Commercial revolution

In European history, the commercial revolution saw the development of a European economy – based on trade – which began in the 11th century AD and operated until the advent of the Industrial Revolution in the mid-18th century. Beginning with the Crusades, Europeans rediscovered spices, silks, and other commodities then rare in Europe. Consumer demand fostered more trade, and trade expanded in the second half of the Middle Ages. Newly forming European states, through voyages of discovery, investigated alternative trade routes in the 15th and 16th centuries, which allowed European powers to build vast, new international trade networks. Nations also sought new sources of wealth and practiced mercantilism and colonialism. The Commercial Revolution is marked by an increase in general commerce, and in the growth of financial services such as banking, insurance, and investing.

Origins of the commercial revolution

The term itself was used by Karl Polanyi in his The Great Transformation: "Politically, the centralized state was a new creation called forth by the Commercial Revolution...". Later the economic historian Roberto Sabatino Lopez, used it to shift focus away from the English Industrial Revolution. In his best-known book, The Commercial Revolution of the Middle Ages, Lopez argued that the key contribution of the medieval period to European history was the creation of a commercial economy between the 11th and the 14th century, centered at first in the Italo-Byzantine eastern Mediterranean, but eventually extending to the Italian city-states and over the rest of Europe. This kind of economy ran from approximately the 14th century through the 18th century. Walt Whitman Rostow placed the beginning "arbitrarily" in 1488, the year the first European sailed around the Cape of Good Hope. Most historians, including scholars such as Robert Sabatino Lopez, Angeliki Laiou, Irving W. Raymond, and Peter Spufford indicate that there was a commercial revolution of the 11th through 13th centuries, or that it began at this point, rather than later.

Maritime republics and communes

Italy first felt huge economic changes in Europe from the 11th to the 13th centuries. Typically there was:

a rise in population―the population doubled in this period
an emergence of large cities
the rebuilding of the great cathedrals
substantial migration from country to city
an agrarian revolution
the development of commerce

In recent writing on the city states, American scholar Rodney Stark emphasizes that they married responsive government, Christianity and the birth of capitalism. He argues that Italy consisted of mostly independent towns, who prospered through commerce based on early capitalist principles and kept both direct Church control and imperial power at arm's length.
Cambridge University historian and political philosopher Quentin Skinner has pointed out how Otto of Freising, a German bishop who visited central Italy during the 12th century, commented that Italian towns had appeared to have exited from feudalism, so that their society was based on merchants and commerce. Even northern cities and states were also notable for their maritime republics, especially the Republic of Venice and Genoa. Compared to absolutist monarchies or other more centrally controlled states, the Italian communes and commercial republics enjoyed relative political freedom conducive to academic and artistic advancement. Geographically, and because of trade, Italian cities such as Venice became international trading and banking hubs and intellectual crossroads.
Harvard historian Niall Ferguson points out that Florence and Venice, as well as several other Italian city-states, played a crucial innovative role in world financial developments, devising the main instruments and practices of banking and the emergence of new forms of social and economic organization.
It is estimated that the per capita income of northern Italy nearly tripled from the 11th century to the 15th century. This was a highly mobile, demographically expanding society, fueled by the rapidly expanding Renaissance commerce.
In the 14th century, just as the Italian Renaissance was beginning, Italy was the economic capital of Western Europe: the Italian States were the top manufacturers of finished woolen products. However, with the Black Death in 1348, the birth of the English woolen industry and general warfare, Italy temporarily lost its economic advantage. However, by the late 15th century Italy was again in control of trade along the Mediterranean Sea. It found a new niche in luxury items like ceramics, glassware, lace and silk as well as experiencing a temporary rebirth in the woolen industry.
During the 11th century in northern Italy a new political and social structure emerged: the city-state or commune. The civic culture which arose from this urbs was remarkable. In some places where communes arose, they were absorbed by the monarchical state as it emerged. They survived in northern and central Italy as in a handful of other regions throughout Europe to become independent and powerful city-states. In Italy the breakaway from their feudal overlords occurred in the late 12th century and 13th century, during the Investiture controversy between the Pope and the Holy Roman Emperor: Milan led the Lombard cities against the Holy Roman Emperors and defeated them, gaining independence.
Similar town revolts led to the foundation of city-states throughout medieval Europe, such as in Russia, in Flanders in Switzerland, in Germany, and in Prussia.
Some Italian city-states became great military powers very early on. Venice and Genoa acquired vast naval empires in the Mediterranean and Black Seas, some of which threatened those of the growing Ottoman Empire. During the Fourth Crusade, Venice conquered a quarter of the Byzantine Empire.
The Maritime Republics were one of the main products of this new civic and social culture based on commerce and exchange of knowledge with other areas of the world outside western Europe. The Republic of Ragusa and the Republic of Venice, for example, had important trade communications with the Muslim and Hindu world and this helped the initial development of the Italian Renaissance.
By the late 12th century, a new and remarkable society had emerged in Northern Italy, rich, mobile, and expanding, with a mixed aristocracy and urban borghese class, interested in urban institutions and republican government. But many of the new city-states also housed violent factions based on family, confraternity and brotherhood, who undermined their cohesion.
Image:Italy 1494 shepherd.jpg|thumb|right|250px|Italy in 1494, after the Peace of Lodi
By 1300, most of these republics had become princely states dominated by a Signore. The exceptions were Venice, Florence, Lucca, and a few others, which remained republics in the face of an increasingly monarchic Europe. In many cases by 1400 the Signori were able to found a stable dynasty over their dominated city, obtaining also a nobility title of sovereignty by their formal superior, for example in 1395 Gian Galeazzo Visconti bought for 100,000 gold florins the title of Duke of Milan from the emperor Wenceslaus.
In the fourteenth and fifteenth centuries, Milan, Venice, and Florence were able to conquer other city-states, creating regional states. The 1454 Peace of Lodi ended their struggle for hegemony in Italy, attaining a balance of power and creating the conditions for the artistic and intellectual changes produced by the Italian Renaissance.

