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    Allen Farber's Avatar
    Allen Farber Posts: 190, Reputation: 1
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    #1

    Oct 18, 2016, 06:29 PM
    Capitalism question?
    So I'm trying to watch a video on Capitalism and Socialism and how it originated 17th century Britain with merchants sending ships to other countries to trade with them. Anyway, there's this part I don't understand. "Joint stock companies could finance bigger trade missions and also spread the risk of international trade. But the thing about international trade is sometimes boats sink or a boat could be pirated. If you were a mercantile capitalist, then you lost all your money. but if you own 1/10 of 10 boats, your risk was much better managed. That kind of investment definitely increased wealth."

    So many questions. First off, what does "spread the risk" mean? Second, how did mercantile capitalists lose money by having a boat sink? Third, how did owning 1 out of 10 boats manage risk better? And lastly, what investment was made and how did it increase wealth?

    Please give simple answers with no economic terms that someone starting at the basics wouldn't understand.
    ma0641's Avatar
    ma0641 Posts: 15,681, Reputation: 1012
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    #2

    Oct 18, 2016, 07:52 PM
    If you Google all your questions you will find the answers. Spread of risk, Investment capitalism for sure. If 10 ships were going to the new world and 1 would sink, what could you do to minimize loss. This is the basis of insurance underwriting. Google " how did insurance underwriting start".
    ScottGem's Avatar
    ScottGem Posts: 64,970, Reputation: 6056
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    #3

    Oct 19, 2016, 02:42 AM
    Have you ever tried reason? The answers to your questions are simply common sense and can be easily reasoned out.

    First off, what does "spread the risk" mean?
    Clearly it means sharing the risk so one entity doesn't lose.

    Second, how did mercantile capitalists lose money by having a boat sink?
    Seriously? If a boat sinks the cargo is lost and the investment in that cargo is lost?

    Third, how did owning 1 out of 10 boats manage risk better?
    That's what sharing the risk does.

    And lastly, what investment was made and how did it increase wealth?
    Again Seriously? Do you not have any understand of what trade involves?
    Allen Farber's Avatar
    Allen Farber Posts: 190, Reputation: 1
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    #4

    Oct 19, 2016, 04:06 AM
    Quote Originally Posted by ScottGem View Post
    Have you ever tried reason? The answers to your questions are simply common sense and can be easily reasoned out.

    First off, what does "spread the risk" mean?
    Clearly it means sharing the risk so one entity doesn't lose.

    Second, how did mercantile capitalists lose money by having a boat sink?
    Seriously? If a boat sinks the cargo is lost and the investment in that cargo is lost?

    Third, how did owning 1 out of 10 boats manage risk better?
    That's what sharing the risk does.

    And lastly, what investment was made and how did it increase wealth?
    Again Seriously? Do you not have any understand of what trade involves?
    Yes, I have tried reason and I have googled all of these to back me up and it gave me none of the answers you provided. I looked up spread the risk and it gave the definition "the extent to which an insurance company, by selecting diversified and independent risks that are fairly uniform in size and sufficiently large in number can predict the losses thereon with reasonable accuracy by the law of averages." Not "Sharing risk so one entity doesn't lose". And I do know what trade is. However, I don't understand how investing, risk management, and insurance underwriting have to do with trade.
    joypulv's Avatar
    joypulv Posts: 21,593, Reputation: 2941
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    #5

    Oct 19, 2016, 04:08 AM
    I agree, you aren't thinking. Or you are overthinking. Or you have no confidence.
    You are articulate and eager to learn and clearly know how to use a computer, yet you seem to get overwhelmed for no reason.

    If I had $50,000 to invest, I would 'spread the risk' (of failure) by putting funds in different investments, right? That's intuitive, isn't it? Anyone can spread risk. A farmer can have animals and several crops. Some may die, get diseased, fail for some reason, and the rest have a better chance of minimizing the risk of farming.
    Try sitting back and closing your eyes and telling yourself that you are the best problem solver in the world.
    ScottGem's Avatar
    ScottGem Posts: 64,970, Reputation: 6056
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    #6

    Oct 19, 2016, 04:57 AM
    If you know what trade is, explain it to me. I suspect when you write out the explanation things will start to dawn on you. OIr it will turn out that you don't know what trade is.
    ma0641's Avatar
    ma0641 Posts: 15,681, Reputation: 1012
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    #7

