Once contact with the Americas was open, the Spanish, French, English, and Dutch increasingly invested in the global trade race, which refers to the competition among European powers to establish and expand overseas trade, new markets for manufactured goods, and colonial empires. Driven by a combination of economic, political, and cultural factors, the global trade race caused significant impacts on the economies and societies of Europe and the rest of the world.
By the 18th century, the expansion of European commerce resulted in the accelerated development of a worldwide economic network with controlled trade routes and sources of raw materials, including spices, sugar, and tobacco.
Europe built off of the Commercial Revolution and its economic expansion, colonialism, and mercantilism, characterized by an increase in trade and commerce, the founding of financial institutions, and the development of new forms of business organizations through the global market economy.
As the market economy emerged based on the principles of supply and demand, the interaction of buyers and sellers in the marketplace determined prices. The development of infrastructures, such as roads, ports, and transportation systems, facilitated the exchange of goods and services between different regions and countries seeking to maximize profits through more free trade and labor, which supported the advancement of global markets.
At this time, wealth was measured by how much gold or silver a country had physically on hand. So states began to practice mercantilist policies with a philosophy of emphasis on maximizing imports and limiting exports. Mercantilist policies drove states to find new resources and new markets. Raw materials, laborers, and markets abroad fueled European enterprises.
Through the Agricultural Revolution, population growth stabilized. Food supplies expanded due to better transportation and farming methods, such as irrigation systems. Disease control limited plagues and epidemics. Europe’s growth in population directly translated to economic and agricultural productivity.
Population growth contributed to the rise of global markets by increasing the demand for goods and services. As European populations grew, more consumers needed to be supplied with food, essentials, and luxury products, which helped drive the expansion of global markets through increased production capacity, trade, and economic growth.
Additionally, population growth provided a larger pool of labor. More people became available to work, leading to the production of more goods and services through an expanded labor force.
Therefore, due to population growth security and overseas products, Europe developed a consumer culture with new consumers to drive production growth.
The transatlantic slave trade was a complex and lucrative business that involved the forced transportation of millions of Africans across the Atlantic Ocean to the Americas. Fueled by the demand for cheap labor in the New World, a network of European and African merchants and middlemen who profited from the sale and exploitation of enslaved Africans supported the trade. The governments of European powers passed laws and regulations to support the transatlantic slave trade and protect the interests of slave traders.
As the exchange linked Europe, Africa, and the Americas, it helped fuel a system of global trade that impacted the development of the global market economy. Here is a breakdown of how it worked:
- European powers used enslaved Africans for free labor on plantations and mines, producing a wide range of commodities, including sugar, tobacco, cotton, and other agricultural products. These products were then exported to Europe and other parts of the world, helping to stimulate economic expansion and create a more interconnected global economy.
- Merchants and European powers traded a wide range of products, including guns, textiles, and other manufactured goods, for enslaved Africans with African rulers and merchants. Different regions between Africa, the Americas, and Europe had different populations of consumers, which presented new markets for products and services.
- Financial institutions in Europe used the transatlantic slave trade to fund the expansion of their empires and the development of their economies. The exchange fostered the growth of European banks, insurance companies, and other financial institutions that supported the trade of enslaved Africans and facilitated the movement of capital between Europe and the rest of the world.
- Using the profits from the slave trade, European powers funded the further expansion of their empires and the development of global trade networks.
The worldwide transformation into a trade-based economy using gold and silver, known as the Commercial Revolution, had four main causes:
- Development of European colonies overseas
- Opening of new trade routes over the Atlantic and Pacific
- Population growth, which increased demand for goods
- Inflation caused by increased mining
As a result of increased trade and mining from globalized markets, prices soared across the board. This inflation, referred to as the Price Revolution, arose due to an influx of precious metals from the New World, population growth, and changes in the monetary system. Prices for goods and services led to economic hardships as the elevated cost of food staples like bread caused widespread hunger.
However, the price revolution also contributed to the development of new industries, such as banking and insurance, and spurred technological innovation as people searched for ways to increase productivity and reduce costs.
To keep up with the new global demand, European powers formed joint-stock companies. These minimized personal risk as investors pooled money into ventures. It was like an early form of crowdfunding! Rather than one investor risking everything, many investors could split the risk, thereby increasing the number of new businesses.
Several benefits to using joint stock companies are:
- Access to capital rose and allowed businesses to finance expansion, development, and larger ventures through selling shares of stock to investors.
- Limited liability for individual shareholders reduced investment risk, meaning that shareholders were only responsible for the amount of money they personally invested rather than potential debt or obligations to the company.
- Shares of stock in a joint stock company could be bought and sold on the open market, making it easier for businesses to transfer ownership or raise capital.
- Joint stock companies could attract and retain talented employees by offering them a share of the company's profits through stock options or other forms of equity.
The two primary joint-stock companies were the British East India Company and the Dutch East India Company. The East India Company was a British joint-stock company founded in 1600 to trade with India and the East Indies and established a network of trading posts and forts throughout Asia to become a predominant force in the global trade of goods such as tea, spices, and textiles. Meanwhile, the Dutch East India Company, also known as the Vereenigde Oostindische Compagnie (VOC), was a Dutch joint-stock company founded in 1602 to trade with the East Indies. It was the Dutch equivalent of the East India Company and created competition in the spice, tea, and textile trades.
However, not all European nations got on board with joint-stock companies. Because Spain and Portugal had more government funding as opposed to private investment, these powers did not rely on joint-stock companies.
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The European powers were all about profits. Their commercial rivalries influenced diplomacy and warfare between states.
As European powers competed for control over trade routes and territories, commercial rivalries often led to diplomatic tensions and conflicts. European powers formed alliances and made treaties with one another to secure access to markets and resources, and they also engaged in trade wars and other forms of economic competition. In some cases, these commercial rivalries led to outright warfare, as European powers sought to protect their economic interests and gain an advantage over their rivals.
Commercial rivalries influenced the way European powers interacted with non-European states and societies. European powers often used their economic and military power to extract concessions and favorable trade terms from other states and societies, and they sometimes used force to impose their will on these states. In this way, commercial rivalries among European states played a significant role in shaping the global order and the relationships between European and non-European states in the early modern era.
Particularly, the rise of global markets created maritime competition among European states as the different European powers were driven to use their naval and military power to protect their trade routes and assert control over key ports and territories. They also engaged in trade wars and other forms of economic competition in order to gain an advantage over their rivals. In part due to the expansion of international trade and competing in maritime economies, Great Britain owned the largest navy in Europe by 1800.
The rise of global markets also led to the growth of maritime industries, such as shipbuilding and shipping, which were vital to the expansion of international trade. European powers invested heavily in their naval and merchant fleets in order to facilitate trade and assert control over trade routes, and this led to the development of complex and competitive maritime economies.
Maritime competition led to the British assuming control of India and the Dutch gaining control of the East Indies. Britain took control of India through a series of military and economic interventions after the East India Company asserted control over the region through its network of trading posts and forts. In a similar imperial fashion, the Dutch Republic took control of the East Indies, the modern-day region of Indonesia, through the influence of the Dutch East India Company. Both Britain and the Dutch Republic were able to take control of India and the East Indies through a combination of military and economic intervention, as they used their naval and military power to protect their economic interests and assert control over trade routes and territories.
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