In the Middle Ages, after the Crusades ended, an era of economic change began in Europe. The Renaissance led to the development of new ideas such as; business, commerce, and trade. European population began to rise steadily in the 1400’s leading to economic growth. The rise of towns, the development of private banking, the advancement of money and economy, and new trade organizations pointed to the end of feudalism. This was the start of a new economic era known as the Commercial Revolution. “Among the features associated with it were a surge of overseas trade, the appearance of the chartered company, acceptance of the principles of mercantilism, the creation of money and economy, increased economic specialization, and the establishment of such new institutions as the state bank, the bourse, and the future market” (Encyclopedia Britannica).
Beginning in the Renaissance, some merchants became very wealthy and a number of the merchant families went into banking. They became very politically dominant due to their growing financial powers and were able to influence economic policies. The merchant banking class replaced the aristocratic land owners as the wealthiest in society. More people left rural areas and agricultural pursuits to go to the cities and towns to work in commercial professions such as; business, trade, and textile production (Willner).
Monarchs supported the growth of towns and trade in the lands they ruled. They wanted to increase their power and wealth. The merchant class supported the power of the monarchy as it suited their interests. This political stability allowed merchants to travel and trade more freely. In the next few centuries, the rise of nation-states in Europe has a positive effect on commerce and trade. By the late 1500’s, the political and military power of Spain and Portugal decreased while the Netherlands, France, and Europe increased. These were the first European nations to prosper from the Commercial Revolution. Trade and markets grew in Europe as well as in other parts of the world. Commercial development increased as technologies improved and the ability to navigate and sail the oceans resulted in the increase in trade. As a result, European merchants and bankers developed economically and expanded global business, commerce, and trade (Willner).
The exploratory voyages and acquisitions of the New World gave Europe a new source of wealth. The Portuguese and Spanish discovered gold and silver mines in their American colonies. In the 1500’s, business and trade grew as huge quantities of gold and silver came out of Spanish and Portuguese American colonies. Additionally, agricultural products, mostly sugar and tobacco, contributed to the rise in business and trade as commercial plantations were instituted. During the 16th century, European nations took every liberty to further their economic development and in 1588, the English defeated the Spanish Armada making it possible for Western European nations to be more involved in trans-Atlantic trade (Willner).
In Western Europe, life did not solely depended on agricultural production anymore. Wealthy bankers emerged and had the economic means to start commercial trade and to finance oversees expeditions. Merchants invested in the trading vessel’s voyages to ensure sufficient funds for the captain to obtain a crew and for trading goods and purchasing supplies. Trading voyages lasted over several years and included buying and selling at ports all around the world. When the ship’s return home, the merchants and bankers who backed them received a return on their investment. It was common for several merchants to back these expeditions as only one merchant would not have enough money to do so and bankers provided loans and credit to the group of merchants (Willner).
By the 1600’s, government-chartered banks started to replace private banking families. New banking service was devised to make trade deals simpler. Bank notes and checks replaced gold and silver coins. They even offered an exchange in foreign currency at a competitive rate. “In general, economic activity greatly increased as banking, business, trade, commerce, and industry flourished” (Willner, 300).
The rise of joint-stock companies was another important economic change. These companies made it possible for merchants to invest in institutions that sold stocks to investors. The risk was then shared by investors and it allowed merchants to put funds into more than one company limiting their losses if one venture failed. Merchant riches increased as joint-stock companies were a stable way of financing trade voyages. Joint-stock companies sought contracts for oversees trading which led to the development of colonial enterprise (Willner).
Money supply was also needed for trade and as other commercial enterprises expanded. Shops that bought and sold goods depended on the funds for survival and individuals needed money for day to day needs. Coins were used for every day purchases, but the use of paper money grew. In the 1500’s the wealth of Spain increased as gold and silver were shipped to the Iberian Peninsula from the New World. Portugal had found gold and diamond deposits which made them wealthy as well. This was important to Spain and Portugal’s’ trade and commerce. They brought most of the bullion to Europe from their mines in the New World. However, as time went on Spain and Portugal were unable to cultivate commerce in the Iberian Peninsula and this effected their economic growth resulting in more imported goods than exported goods. Eventually, the riches of Spain and Portugal found their way to Holland, England, and France. This aided in the development in the commercial and industrial activities there including Western Europe factory production. Overall, the increase in wealth meant that more people had the ability to spend and the economy grew (Willner).
“Spain, Portugal, Holland, France, and England followed an economic policy called mercantilism. Mercantilism was based on the belief that national wealth and power were best served by increasing exports and collecting precious metals in exchange for them (Willner, 305). Taxes on imported goods supplied resources for the government. Mercantilism was created to generate economic independence for the mother country. As trade empires grew, mercantilism beliefs determined economic policies in Western Europe. The monarchs realized that their political capacity depended on controlling the economic wealth in their nation. They believed the most important measure of their nation’s wealth was based on how much bullion they had. Bullion was best acquired through foreign trade and manufacturing. The major trade nations sought to increase their national wealth and their power by encouraging exports and collecting precious metals. Mercantilism also backed the idea that it was more profitable to make and sell finished products rather than market the raw materials. For example, a wool blanket was more profitable than the raw wool itself. Therefore, it was necessary for mercantilist nations to control their trade and govern the economy of their colonies. Furthermore, the major goal of mercantilism was exports being worth more than imports (Willner).
The Commercial Revolution led to important economic changes. These changes in commerce led to the growth of business, trade, economics, and mercantilism in Western European nations. Trade and control of oversees colonies heightened and accelerated economic development, first in Spain and Portugal, and then in the Netherlands, France, and England. The rise of private banking, economy, and chartered trading motivated economic growth. Trade expanded and became secure as markets grew. Commercial development grew through improvements in navigation and vessels. New business approaches such as; joint-stock companies and bank notes raised capital and developed a global economy. Mercantilism became an economic practice. Accordingly, mother countries became economically wealthy as colonies were established in the New World and as a result, Europe became richer (Willner).