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Understanding how our modern-day form of business system was formed is extremely important. Knowing how and why certain areas prosper while others fail allows for knowledge to expand in the area of business. Feudalism, mercantilism, and capitalism are the first forms of business systems that each provided methods for different areas to prosper based on their use of power, wealth, capital, and/or resources. Commerce has grown and changed from local bartering to worldwide money exchange. Property rights have integrated into law-supporting rights that assists in placing people, towns, and even countries into social groups that determine the type of business system and commerce used. The Industrial Revolution started an era of tremendous changes for the world of business.
Feudalism is the business system in which one class of people, who were known as aristocrats, controlled the property rights of all valuable resources including people (2007). This type of business system occurred during the Middle Ages between A.D. 500 and A.D. 1500. During this time, people who had little to no rights possessed no motivation to perform at high levels because they did not share within the profits gained from the work. To increase motivation, land owners developed the tenant farming system. Tenant farming allowed a landowner to charge rent for a portion of their estate. The tenant would produce a product on this piece of land and could either give the owner a portion of the produce or sell the produce at the market. Anything earned in excess of the cost of rent was profit for the tenant. To keep tenants motivated, landowners could charge higher rent but had to allow the tenants to make a profit. Typical rent was based upon the value of the goods produced. Negotiations between the landowner and tenant arose to keep the rent at a fair market value. Even though conflict was common between the aristocrats and tenants, the stronger conflicts occurred within the aristocrats. Different countries or areas did not recognize property rights and often would go to war over the land, tenants, and other forms of capital. The Hundred Years War is an example of the conflict that arose during the use of feudalism. The desire for power, money, and control dominated the fight between the Lancaster and York families in England. After successfully claiming the throne, Henry Tudor executed the aristocrat families and gave the land and resources to his supporters.
Mercantilism is the business system in which a product’s price differences are exploited by trading the product across markets and countries (2007). The people or traders are known as merchants. The merchants have use the discrepancy between the value and the price of a product in one market and another to trade goods for a profit (2007). Many of these discrepancies take place within international trading arenas. Different parts of the world can produce types of goods indigenous to that area. Other areas of the world do not have the resources to produce such goods so the products have to be imported. Land quality, climate, natural resources (such as oil), and technology all play a large role in the importing business. Vast amounts of money can be made if merchants study the market for price differences of world-wide markets and understand the need of certain resources and/or products. Monarchs and aristocrats dominated the market by creating monopolies which allowed Europe to become the central hub of trading. Monarchs had the ability to control who traded, what was traded, and how it was traded and received percentages of the profit for allowing the monopolies of certain areas.
Capitalism is the system in which the private ownership of resources becomes the basis for the production and distribution of goods and services (2007). Capitalists are people who personally own or control the physical capital of industrial production such as machinery, factories, distribution networks, raw materials, and technology (2007). Industrialists such as Rockefeller and Carnegie have given capitals a bad name because of their actions. Both pursued self-interest at the expense of the working class and neglected the labor resources to the point of neglect. Women and even children as young as six were hired because they could be paid a much lower salary than men. Owners of factories began to take advantage and required more work for less pay and the work conditions were often dangerous. Trade unions were formed on behalf of these members to increase wages and improve work conditions. The trade unions not only protected the rights of workers but also of the company owners because acts of violence, riots, and strikes were prevented by the negotiations that took place. A class system was developed to place people into groups based on their personal capital, wealth, occupations, heredity, and even connections. The class system consists of the upper class, upper middle class, middle class, lower middle class, and working class or proletariats. This system is used in defining modern-day situations. The upper class consists of the people that carry a lot of weight through capital and typically control the majority of a nation’s wealth. The upper middle class consists of people that have invested time and money into education to obtain positions such as business owners, entrepreneurs, doctors, CEOs, etc. The lower middle class have had the privilege of obtaining education, marriage, and some income is put back into savings but could not survive on their capital alone for a great length of time. The working class is composed of people who typically have nothing to use as capital except their ability to offer their working skills as capital.
Prior to using money, people would trade a good or service for another good or service. The hard part was determining whether or not each person involved was getting a fair trade. By bartering, it was difficult for people to place a value on their goods or services. Money became the solution to the problem. Instead of bartering and getting more or less of a specific item and/or amount desired, money became a standard value of trade so the seller could buy the item that they needed. For example, money can be used to buy a portion of an animal via butchering whereas with bartering, the entire animal would have to be traded. Money has also allowed many niches to be created within a specific business. The use of money as a medium of exchange facilitates occupational specialization and this increases the wealth that can be generated from labor and land (2007). Capital can be used to increase the amount of money that is obtained. For instance, lenders, also known as capital suppliers, can lend out money with the possibility of interest added to the original amount borrowed by the capital buyers (borrowers). It is difficult to determine a market value for some capital because risks are attached. Risks are chances that people take that offer the possibility of a loss because of bad investment or decision. If a risk is higher, then the return on the investment will be higher (i.e. higher interest rates because of bad credit).
Property rights are the right of people to own, use, or sell valuable resources (2007). In the modern world, laws have been set forth to provide ample proof for people to show what is rightfully theirs. In earlier years, property rights were determined by who had the power to take over land or resources by power, wealth, or force. Monarchs were the largest landowners and used their power to grant their supports control of certain lands or resources; however, the monarchs did not give their supporters ownership of the land or resources to avoid take-over from the supporters. Aristocracy was created so that the noble owners of the land or resources had the right to control everything including people.
The Industrial Revolution is an era in the eighteenth and nineteenth centuries that marked improved production and trade brought about by advances in technology (2007). Even though the start of the Industrial Revolution is not set in stone, it is most socially accepted that the invention of the steam engine marked the beginning of this era. The steam engine provided the power to run the spinning and weaving machines, centralize factories to produce large quantities of low-cost items, and speed trains that traveled our country producing an increase in communication. Prices of global trade were reduced after steamships replaced wooden ships because transport was sped up tremendously. Farming and manufacturing environments were affected by the Industrial Revolution in positive and negative manners. New methods of planting and harvesting increased productivity because of mechanized equipment and less laborers were needed. Unfortunately, this caused a large amount of Europeans to starve to death since they were jobless and poor. Innovation is the development of new and improved products and new and improvedmethods to create them. People were relatively isolated and knowledge of new ideas did not spread quickly. Cooperation was needed in order to share the information obtained from all parts of the world. The pursuit of higher education was made possible by rules recognizing that innovation was an important step in improving economical situations. Many scientists, such as Louis Pasteur and Sir Isaac Newton began research during this time. Churches also recognized the importance of education and began educating ordinary people. People that were once isolated from one another came together and started to prosper.
In conclusion, it is important to understand the evolution of business systems from the very start of business until modern-day techniques. Each business system operated based upon the unique situations of the time and the resources that were available for use. As the systems progressed, productivity increased and profitability was raised. The organization of every system is similar but it is important to understand the differences associated with each. The Industrial Revolution was a significant event that set the business world on fire with new innovations that brought our entire world into a global business system.
The evolution of business presentation
The Evolution of Business<br />Presented by Shelly Oakley<br />BUS/210 Instructor: Michelle Knight<br />May 16, 2010<br />
References<br />Jones, G. R. (2007). Introduction to Business: How Companies Create Value for People. Retrieved from University of Phoenix - Axia College BUS/210 Materials.<br />Windows Vista Clip Art (2010) Retrieved May 14, 2010.<br />