This presentation will discuss evolution of business, as described in Introduction to business: How companies create value for people
Feudalism was present during the Middle Ages, from about 500 to 1500 A.D. (Jones, 2007). This business system was split into hierarchies. “The hierarchy of authority is a ranking of people according to their relative rights and responsibilities to control and utilize resources” (Jones, 2007). “Aristocrats possess property rights to all valuable resources, including people” (Jones, 2007). Feudalism was a land based economic system. Aristocratic landowners hired able workers to work specific farms on their land. Tenant farmers were then charged rent, or a tax, to work on the farm each year. This fee could be paid by produce, or money (Jones, 2007).
In Chapter 1, Jones describes merchants during this period as traders who noticed variation of a products value and price in multiple markets. Merchants would borrow capital to buy products where they were fruitful, so that they could transfer them to markets with greater demand, to sell at a higher price. The wealth of a country became dependent on how successful it’s merchants were. International trading arenas were often the grounds of price discrepancies. “This is because countries differ widely in the nature of their productive resources” (Jones, 2007). For example, oil is plentiful in the Middle East, but, not in Asian countries, where it instead has to be imported. Trading empires were lead by Monarchs, and their patrician families. These families frequently tried to create monopolies to control supply and pricing of the products that were sold. Monarchs would receive hefty payouts for allowing these monopolies to take place. Tea became so expensive in the seventeenth century Britain, that it was locked away in caddies and used in small quantities. “The attempt by the British to maintain the artificially high price of tea in North America helped bring about the American Revolution” (Jones, 2007).
As described by Jones in Chapter 1, the double coincidence of wants arises when people meet and try to barter one kind of good or service for another. For the exchange to be successful, each person has to have a need or desire for what the other person is offering. At an unknown point in history, money became the currency to resolve this problem. For instance, instead of offering goods for goods, $10 worth of coins, could buy you a single sack of corn.
Gold & Silver were low in supply, which gave them more value. Coins are a countries legal currency, and in the past, their value was ensured by the countries ruler. Because of this, people would accept these coins in exchange for the goods and services they were offering.
When money is regarded as a store of value, it becomes an essential form of capital. “The owners of the capital recognize the opportunity to “grow” their capital by lending it out. Bargaining then takes place between lenders and the borrowers over the price, or interest rate, at which capital will be loaned” (Jones, 2007).
The price is usually dependent on the risk of loss the venture holds. The higher the risk, the higher the interest rate may be. Lenders are interested in more than just the interest, however. Risky projects, as Jones describes, mean lenders could lose their money completely. Because of that, they require higher fee’s for their capital. “When capital is lent and a profit is generated from it, money starts to make money” (Jones, 2007).
“The industrial revolution also led to the development of the modern class system. A class system is a ranking of people in a social hierarchy based up the amount of their capital, wealth and other factors such as their heredity, kinship, fame, occupations, and connections” (Jones, 2007). This class system had Upper Class individuals, like bankers, and industrialists at the top, while working class people who work for a living, are at the bottom. “Capitalists are people, like Carnegie and Rockefeller, who personally own and/or control the physical capital of industrial production—machinery, factories, distribution networks, raw materials and inputs, research and development and technology” (Jones, 2007). Rockefeller & Carnegie were self-interest capitalists that took unethical approaches to guarantee their fortunes continued to grow. “A trade union is a business organization the lobbies on behalf of its members to increase their wages and working conditions. In fact, craft guilds were the original breeding grounds of the trade unions” (Jones, 2007). When companies like Carnegie Steel, and Standard Oil refused to negotiate, millions of workers in multiple countries became unionized.
“Property rights are the claims by people to own, use, and sell the rights to valuable resources” (Jones, 2007). In history, property rights were “granted” commonly after a winning battle. Today, laws provide us with legal claim to own and use a resource. In the year 1215, the Feudal Barons imposed a document on King John. “Magna Carta granted aristocratic families the right to hold property in their own names, not just in the name of the king-- it granted them private property rights, in other words” (Jones, 2007). Magna Carta resulted in a shift of power between European leaders, and aristocratic families. The document consisted of 63 articles that would, for the majority, benefit landowners. Now confident in their ownership of land and capital, aristocrats became more willing to risk their capital in business ventures to boost it.
The invention of the steam engine was a crucial event in the industrial revolution. The first crude steam powered machine was built by Thomas Savery in 1698. “The steam engine provided the power needed to work the new spinning and weaving machines that produced the wool and cotton cloth that had become a major part of world trade” (Jones, 2007). The Industrial Revolution influenced both cultivating and assembling and prompted a large increase in the riches and thriving of the nations in which it happened. Three variables changed cultivating and expanded the efficiency of area. To begin with, better than ever systems for planting and collecting yields, reproducing and raising creatures, and preparing the area expanded profitability. Second, motorization and the entry of steam-fueled ranch hardware implied that far less homestead workers were expected to work the area. Third, amid the Medieval times, a lot of area had been put aside as "regular area" for workers, serfs, and ranch workers to use time permitting, once their commitments to their proprietor or landowner were satisfied (Jones, 2007).
Over the course of history, business has evolved, and each of these business systems have had influence on the economy that we know today. Each business system was shaped by the influences that it endured at its given time, as well as the resources that they had available. “Choosing the right form of organization is important because this determines how productively and profitably resources will be used to create the most wealth for their owners” (Jones, 2007).
Evolution of business
EVOLUTION OF BUSINESS
The Industrial Revolution
Middle Ages. 500-1500 A.D
Split into Hierarchies
Monarchs & Aristocrats
From Barter to Money
From Money to Capital
Upper Middle Class
Lower Middle Class
Turning point in business history
Balance of power shifted
THE INDUSTRIAL REVOLUTION
Invention of steam engine
Farming & Manufacturing
Jones, G. R. (2007). Introduction to business: How companies create value for people. New York: McGraw-Hill/Irwin.
Retrieved from the University of Phoenix eBook Collection database.
Steam Engine 02 PNG Stock. (2014). [Steam Engine 02 PNG Stock]