• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

How did medieval merchants solve the fundamental problem of exchange in long distance trade? What light does this shed on the prosperity of the Venetian Republic and Portugal before 1700?

Extracts from this document...

Introduction

How did medieval merchants solve the fundamental problem of exchange in long distance trade? What light does this shed on the prosperity of the Venetian Republic and Portugal before 1700? Trading has been an elementary part of economies since the advantages of it were discovered. The ability to exchange goods greatly contributes to economic efficiency as it enables us to capture gains from natural comparative advantage and division of labour. There are evident gains from trade when a country has an absolute advantage in the production of a good. A country is said to have absolute advantage in production if it can produce the same amount of output with less inputs relative to other countries. This brings about a stronger economy, as there is greater specialisation and technical innovation, which has positive impact on the economy in the long run. There are also gains in trade when a country has a comparative advantage in the production of a good. This is when the opportunity cost for producing a good is lower than that of another country. This results in a higher aggregate output, which means that gains can be split between both countries. The fundamental problem of exchange has existed since the advantages of trade were discovered. It says that even if there are potential gains from trade, trade may still not occur as the lender will not want to lend without being assured that the borrower will not invest the money in a hopeless venture, or take the money and run. ...read more.

Middle

The fact that reputations also took a long time to build up and could be quickly erased made them of extreme value to people. It was also possible to use strategic marriages and trade through families if you wanted to be sure both sides of a trade were secure. As a medieval ruler would have a local monopoly of the area he ruled, he would be faced with the temptation of abusing his power and appropriating merchants. Merchants therefore devised a solution to combat this problem, which was by organising a boycott of a state that abused the rights of a merchant. This deters predatory behaviour by the ruler, as it is not desirable to deprive the population, the ruler and the merchants the benefits of trade. It therefore has the potential to work very well, but the problem is that it can be very difficult to sustain as some merchants may see ways of maximising their personal gains by renegotiating with the ruler, causing the boycott to deteriorate. It was therefore vital if planning a state boycott to ensure rules were set out to prevent this from happening. Venice played a major role in re-opening the Mediterranean economy to western European commerce after the post-Roman Empire collapse, and the establishment of effective protection for merchants was crucial in this. ...read more.

Conclusion

This can be seen when looking at figures for per capita income before the nineteenth century, which gives an estimate of the per capita income of Portugal of $632. This is far lower than other relatively similarly dominant economies, such as Italy and Belgium, who had per capita incomes of $1100 and $875 respectively. The reason for this can be given by the fact that in general, agriculture and industry were the determining factors when analysing the per capita incomes, and in Portugal these industries were quite underdeveloped relative to other countries. In comparison to Portugal, Venice was far more prosperous. Not only when looking at the per capita incomes, but also when seeing how much more developed the Venetian institutional framework was. It was formed to be favourable to merchant capitalism, which vastly strengthened its trading platform as a country, and therefore the amount of money it was able to make. Trading was only possible through solving the fundamental problem of exchange. Over time, ways of solving the problem became more sophisticated; from using boycotts and networks of trust, to legal frameworks and courts of law. We have been able to become more affluent as economies due to the advantages that trade brings us, as can be seen looking at examples of economies from hundreds of years ago that first experienced the prosperity that trade brought. We have also been able to see the importance that institutions hold in nurturing and maintaining an environment that is favourable to trade, namely in Venice. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level UK, European & Global Economics essays

  1. A study of Patent system in India in the light of Patent Cooperation Treaty.

    with national patent office which will be appointed by PCT authorities and will act as PCT 'receiving office'. This will save the time, and also postal formalities too. Now if researcher has to assume the situation where the India is not the contracting state of PCT, then what will happen?

  2. Explain the evolution and characteristics of the debt problems of LDCs. In the light ...

    In addition, it is clear that by the beginning of the 1980's, many countries, especially in Latin America, were in need of structural reforms to overcome struggles with inflation, lax budgets, overvalued exchange rates and domestic financial systems in need of overhaul12.

  1. Where does the World Trade Organisation fit in the overall scheme of international public ...

    A firm rule of thumb in the WTO is that there is little forward movement without clear direction and strong engagement from national capitals. It is to be hoped that, as the Cancun Ministerial approaches, minds in key national capitals will be concentrated.

  2. International Trade - I have been asked to investigate the possibility of a company ...

    This helps to show the power, which the United States has. The United States is the worlds leading trading nation as it has a trade volume of US$1,330 billion in 1995. Total merchandise exports in 1995 amounted to US$585.7 billion, and imports to US$743.4 billion.

  1. Carbon Credit Trading

    Companies that do not meet their targets must reduce their emission levels through development of more energy-efficient or anti-pollution technologies or reduce their polluting activities (Merrill & Jain, 2005). Alternatively, they may purchase carbon credits under Carbon Financial Instruments (CFI)

  2. International trade - In this case I choose the country Canada. When doing a ...

    And when you look at the costs for the cloths from both countries, then you see that England produce 1, 5 more than Portugal. Because comparative costs are different, it will still be an advantage for both countries to trade.

  1. Is there a trade-off between prosperity and violence? If so, what is it? If ...

    Economic organisation, which Bates (2001) regards as being like the interplay between members of a sports team; as much as investment, is able to promote or (if it is in short supply) hinder development (pg. 23). Commitment to a program of improvement in economic organisation and investment is largely dependant

  2. Emergency Economic Recovery Program From the United Nations International Report, Vol. I, no. A1

    mostly food, cars and apparel goods destined for the low-wage assembly zones of Port-au-Prince. So again, Haiti is on pace to hit a near record balance of trade deficit of around $400 million a year. The trade deficit is important because it drains foreign exchange (US dollars)

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work