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Commercial Revolution - Download as PowerPoint


									Commercial Revolution
   Objective: Compare and Contrast investment during the
    commercial revolution and the practices that led to the
    2008 financial crisis
   Compare and Contrast the feudal economic system to the
    one that arose out of the commercial revolution
   Define Capitalism

   FOCUS: What is Capitalism?
      Capitalism=Market System
   Limited government interference
   Private Property
   Freedom of choice=buy what you need, sell
    what people want
   Self-Interest=all the players in the system do
    what’s best for themselves
   Competition
   Currency
   Job specialization
             Feudalist Economy
   Security issues after the fall of Rome led to these
    isolated towns being a single economic unit
   No need for money
   Craftsmen (guilds) and farmers/peasants
    produced goods/food for local use
   Towns protected their products by taxing foreign goods
   All the capital (what’s used to produce goods and
    services) was possessed by the producers (house,
    tools, workbench, materials)
   Security increases=markets increase
       Commercial Revolution
   Markets (the place where buyers and sellers
    meet) expand
   Money remerges
                 Problems Arise
   For the craftsmen, what do customers in
    far off lands want and how much will
    they pay?
   How can things be produced on a massive
   How will merchants get the financial
    capital ($) to fund risky voyages?
                The Rise of Finance
                 “Put up $ to get $”
   Commercial Revolution               2008 Financial Crisis
   Merchants pool funds to             Mortgages are given to people
    finance trading                      with bad credit/no money and
    companies=less risk for the          pooled and then sold as a
    single investor                      security/bond (a claim on the
   European investors would             cash flow coming from the
    rush to invest in trading            loan; an investment)
    companies                           Investors all over the
   A system of insurance emerges        world were buying these
   A third-party would insure the       securities, encouraging
    venture for a fee (premium)          banks to give more risky
    making it less risky                 mortgages
   So what happens if the              ‘Insured’ by credit-default
    venture is a bust?                   swaps
                                        What happens if all these
                                         people start defaulting on
                                         their mortgages?
     The Rise of the Merchant Class
    and Weakening of Feudal Society
   Monarchs would have a hard time taking
    power away from feudal lords
   The rise of the merchant class gave a
    class of people that monarchs could use to
    legitimize and finance their power base
   What is Capitalism?

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