Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

by Ray Dalio

The Commercial Revolution was the move away from a solely agriculture-based economy to one that included trade in a variety of goods. This evolution began in the 12th century, and by 1500, it was centered in the Italian city-states due to a confluence of two factors that enabled them to become terrifically wealthy. First, the wars between Christian Europe and the Ottoman Empire significantly slowed land trade (especially for spices and luxuries) between Europe and the rest of the world, which created a significant opening for maritime trade. Second, a number of Italian city-states developed republican governments modeled after the Roman Republic. Their governments were more inventive and responsive than those in the rest of Europe, which allowed a strong merchant class to develop. Venice was a prime example of this, as its governance system was designed with multiple checks and balances to ensure that there was a more meritocratic approach to government than existed in the rest of Europe. Venice’s leader—called the doge—did not have the right to name a successor and was restricted from bringing family members into government. New doges were chosen by vote by a series of committees whose members, in some cases, were chosen by lot from among several hundred aristocratic families. The Italians produced well-functioning capital markets, supported by new advances in bookkeeping and impartial institutions to enforce contracts. While private and government borrowing weren’t new, ...