VIEWS: 25 PAGES: 9 POSTED ON: 2/4/2012
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 (protectionism) 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 scale? 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 Closure: What is Capitalism?
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