Trade, Finance, and State Intervention (10th-18th Centuries)
Innovations in Trade and Finance (10th-18th Centuries)
Trade growth exceeded other economic sectors due to urbanization, state demand, and expansion into Eastern Europe, Russia, and the New World. This led to global economic integration, changing trade composition and location, and increasing capital accumulation opportunities. New business organizations reduced transaction costs, facilitated capital formation, and expanded operations. Developments in payment methods, credit, and banking lowered interest rates.
Business Enterprise Organization
Organizational changes aimed to protect and increase capital, spread risk, and facilitate long-distance trade. Family-dominated companies were common. Joint-stock companies emerged for overseas trade, offering legal personality, risk diversification, and market expansion. Shares became transferable, ensuring capital supply and continuity.
Money Supply
Money supply depended on mineral production and the balance of payments. Precious metal deposits and trade balances determined regional money stock. Increasing money supply lowered interest rates, especially in commercial centers.
Demand for Money
Increased demand for money led to innovations like negotiable bills of exchange, allowing creditors to use them for payments or liquidate them at a discount.
Banking System
The banking system expanded to meet commercial and state needs. Public banks emerged in Mediterranean cities, although restrictions initially hindered their operations in large-scale trade.
The Modern State and Economic Intervention: Mercantilism
State revenue came from colonial expansion, taxes, sale of assets, donations, and monetary manipulation. Expenditures included the military, infrastructure, and bureaucracy. Mercantilism involved state intervention to increase tax revenue through economic improvements.
Major Intervention Areas:
- Administrative unification and market regulation.
- Extension and protection of commercial law.
- Control of precious metal flows to increase liquidity and demand.
- Addressing unemployment through workhouses and poor laws (especially in England), ensuring a labor supply and centralizing surplus redistribution.
Changes in the Industrial Revolution
Economic Change
Sustained income growth and structural changes affecting sectoral composition, production functions, and demand (increased investment and consumption).
Technical and Organizational Change
Introduction of machine innovations in factories, changes in energy use, employment, and materials.
Demographic Change
Population behavior shifts, following different models (ancient, modern, and transitional, with the latter having two phases: initial growth and subsequent slowdown).
Institutional Change and State Action
New order based on liberty, equality, and property. Property rights were crucial for reforms. State action involved removing old obstacles and building institutions to redirect economic agents’ behavior and promote market efficiency.
Social Change
The Industrial Revolution fostered a liberal yet stratified society where individuals were equal before the law. Economic success became the criterion for social standing, laying the groundwork for a class-based society with opportunities for social mobility.