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Reading: History of Business

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READING 05: History of Business - This should take you only 20 minutes

Businesses have not always existed in their current form; instead, they have evolved slowly from simple enterprises and bartering arrangements into the giant conglomerates and multinational corporations of today's world. The development of modern business has its roots in the agrarian society of the medieval world, in the early trading enterprises that came about as a natural result of the worldwide exploratory expeditions of the fifteenth and sixteenth centuries, in the colonial expansion that ensued, and in the myriad changes that occurred in business surrounding the Industrial Revolution that began in the nineteenth century.

In the typical agrarian societies of the thirteenth to sixteenth centuries, business was limited mainly to local trade. The manorial system that was in place during this period meant that a high percentage of the population was involved in agriculture. The hereditary owner of the manor would lease land to the peasantry and would receive agricultural services or products as payment. Each manor tended to be a self-sufficient unit, with little dependence on outside trade. Among the members of the population of the manor, business tended to be conducted only on a small scale and consisted mainly of bartering of goods and services in the local marketplace.

The scope of business began expanding considerably outside of the local marketplace as exploration of the world expanded. A new type of business, charter companies, came about during this era. Such companies were granted charters by governments, often with monopolistic trade rights for specific products, such as cloth or tea, in specific geographical areas. A charter company was an association of merchants, each of whom traded individually but was subject to a rigid set of rules outlined in a charter agreement that governed all facets of the business, including prices, volumes, profits, and procedures for conducting business.

Business continued to develop during the colonial era as colonialism reinforced the charter companies and also gave rise to forms of business known as joint-stock companies and limited partnerships. Charter companies often played a role in colonialism: the London Company, the Plymouth Bay Company, and the Massachusetts Bay Company were directly involved in the settlement of colonists in North America. Charter companies, however, were quite a risky form of business in that it was possible to lose one hundred percent of one's investment easily. In order to limit the risk, many charter companies began operating on a joint-stock basis; members of the charter borrowed money from investors to finance a particular project and agreed to share profits from the venture with the investors in return. A major problem with joint-stock companies, however, was related to the liability of all investors for any losses incurred by a particular venture. A new form of business, the limited partnership, came about as investors became wary of investing in joint ventures because of their liability. In a limited partnership, the amount of liability of investors was not as great, and more investors were eager to provide capital for ventures that limited the liability of the investors.

As the world moved into the nineteenth century, numerous changes were taking place that greatly influenced the way in which business was conducted in an era referred to as the Industrial Revolution. The entrepreneurial spirit was flourishing, and a system of finance was developing to include the loans and extensions of credit that enabled small businesses to develop into larger ones. A large class of wage-earning labor was emerging as the manorial system broke up and workers moved from rural to urban areas, and the factory system, with its emphasis on efficiency of labor through the specialization and simplification of tasks, was inaugurated. These factors all played a part in the development of the modern system of corporations of today.

1. The word roots in paragraph 1 could best be replaced by 

2. Which of the following would have been LEAST likely to occur in a typical fifteenth-century agrarian society?

    A farmer would work on land owned by someone else.

    A landowner would receive wheat in return for use of land.

    Ownership of land would move from a father to a son.

    A man would go into business trading goods in distant towns

3. The phrase on a small scale in paragraph 2 is closest in meaning to

    with minimal success

    in a limited way

    using tiny measurements

    for insubstantial projects

4. Which of the sentences below expresses the essential information in the highlighted sentence in paragraph 3?

    One way that business developed was that companies were given exclusive rights to conduct certain types of business

    As exploration expanded, many companies wanted to do business in expanded marketplaces.

    During the era of exploration, governments were granted charters to do business in certain areas of the world.

    Governments fought hard against companies that tried to develop monopolistic businesses in certain areas of the world.

5. The word facets in paragraph 3 could best be replaced by 

6. Why does the author mention The London Company, the Plymouth Bay Company, and the Massachusetts Bay Company in paragraph 4?

    To introduce the idea that business continued to develop through colonialism

    To provide examples of a previously stated idea

    To support the idea that charter companies were risky

    To provide examples of a charter company, a joint-stock company, and a limited partnership

7. The phrase in return in paragraph 4 could best be replaced by 

8. The phrase wary of in paragraph 4 is closest in meaning to 

9. What point does the author make about forms of business during the colonial era?

    Charter companies were less risky than joint-stock companies.

    Joint-stock companies were financed entirely by members of charter companies.

    Joint-stock companies were successful because of the limited liability of investors.

    Investors participating in limited partnerships had less liability than investors participating in joint-stock companies

10. The word that in paragraph 5 refers to 

11. What is NOT true about the world of business in the nineteenth century, according to paragraph 5?

    A belief in entrepreneurism strengthened.

    The financial system expanded.

    The working class was becoming established.

    The factory system broke up

12. Select the appropriate sentences from the answer choices that are key points in a discussion of how business has evolved over time. TWO of the answer choices will NOT be used. This question is worth 3 points

    The Industrial Revolution lead to the development of today's system of corporations
    The agrarian societies of the thirteenth to sixteenth centuries were dependent on charter companies for their survival
     Exploration of the world expanded markets
    During medieval times, trade was mainly local
    A number of new types of businesses were prominent during the colonial period
    Limited partnerships meant that investors in ventures had limited liability
Well Done!