Own means of production
• Private initiative, rather than initiative of
gov’t
– Impact on Rural Life:
• Improved access to manufactured goods
• Increased opportunities in urban centers
lower population in rural areas
Capitalism
• Adam Smith, The Wealth of Nations
(1776)
– Capitalism would ultimately improve society
as a whole
– Free-market economy
– Prices and wages set by competition
– Controlled by Individual and private
interests
– Laissez-Faire
– “The Invisible Hand” - self-regulating and
self-correcting economy