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The History of Management |
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The Renaissance and Reformation-Rise of Nation-State and Mercantilism The Middle Ages in Europe were marked by continuance of an anti-commerce attitude and a preoccupation with local markets. As vile as they were, the Crusades of the 11th, 12th, and 13th centuries brought important changes in Western society. The Crusades brought feudal Europe into contact with the East: contact led to a rediscovery of the classics that had been preserved by Islamic writers, influencing the arts, literature, science, and philosophy, and contact opened new markets. Trade with Arabic cultures also influenced European economic thinking and introduced the earliest form of capitalism, mercantilism. Mercantilism is the distribution of goods in order to realize a profit -- simply, buy low from one place and sell high at another place. While this form of enterprise had developed previously and characterized much of the commerce in the Roman Empire, throughout most of Europe the Middle Ages de-emphasized trade relations. Located on, and dependent upon, the trade routes between the empires of Egypt, Persia, and later Byzantium, Arabic cultures enjoyed a long and sustained history of mercantilism, spreading the trade system with Islam across Northern Africa, Spain, the Middle East and Asia. European contact with Islam introduced the rewards of global trade, illustrated by the infusion of Arabic economic words, such as "tariff", and introducing "arabic" numbers, a counting system with the unique number "zero" which had been adopted by Arabs from India as a secret code for maintaining trade accounts. Marco Polo's travels near the end of the 13th century reflected mercantile ambitions and the early rise of Italian city-states in the East-West trade routes which would later be challenged in the 15th century by Portuguese and Spanish sea captains -- notably, after the defeat of the Arab Empire in Europe-- and even later by France, England, and the rest of Europe. The Renaissance or "rebirth" began with this trade in Italy and created the first method of industrial organization: the "putting out" (or domestic production) system in which a merchant would obtain raw materials - such as silk from the East - and farm these out to individual workers or families who, using their own equipment, would complete the product and then deliver it to the employers for a wage. From this the need for commercial accounting developed. Luca Paciolo, a Venetian mathematician, in 1494 wrote the first book to popularize double entry bookkeeping.
Also in Italy, the Peruzzi and Medici families began banking to loan funds and provide a clearinghouse for the transfers of funds against accounts. But, laws favoring businesses were not pervasive. In Germany Guttenberg, who had brought together for the first time all the ingredients for printing, was one of the notable business failures. Undercapitalized and sued by his backer for a loan, Guttenberg did not own the Bible he printed when it was sold. By the end of the 14th century laws against interest on loans began to be repealed or were un-enforced by the Church. Mercantilism was capitalism for the state, not for the individual. As mercantilism developed into a formal economic theory, such as in the work of Jean Baptiste Colbert, chief minister of the French king from 1661 to 1683, it took on the the following characteristics:
Large scale enterprise in the form of state monopolies was an instrument of state economy. In the East and in the Americas, joint stock companies were developed by the state to finance adventures, such as colonial enterprises. Under the aegis of the state, private investors would finance expeditions with each expedition managed as a separate speculation. When the ship or ships returned with their cargo, the profits would be spilt with the investors. This corporation was not an "on-going venture". However, in 1600 the East India Company was formed to exploit commerce and colonial adventures in the Asia subcontinent. Unlike previous ventures, this undertaking was prolonged. By 1613 stocks were being subscribed for four year periods, providing continuity, permanence, and transferability of capital invested in a state enterprise - and providing a model for future capitalizing of business enterprises. The evolution of state capitalism of mercantilism into the individual capitalism of laissez faire economics requires a fundamental redirection of values in which governments can understand that national wealth is, in fact, not the wealth of the sovereign, but the wealth of people. Max Weber, the German sociologist, in his The Protestant Ethic and the Spirit of Capitalism (1905) theorized that this change in values was a result of the Reformation and these religious developments were pivotal in the emergence of modern capitalism. When Martin Luther, an Augustinian monk, in 1517 posted his ninety-five theses protesting Papal authority, he launched direct confrontation of nationalistic tendencies in Germany against Rome. Lutheranism also quickly became a doctrine supporting peasant uprisings against traditional civil authorities throughout Germany, although Luther personally believed that rebellious peasants should be killed. Other religious reformists, Zeingli and John Calvin in Switzerland incited nationalist fervor with religious zeal, rejecting the intermediaries of the Roman Church for personal salvation - a fervor that would spread across the rest of Europe But it was King Henry VIII who, almost by accident, severed the traditional Roman authority by declaring himself Head of the Church in England. Throughout Europe there followed a period of civil warfare framed around religion and a period of terrible European conflict, the Thirty Years War. In England, the monarch would survive with a Parliament and Protestantism in place. In France the reliance of the Calvinist Huguenots on the monarchy would result in their exile, entrenchment of the monarchy, and eventual revolution and the establishment of successive republics. In Spain, steadfast Catholic during the Reformation, the monarchy would remain absolute, but squandered much of its colonial booty on war with Protestant Europe. Mainly, the Reformation set into motion a new social order. It undermined traditional authority of the Church on Rome with national governments; it undermined traditional authority of the Church on individuals; and, it unleashed a new set of values focused on the individual as authority. Weber's Protestant Ethic is both an attitude towards personal wealth and a work ethic. Unlike traditional Catholicism that emphasized the authority of the Church and the obligation of believers to fulfill religious duties, Protestantism placed emphasis on the individual (not the Church), promulgated moral asceticism (emphasizing work), and, especially, Calvinism emphasized that good works could not guarantee salvation. Later Calvinists and, especially, the Puritans (Church of England Calvinists) would infer that legally accumulated wealth might be evidence of being a member of the elite who are saved. In Weber's interpretation of the Protestant theologies, the Protestant proved his faith in self-discipline and his salvation through wealth. This was not wealth for the sake of wealth, it was rather the need for each person to engage in a life of continuous physical and mental labor, in which the individual would be self-directed and self-controlled. For the Protestant, each man has a "calling" which required him to do his best. By not seeking luxury, each person created a surplus or profit from his labors. This wealth should not be consumed beyond one's basic needs, but it is to be reinvested. This duty to work, use wealth wisely, depend upon one's own internal moral compass, and live a self-denying life is the "Protestant Ethic". These are values necessary for the emergence of capitalism.
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