8.1: Prelude to Trade Empires

During the Renaissance Era (c. 1400-1700), wealth was measured through land and bullion (precious metals). With limited resources, if one society grew richer, by definition every other society grew poorer. According to this mindset, kingdoms could only increase wealth by seizing more territory, especially territory rich in precious metals. Trade surpluses were to be maintained, thereby ensuring that more bullion was flowing into the economy than was flowing out. Colonies abroad provided raw materials and, hopefully, bullion. As a whole, this concept was called mercantilism: an economic system consisting of a royal government controlling colonies abroad and overseeing landholdings at home. The ultimate example was the biggest owner of colonies that produced bullion: Spain.

Mercantilism worked well enough, but commerce fit awkwardly into its paradigm. Trade was not thought to generate new wealth, since it did not seize wealth from other countries. Trade did not "make" anything, according to the mercantilist outlook. Of all classes of society, bankers were despised by traditional elites, since they profited off of the wealth of others without producing anything.

Attitudes went through significant changes in the 16th and 17th centuries, mostly as a result of the incredible success of overseas corporations, groups that generated enormous wealth outside of the auspices of mercantilist theory. Instead of noblemen, wealthy merchant townsfolk benefited, especially in places like the Dutch Republic. Later, in England, men amassed huge fortunes but did not fit neatly into the existing power structure of landholding nobles, the church, and the common people. These changes inspired an increasingly spirited battle over the rights of property, the idea that not just land but wealth itself was something that the state should protect and encourage to grow.

Early Capitalism

The growth of commercial wealth was closely tied to the growth of overseas empires. The initial wave of European colonization (mostly in the Americas) had been driven by a search for gold and a desire to convert foreigners to Christianity. By the 17th Century, the European powers pursued colonies and trade routes in the name of commodities. Because of the enormous wealth generated from gold, silver, sugar, tobacco, and coffee (as well as luxury commodities like spices), the states of Europe were willing to engage in war constantly, as well as to perpetrate the Atlantic Slave Trade.

The 17th and 18th centuries witnessed the first phase of capitalism: an economic system in which the exchange of commodities for profit generated wealth to be reinvested in the name of still greater profits. In turn, this economic system is dependent on governments that enforce legal systems that protect property and, historically, by wars that try to carve out bigger chunks of the global market from rivals. To reiterate, capitalism was (and remains) a combination of two major economic and political phenomena: enterprises run explicitly for profit and a legal framework to protect and encourage the generation of profit. The political power enjoyed by merchants, the political focus on overseas expansion for profit, and the laws enacted to encourage these processes were new.

A full-screen copy of the Capitalism versus Mercantilism image is found here.

Source: Pediaa.com