Colonialism and mercantilism

The deterioration of the climate that brought about the end of the medieval warm period caused an economic decline at the beginning of the 14th century. However, demographic expansion continued until the arrival of the Black Death epidemic in 1347, when ca. 50% of the European population was killed by the plague. The economic effects of a labor shortage actually caused wages to rise, while agricultural yields were once again able to support a diminished population. By the beginning of the 15th century, the economic expansion associated with the commercial revolution in earlier centuries returned in full force, aided by improvements in navigation and cartography.
Geopolitical, monetary, and technological factors drove the Age of Discovery. During this period, the European economic center shifted from the Islamic Mediterranean to Western Europe. This shift was caused by the successful circumnavigation of Africa, which opened up sea-trade with the east: after Portugal's Vasco da Gama rounded the Cape of Good Hope and landed in Calicut, India in May 1498, a new path of eastern trade was possible, ending the monopoly of the Ottoman Turks and the Italian city-states. The wealth of the Indies was now open for the Europeans to explore; the Portuguese Empire was one of the early European empires to grow from spice trade. Following this, Portugal became the controlling state for trade between east and west, followed later by the Dutch city of Antwerp. Direct maritime trade between Europe and China started in the 16th century, after the Portuguese established the settlement of Goa, India in December 1510, and thereafter that of Macau in southern China in 1557. Since the English came late to the transatlantic trade, their commercial revolution was later as well.

Geopolitical factors

In 1453, the Ottoman Turks took over Constantinople, which cut off overland trade routes between Europe and the Far East, so alternative routes had to be found. English laws were changed to benefit the navy, but had commercial implications in terms of farming. These laws also contributed to the demise of the Hanseatic League, which traded in northern Europe. Because of the Reconquista, the Spanish had a warrior culture ready to conquer still more people and places, so Spain was perfectly positioned to develop their vast overseas empire.
Rivalry between the European powers produced intense competition for the creation of colonial empires, and fueled the rush to sail out of Europe.