Colonialism and Entrepreneurship

In the colonial era, being an entrepreneur meant being involved with trade, and extracting wealth from colonies. This was a dark chapter in the history of business, but also an influential one, with several key developments in the emergence of entrepreneurship.

The Atlantic Highway
Queen Elizabeth I
Williem Usselincx
The General Private Bank

Mercantilism

Mercantilism is an economic policy that aims to have a balance of trade in order to benefit the economy. It promotes the ideas of imperialism and colonialism. Historically, mercantilism led to wars and even colonial expansion.

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This policy became the dominant school of thought in Europe in the 15th century. But this policy also led to the establishment of many colonies, especially in North America. The idea behind mercantilism was that the power of a nation depended on how much gold it had, as well as the value of its exports.

Mercantilism encouraged entrepreneurship in the colonial era because of the value put on gold and exports. In the British colonies, this idea encouraged people to purchase from England and to send raw materials to England instead of adding to the wealth of other countries.

Entrepreneurship in the New World

If it weren’t for entrepreneurs during the Colonial Era, America would not exist in the way we know it today. The start of entrepreneurship in America dates back to the early settlers trading with the Native Americans.

As many of the colonies were founded by corporations, it is evident what kind of impact entrepreneurs had on the founding of America. Mercantilist ideas impacted the New World, and many explorers became wealthy entrepreneurs because of this economic idea.

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Colonies such as New England were able to succeed due, in part, to the innovation of entrepreneurs, even if they didn’t have the resources to generate wealth.

Whereas the South was largely agricultural (and driven by slave labor), New England relied on its business sector for its income. Thanks to the innovation and risk taking of countless entrepreneurs, the mercantile economy of New England became more diverse and prosperous than the surrounding colonies.

The significance of inventions took hold in the 1300s and 1400s as markets developed, leading to the industrial revolution of the 18th century. As people continued to develop markets and machines, entrepreneurship continued to grow.

Entrepreneurs as merchants

Merchants are people engaged in trade and have been around for as long as trade has. They existed even in the ancient world and were prevalent in Ancient Greece, Egypt, and China. These merchants were entrepreneurs during the Colonial Era, as well. After the discovery of the New World, trade routes continued to expand over longer distances with more routes.

This meant there was even more of a need for merchants. The goods traded by merchants from the New World were mostly tobacco, sugar, rum, coffee – often, sadly, in exchange for slaves, who were vital to the production of all of those goods.

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In Europe in the 17th century, people began to trade and purchase goods beyond just basic necessities. With the continuation of colonial expansion, more and more information was available about trading conditions in various places.

America had a significant trade network during the 17th century. And in the 18th century, merchants in America started to specialize in specific roles as merchants. A hundred years after the Colonial Era, the United States produced more iron and steel than Britain and Germany combined.

Atlantic trade

In the Colonial Era, trade routes had already expanded, and trading was alive and well. In addition to local trading over land, during this era, Britain began to engage in trade across the Atlantic Ocean.

 

With modern transport methods, it would be much easier to take a short trip across land to trade some goods, but during this time, it was easier to cross the ocean. Thus, the Atlantic Highway was born.

In a time when mercantilism was still happening, Britain established colonies in America to increase the wealth of their home country. The theory of mercantilism led to the triangular trade system, where raw materials, finished goods, and slaves were traded between Europe, America, and Africa.

Pre-capitalism

Before the rise of capitalism, the idea of monetary gain was not well-accepted. Even though innovation was later seen as a positive thing, leading to the continued rise of inventions and innovations, certain aspects of capitalism at the time were banned by the Christian church or shunned by society as a whole.

 

Mercantilism is seen by many scholars as a precursor to capitalism. Despite the negative attitudes towards capitalism, with many developments happening during the Colonial Era, the foundations of capitalism were already built.

Advancements during the Colonial Era contributed to this foundation. Increased imports from the New World led to expanded trade routes overseas. Although there are many theories on the origin of capitalism, many believe it originated with trade during this era.

Overview of East India Company

Founded in 1600, the East India Company was originally formed to establish trade between England and the East Indies. At one point, the East India Company was the largest corporation in the world.

The company, which started out as a trading company, ended up involved in politics as British imperialism swept across India. Throughout the mid-1700s to the early 1800s, more than half of the world’s trade went through the East India Company. But the East India Company also took control of large parts of India, starting in 1757.

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The monopoly of this company impacted entrepreneurship, considering most entrepreneurs during the Colonial Era were merchants. Initially, the East India Company focused on the spice trade. But cotton, silk, indigo, saltpeter, tea, and opium were later added. In addition to these goods, the East India Company became involved in the slave trade around 1620.

