Economic and Business History: Merchant Capitalism and Mercantilism

Economic and Business History UFV

20 21 12 21 22A Economic and Business History UFV Year: 1 Subject code: 7111 Prof. Damián Rubianes Universidad Francisco de Vitoria UFV MadridUnit 4: The era of merchant capitalism ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 2UNIT 4 ECONOMY AND MODERN WORLD The era of merchant capitalism (1500-1750)

• 4.1 The transition to the market economy: Mercantilism.
• 4.2 Merchant capitalism.
• 4.3 The crisis in Spain: decline or decadence?
• 4.4 Entrepreneurs and pre-modern companies.
• 4.5 Economic thought in the Modern Age: Francisco de Vitoria and the School of Salamanca, Mercantilism and Physiocracy.

Source: Teaching guide. Universidad Francisco de Vitoria UFV Madrid A CONCISE ECONOMIC HISTORY OF THE WORLD FROM PALEOLITHIC TIMES TO THE PRESENT [ Pdh Edelen Larry Neal | Rondo Cameron OXFORD ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 3UNIT 4 ECONOMY AND MODERN WORLD The era of merchant capitalism (1500-1750)

• 4.1 The transition to the market economy: Mercantilism.
• 4.2 Merchant capitalism.
• 4.3 The crisis in Spain: decline or decadence?
• 4.4 Entrepreneurs and pre-modern companies.
• 4.5 Economic thought in the Modern Age: Francisco de Vitoria and the School of Salamanca, Mercantilism and Physiocracy.

Source: Teaching guide. Universidad Francisco de Vitoria UFV Madrid A CONCISE ECONOMIC HISTORY OF THE WORLD FROM PALEOLITHIC TIMES TO THE PRESENT [ Pdh Edelen Larry Neal | Rondo Cameron OXFORD

Transition to the Market Economy

Spain and Portugal Encircle the Globe

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 4TRANSITION TO THE MARKET ECONOMY SPAIN AND PORTUGAL ENCIRCLE THE GLOBE Both, Portugal and Spain started in the 15th century naval explorations to try to set direct trade settlements and relationships for luxury goods in Asia, to substitute the land routes controlled by Italians.

Portugal's Early Explorations

Portugal In the 1300s, the Genoese, with their Mediterranean orientation, were looking for ways to cut into rival Venice's trade with North Africa.

• The Genoese established commercial and financial relationships with Portugal and began limited joint naval expeditions in the Atlantic, reaching to India (and kept it secret for 100 years) and later, China.
• The Portuguese stablished commercial networks with these regions that could be exploited through harassment, plunder, and taxation.

Universidad Francisco de Vitoria UFV Madrid Portugal Aracria maior PPrabia deferta. Vertidis. Arabia felix .88 Africa. Reģnug nefte More jodinun. Marcathispin prafil rata halis. Mare mag Mare bonæ lgei. NATUGAL - PORTUGUEIE CARAVEL END CAMUF PRINTED ON ALIST, HAWALL Source: "An economic history of the World since 1400", Donald J. Harreld

Spain's Global Trade Network

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 5TRANSITION TO THE MARKET ECONOMY SPAIN AND PORTUGAL ENCIRCLE THE GLOBE Spain In late 15th century, the Genoese mariner Columbus convinced Queen Isabella of Castile to sponsor his trip west to reach Asia. In the Americas, no commercial networks existed for the Spanish to tap into. Yet because the Spanish in the Americas required some kind of compensation for their service, the "encomienda" allowed for the exploitation of indigenous workers to enrich settlers and, by extension, the crown. Not yet a global trade network But by connecting the economies of Europe, America, Africa, and part of Asia and by linking slaves, gold, and spices the Portuguese and the Spanish came closer to creating a global trade network throughout the 16th century, particularly when Spaniards founded Manila (1575), starting continuous trade between America and Asia. Universidad Francisco de Vitoria UFV Madrid Source: "A concise history of Spain", W.D. Phillips and C.R. Phillips.

Netherlands and United Kingdom Join Global Trade

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 6TRANSITION TO THE MARKET ECONOMY THE NETHERLANDS AND THE UNITED KINGDOM JOINED THE PARTY In the 16th century, the Dutch and the English initially followed the Portuguese pattern in Asia, preferring to establish trading forts with an eye toward funnelling commerce through these ports. Later, they settled in North America, starting in New Netherland (eventually, New York). At the same century several and important changes to the institutions of early modern Europe took place:

• The transition to a modern landowner-tenant relationship from the medieval lord-serf relationship.
• The introduction of written laws from the older practice of adhering to customs and traditions.
• Laws increasingly came to define property rights; in fact, the whole concept of private property represented an institutional change.

