Commercial capitalism: what is it, origin, characteristics and examples

What is commercial capitalism?

Some economic historians use the terms mercantile capitalism or commercial capitalism to describe the initial phase of capitalism’s emergence as a socioeconomic system in Europe, which occurred from the 15th to the 18th centuries.

The debate over the origins of capitalism is complex, as any conclusion depends largely on how the economic system’s fundamental characteristics are defined. The marketization model represents the traditional view, which is rooted in 18th-century classical liberal economic thought and continues to be frequently discussed.

The bourgeois class, which rose to prominence through manufacturing and trade, accumulated its wealth by amassing capital and raw materials.This departure from feudalism was a pivotal change that spurred scientific advancements and the ensuing Industrial Revolution.

Historical origin

The 14th century saw the emergence of capitalism’s initial mercantile stage. This commercial system was established by Italian and European merchants seeking to increase their profits by selling goods in markets beyond their own.

Though still a small minority dwarfed by the absolute power of the ruling monarchies, the bourgeoisie was nonetheless influential enough to capture the attention of the powerful.

Known as mercantilism, this system resulted from the commercial trade established between major European powers, including Italy, Spain, Flanders, and Germany. The growth of this budding market was fueled by major discoveries of new lands, which also made possible the establishment of global empires like the Spanish, Portuguese, English, and French.

Colonial expansion

Capitalism’s true origins can be traced to the great explorations of the 15th and 16th centuries. This was a process driven by sailors from Italy, Portugal, and Spain, followed later by those from England and the Netherlands, who effectively opened up the rest of the world.

The mercantile period, corresponding with the growing prominence of European powers, was characterized by the seizure of trade in goods, enslaved people, and resources formerly controlled by other groups.

This period witnessed the flourishing of the Atlantic Triangle Trade, a system that moved goods and people between Africa, America, and Europe. This serves as a prime example of mercantile capitalism in practice.

This period also saw the creation of some of the first stock exchanges and banks, established in order to manage this new system of trade.

Creation of trading companies

The establishment of the British and Dutch East India Companies marked the beginning of a new era of large, state-chartered trading corporations.

Functioning as joint stock companies, these organizations wielded authority that included legislative, military, and treaty-making powers.

They served as the prototype for the modern corporation.A defining feature of these companies was their monopoly on trade, which was granted to them by the state through letters patent.

The capitalist system had already been established by the time these companies were created. This profitable model funneled immense wealth to its fortunate participants.

End of commercial capitalism

Around 1800, the mercantile era concluded, making way for the rise of industrial capitalism.

Nevertheless, in certain parts of the West, particularly the American South, mercantile capitalism persisted well into the 19th century because the plantation system hindered the growth of industrial capitalism and restricted markets for consumer goods.

Financial backing for these trading houses came from small, private investors.By managing the exchange of debt between them, these financiers served as intermediaries for commodity producers.

Consequently, merchant capitalism served as a method of capital accumulation that came before the capitalist mode of production.

For mercantile capitalism to evolve into industrial capitalism, the essential prerequisite was the primitive accumulation of capital, which was the very process that supported commercial financing operations. This change made the widespread application of wage labor and industrialization possible.

Commercial systems were transformed by the American, French, and Haitian revolutions. The Industrial Revolution also profoundly transformed the means and relations of production. A new era of capitalism was initiated by these transformations.

Characteristics of commercial capitalism

• Whereas wealth was traditionally acquired for consumption and enjoyment, the foundational principle of capitalism is the continuous reinvestment of wealth to generate more of it. The driving impulse of the capitalist age was acquisition and ownership.
• Whereas developed capitalism focuses on production, mercantile capitalism was defined by its practice of buying goods cheaply in one market to sell them at a profit in another.
• Lacking an industrial base and the support of commercial finance, this system could not transform the actual methods of production.
• Its primary objective is to achieve financial gain through commerce. Nonetheless, the items themselves were predominantly crafted using traditional, pre-capitalist means.
• It did not reconfigure the two basic means of production, labor and land, into tradable commodities.
• Central to the economic policy of mercantile capitalism was the expansion of state power and the conquest of foreign territories. A state that was unable to source its own raw materials was compelled to acquire colonies for the purpose of their extraction.
• Colonies served the dual economic function of supplying raw materials and providing a market for finished goods.
• To eliminate competition, the state actively suppressed colonial manufacturing and prohibited trade with any other foreign powers.
• Driven by their colonial and expansionist policies, these powerful nation-states aimed to accumulate precious metals. Consequently, armed clashes started to arise.
• In this period, merchants who had once operated individually began investing their capital into large colonial enterprises, like the East India Companies, in pursuit of a financial return.
• The rise of commercial capitalism was accompanied by the emergence of agrarian capitalism.These were the defining characteristics of Europe during the sixteenth, seventeenth, and eighteenth centuries. Accordingly, commercial and agrarian capitalism were two forms of the system that existed concurrently. The distinction between the two lay in their origins: the former was born from a surplus in trade, while the latter emerged from a surplus in agriculture.

Importance of commercial capitalism

The era defined by the rise of commercial capitalism witnessed profound social, economic, and cultural transformations. Arguably, this economic system’s most vital contribution was paving the way for the rise of industrial capitalism.

Furthermore, it fueled the expansion of trade into the Americas and the Orient, necessitating a large merchant marine and thereby driving advancements in cartography, navigational tools, and the practical application of mathematics in daily life.

This economic system also contributed to the formation of an international code of business ethics. This principle served as a cornerstone for industrial capitalism, which in turn drove the expansion of large cities around manufacturing centers. The modern urban landscape was molded by the forces of capitalism.

The rising demand for goods like textiles and armaments, along with the logistics of trade and transport, intensified the search for raw materials and tragically fueled the transatlantic slave trade for labor in the Americas.

Despite this, the growth in production was unable to keep pace with the escalating demand.A scarcity of goods invariably drove prices upward.

The accumulation of capital under this system, in turn, facilitated the development of more sophisticated capitalist tools and practices. The same was true for the credit system, which first saw implementation during the mercantilist period.

Examples of commercial capitalism

In the principal cities of medieval Europe, markets served as vibrant hubs where products from all over the world were available.

The various empires amassed great wealth by plundering the natural resources of their colonies.

Trade flourished in key ports, including Seville, Cadiz, Lisbon, Antwerp, Amsterdam, and London, as well as the Spanish American centers of Veracruz in Mexico and Callao in Peru.

Expeditions were treated as investment opportunities.

Companies dedicated to trade began to form.