The entrepreneurs who formed the East India Company gained enough wealth to return to Britain, purchasing estates and other businesses. While they gained huge profits, many of those exploited by them in the colonies were left with nothing, and the economic damage inflicted by the East India Company on British colonies was felt for many generations – arguably, it continues today.

Origins of East India Company

The origins of the East India Company can be traced back to ‘Drake’s Raiding Expedition of 1577.’ This was the expedition of explorer Francis Drake, who set out to pillage silver and gold from the Spanish settlements. During this expedition, Drake sailed to the East Indies, traded with the Spice Islands, and returned to England with a load of valuable spices.

 

Drake’s expedition aboard the Golden Hind was significant because it was authorized and funded by Queen Elizabeth I and other high-ranking investors. After completing his expedition, Drake wasn’t the only one who gained wealth, as his investors received a large return on their shares. This impacted the business world once these investors realized they could gain a significant return off privateers, and Queen Elizabeth continued to use privateering as a way to raise funds for the government.

Drake’s success led to a series of expeditions by other Englishmen, eventually influencing James Lancaster, one of the founders of the East India Company.

The formation of the East India Company

Over twenty years after Sir Francis Drake’s expedition around the globe, a group of merchants in England sought the approval of the Queen to set out on an expedition to the East Indies. It took over a year, but in 1600, the group received approval for a royal charter, which granted their company a monopoly on certain aspects of English trade for fifteen years.

Originally known as ‘Governor and Company of Merchants of London Trading into the East Indies,’ their corporation later became the ‘East India Company.’ The formation of the East India Company greatly impacted the future of entrepreneurship and corporations. At the time, incorporation in England was only possible by royal charter or private act by Parliament, and the East India Company was a product of this rule.

The ability to incorporate a company was not expanded until the Joint Stock Companies Act of 1844, and investors in companies such as the East India Company had unlimited liability until the establishment of the ‘Limited Liability Act of 1855.’

West India Company

Starting in 1621, the Dutch West India Company took control of the trade with America, Africa, and the Atlantic. This company held a trade monopoly in the West Indies, and was started by merchants and investors.

Williem Usselincx was the entrepreneur who co-founded the Dutch West India Company. The company was successful at first because it received a charter for a trade monopoly in the Dutch West Indies, eliminating any competition. Usselincx planned out the beginnings of the Dutch West India Company for years after experiencing the wealth that came from the colonies of Spain and Portugal.

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Some of the greatest successes of the West India Company were the goods they commandeered from other ships, such as the capture of silver from Spanish fleets. Even though Usselincx was interested in gaining wealth, he also hoped to benefit society. This goal led the West India Company to form the colony of New Netherland, which they used to expand the fur trade in North America.

It should be acknowledged that both the West and East India companies committed wide-scale atrocities, including giving birth to the modern slave trade, and forcibly extracting huge amounts of wealth from India and elsewhere.

John Law and the Mississippi Company

John Law was a Scottish economist and banker who greatly contributed to entrepreneurship in France during the Colonial Era. Law was responsible for setting up France’s first central bank due to his belief that an increase in money would positively impact the economy. Before opening his bank, Law urged leaders in France to offer credit and banknotes to increase production.

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Law established the General Private Bank in 1716, lending money to private entrepreneurs. It was through this bank that Law was able to establish the Mississippi Company, which he used to gather all French overseas trade into one monopoly. The company was given trading rights over the area for 25 years.

While initially, this was a positive turn for entrepreneurs who needed capital to start their businesses, the Mississippi Company was only thriving on paper. In the first recorded example of an economic bubble, Law had used marketing tactics to exaggerate the wealth of his bank, which was funding the Mississippi Company. The Mississippi Bubble burst after the bank could no longer pay for all the bank notes it had given out.

Luca Pacioli and the birth of accounting

Luca Pacioli was an Italian mathematician, known as the Father of Accounting. Not only was Pacioli a mathematician, he was also a Franciscan Friar and was dedicated to his faith. Luca Pacioli, a close friend of Leonardo Di Vinci, impacted the businessmen and women of Europe by developing the double entry system of accounting.

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The ‘double-entry system,’ or ‘double-entry bookkeeping,’ is a system where debits are checked against credits to balance business accounts. Although there is evidence of this system being used as early as the 13th century, Luca Pacioli was the first to describe it in detail, which allowed others to study and use it for their benefit. Double-entry bookkeeping is beneficial for businesses because it reduces errors, improving the accuracy of accounting records.

Pacioli published this system in his mathematics textbook titled Summa de arithmetica, geometria, proportioni et proportionalità. Although there have been advancements in technology that have allowed systems like this one to be more efficient, the basic idea of the double-entry method has remained mostly unchanged for over 500 years.

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