Chapter 2
The Evolution of Business: Commerce, Occupation, and
Organizations
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Understand the possession of property rights work to control productive resources
are used in society.
Define the system of feudalism, and the issues in combining land and labor to
speed the accumulation of capital.
Appreciate the functions of money in business and how the development of
money promoted the rapid development of capital and enterprise.
Describe the system of mercantilism, and appreciate the role played by merchants,
and bankers in speeding the development in global trade.
Explain the causes of the industrial revolution and the development of capitalism,
unionism, and the class system.
Explain how and why the form of business organization used to manage business
commerce has changed over time.
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• Property rights are the cornerstone of our society’s economics system
• You have the right to buy, own, and sell land and any buildings on that
land
• You may own the mineral rights of that land and may own some of the
air rights above the land
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• Someone once said to “buy land - as they are not making any more”
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• Recall from the previous chapter – the law of demand?
• As demand increases for your land, what is going to happen to the price
of this land?
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• You have the right to own financial assets such as stocks, bonds and
money
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• You own your labor and the right to work freely (for an agreeable wage)
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• You may own rights to a product’s patent or copyright
• Should you be allowed to download copyrighted music for free?
• If so, what incentive it there to produce?
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• These property rights allow you to control the use of productive
resources in business hopefully more effectively and efficiently than
your competitors
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• Business and its related activities began three to six thousand years ago
• Think of the division of labor needed to build the pyramids in Egypt
• Think of the food and water needed for a very valuable resource – labor
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• If not building pyramids or hunting dinosaurs, cooperation was
necessary to accomplish the task
• It took leaders or rulers to plan, organize, and control the tasks among
people
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Feudalism
• Land and other resources were given by a king to the nobility and they
in turn controlled the proletariats or peasants who worked the land for a
hut and a subsistence wage
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Feudalism
• The absence of motivation on the part of the peasants gave rise to
tenant farmers sharing in more of the till and toil of the land
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• English aristocracy provided maximum resources for a small nobility
and subsistence for the majority
• The Industrial Revolution mechanized not only agriculture but society
as a whole
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Mercantilism
• Merchants saw opportunities to trade at a profit
• E-bay.com could be today’s counterpart to Mercantilism as how many
folks are both buying and selling (as an agent for a third party) the same
product online?
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• Mercantilism has evolved into Capitalism today, as private industrialists
produce, trade, and distribute products
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• As our economic system evolved, it became convenient to use a
medium of exchange, such as money, to trade rather than barter with a
good of dissimilar value
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• Not only does money facilitate trade using a common currency for
product price comparison across the land but the exchange process is
more efficient and therefore more profitable
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• The use of money increases occupational specialization (similar to
outsourcing of today) and the wealth that can be generated from labor
and land
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• Craftspeople facilitated the occupational specialization by producing
higher quality goods
• Demand increased the general wealth of a society increased as the
craftspeople prospered
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• Craftspeople formed guilds that operated as monopolies and were able
to regulate the quality and quantity of the goods they made and sold
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The Industrial Revolution
• Increasing change and the growth of capitalism, led to technological
progress and the most significant change in the business system
Innovation
• Advances in technology changed the ways of business
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• Change was pervasive in both farming and manufacturing as the use of
technology could be used more efficiently than labor such as steam
power or interchangeable parts to build sewing machines to
manufacture clothing
Capitalism
• Private ownership of the means of production and distribution (property
rights)
• Its growth was not without its faults as some folks were ruthless and
pursued their own self interest at the expense of others
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• Capitalist factory owners exerted their economic power with greater
demands upon labor
• Declining wages and longer work hours created a proletariat working
class and the workers reacted by forming trade unions
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• The Industrial Revolution and the rise of capitalism contributed to the
creation of a class system based upon wealth and occupation as opposed
to heredity as in aristocracy
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• Given additional education, enterprise and hard work in the future this
system will no longer be illustrated as a triangle but will evolve into a
“ great middle class”
• Illustrated as a diamond with the middle band as the “middle-middle”
class between the upper middle class and lower-middle class
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• As business commerce evolved so did the forms of business
organizations used to increase the productivity and profitability of
productive resources
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• The hierarchy of authority evolved early to reduce the transaction costs
surrounding business activity
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• The joint stock company corporation evolved to make it easier for
enterprising people to borrow capital to pursue new ventures and for
wealthy people to find new ways in which they could build their capital
and increase their wealth
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