Universidad Francisco de Vitoria UFV Madrid INTERVIEW GF SIMMOSET WITH THE PILGRIMS. Source: "An economic history of the World since 1400", Donald J. Harreld

New Forms of Organizing Production

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 7TRANSITION TO THE MARKET ECONOMY NEW FORMS OF ORGANIZING PRODUCTION Guilds, their monopolies and their status-based relationships represented a way to organize production that was substituted in the 15th century by new and more efficient institutions:

• In the 16th century, merchants started to meet in open spaces (bourses, exchanges, squares and piazzas) to trade, decide investments, and take shipping and transport decisions. . These places also served for exchange of information and share and manage investment risks.
• The joint-stock company, such as the English (1600) and Dutch (1602) East India Companies, was one of several new organizational forms to emerge after the European Middle Ages.
• Stock exchanges were founded to trade with these and other companies shares. . The Stock Exchange in Amsterdam, Netherlands, was founded in 1602.

Universidad Francisco de Vitoria UFV Madrid Source: "An economic history of the World since 1400", Donald J. Harreld

Colonization and Plantation Labour

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 8TRANSITION TO THE MARKET ECONOMY COLONIZATION AND EUROPEANS' PLANTATION LABOUR PROBLEM The European overseas experience was focused, in general, on control of trade, preferably monopoly control-not necessarily the production of goods. Thus, what Europeans faced, as they struck out across the globe and attempted to exploit various regions, was a problem of labour supply. The first documented case of African slaves being imported into the Americas was in 1505 (to Spanish Caribe). By 1525, the Portuguese were shipping African labour to Brazil to work on the newly established sugar plantations. The Dutch realized that they needed a constant supply of slave labour to make the plantations profitable. Some English and Dutch settlers in the Northern colonies of current USA were farmers and puritan colonists, which did not require a large labour force. However, the southern colonies did. Universidad Francisco de Vitoria UFV Madrid Source: "An economic history of the World since 1400", Donald J. Harreld

Economy and Modern World

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 9UNIT 4 ECONOMY AND MODERN WORLD The era of merchant capitalism (1500-1750)

• 4.1 The transition to the market economy: Mercantilism.
• 4.2 Merchant capitalism.
• 4.3 The crisis in Spain: decline or decadence?
• 4.4 Entrepreneurs and pre-modern companies.
• 4.5 Economic thought in the Modern Age: Francisco de Vitoria and the School of Salamanca, Mercantilism and Physiocracy.

Source: Teaching guide. Universidad Francisco de Vitoria UFV Madrid A CONCISE ECONOMIC HISTORY OF THE WORLD FROM PALEOLITHIC TIMES TO THE PRESENT [ Pdh Edelen Larry Neal | Rondo Cameron OXFORD

Merchant Capitalism

Economic Policies and Mercantilism

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIAN RUBIANES | PG. 10MERCHANT CAPITALISM NOT A FORMALLY STATED ECONOMIC SYSTEM The economic policies of emerging large, centrally governed states in the period of Europe's recovery from the Black Death had a dual purpose:

• to build up economic power to strengthen the state and
• to use the power of the state to promote economic growth and enrich the nation.

Mercantilism is the government-orchestrated promotion of exports and restriction of imports to achieve a favourable trade balance (economic nationalism and protectionism through tariffs). - The stock of gold and silver represented a country's wealth. Theorists of all nations stressed the importance of colonial possessions as an element of national wealth and power. These were some of the notions concerning economic policy that were current in the sixteenth and seventeenth centuries. Universidad Francisco de Vitoria UFV Madrid Sources: Neal, Larry; Cameron, Rondo. "A concise economic history of the World"; "An economic history of the World since 1400", Donald J. Harreld Picture: Seaport at sunset, Claude Lorrain, 1639.

Mercantilist Practices and Criticisms

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIAN RUBIANES | PG. 11MERCHANT CAPITALISM NOT A FORMALLY STATED ECONOMIC SYSTEM Even if colonies did not have gold or silver mines, they might produce goods not available in the mother country that could be used at home or sold abroad, so they could get precious metal through trade.

• The spices of the Indies, the sugar and rum of Brazil and the West Indies, and the tobacco of Virginia served such purposes.

Government intervention came in the form of many regulations. According to Adam Smith, the mercantile system was perverse because it interfered with the "natural liberty" of individuals and resulted in what modern economists call a misallocation of resources. Usually they were not this clearly and simply spelled out, and they never commanded universal adherence, much less constituted a "theory" or "system" to guide the actions of rulers. In actual practice the legislation and other interventions of governments in the economic sphere lacked economic rationale and frequently producing unintended, deleterious results. Low or no taxes on imports of raw materials Government helps home industry grow High taxes on imports of finished products Use of staple ports Mercantilism No use of foreign ships for foreign Trade No exportation of precious metals High taxes on exports of raw materials No taxes on exports of finished goods Colonies banned from trading with other nations Universidad Francisco de Vitoria UFV Madrid Sources: Neal, Larry; Cameron, Rondo. "A concise economic history of the World". ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIAN RUBIANES | PG. 12