    Oct 19, 2016, 09:23 AM
    Quote Originally Posted by Allen Farber View Post
    Yes, I have tried reason and I have googled all of these to back me up and it gave me none of the answers you provided. I looked up spread the risk and it gave the definition "the extent to which an insurance company, by selecting diversified and independent risks that are fairly uniform in size and sufficiently large in number can predict the losses thereon with reasonable accuracy by the law of averages." Not "Sharing risk so one entity doesn't lose". And I do know what trade is. However, I don't understand how investing, risk management, and insurance underwriting have to do with trade.
    Really?, you are a bit naive about business and trade. If you didn't have insurance and risk management, you wouldn't have trade. Can you absorb your store and inventory burning down? How can you protect yourself? Again, read about the start of insurance underwriting, it is all about maritime trade and spread of risk.
    Allen Farber's Avatar
    Allen Farber Posts: 190, Reputation: 1
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    #8

    Oct 19, 2016, 12:12 PM
    Quote Originally Posted by joypulv View Post
    I agree, you aren't thinking. Or you are overthinking. Or you have no confidence.
    You are articulate and eager to learn and clearly know how to use a computer, yet you seem to get overwhelmed for no reason.

    If I had $50,000 to invest, I would 'spread the risk' (of failure) by putting funds in different investments, right? That's intuitive, isn't it? Anyone can spread risk. A farmer can have animals and several crops. Some may die, get diseased, fail for some reason, and the rest have a better chance of minimizing the risk of farming.
    Try sitting back and closing your eyes and telling yourself that you are the best problem solver in the world.
    Thanks, I appreciate this explanation. But I'm assuming when they say spread the risk in this context, they're talking about having multiple boats instead of one so if one sinks, they'll still have some cargo left, right?
    Allen Farber's Avatar
    Allen Farber Posts: 190, Reputation: 1
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    #9

    Oct 19, 2016, 12:19 PM
    Quote Originally Posted by ScottGem View Post
    If you know what trade is, explain it to me. I suspect when you write out the explanation things will start to dawn on you. OIr it will turn out that you don't know what trade is.
    Trade is (or at least in this period of time) when merchants bought and sold things with other countries.

    Quote Originally Posted by ma0641 View Post
    Really?, you are a bit naive about business and trade. If you didn't have insurance and risk management, you wouldn't have trade. Can you absorb your store and inventory burning down? How can you protect yourself? Again, read about the start of insurance underwriting, it is all about maritime trade and spread of risk.
    I've already looked up insurance underwriting with the definition being " accepting liability and accepting to pay for the risk" which using reason, I assume is from the insurer/insurance company's perspective.
    ScottGem's Avatar
    ScottGem Posts: 64,970, Reputation: 6056
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    #10

    Oct 19, 2016, 03:38 PM
    Trade is the exchange of good and/or services between two parties. No more no less. When trading, one party risks that the goods and/or services traded will be worth what they were traded for. In some trades, the good and/or services are not immediately delivered. So there is a risk that something might happen during transport. This was especially true in international trade since sea travel was fairly risky.

    To limit their risk, traders would put together a consortium of investor to contribute to the trade, thereby limiting the risk to any one individual. Just common sense.
    ma0641's Avatar
    ma0641 Posts: 15,681, Reputation: 1012
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    #11

    Oct 19, 2016, 03:45 PM
    However, I don't understand how investing, risk management, and insurance underwriting have to do with trade.


    Again, read about the start of insurance underwriting, it is all about maritime trade and spread of risk.
    Insurance underwriting started with the maritime trades, products being shipped by boat, no planes then. You either accept risk, avoid risk or transfer risk. I'm trying to ship something to the new world. You spread risk by shipping on more than 1 boat OR, in olden days, captains would bring their shipping manifest to the coffee houses of London, pass them to people who were willing to risk some of their money to MAKE MONEY i.e. Capitalism. These people would sign on the bottom : John Smith 10%-underwrite others would sign until the captain had SPREAD the risk back to people later called underwriters. So, if the ship sank, they would still get paid for the loss. In turn, the underwrites spread the risk by only taking a portion. You would never have trade without shared risk. If you are old enough to drive, you share risk by the deductible you have on the car. If you sell something (trade), ship a package by USPS first class it comes with $50 insurance-you spread the risk back to the PO
    You are making this much more complicated than it is. Unfortunately, you do this with almost all your questions!!
    Allen Farber's Avatar
    Allen Farber Posts: 190, Reputation: 1
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    #12

    Oct 19, 2016, 04:56 PM
    Quote Originally Posted by ScottGem View Post
    Trade is the exchange of good and/or services between two parties. No more no less. When trading, one party risks that the goods and/or services traded will be worth what they were traded for. In some trades, the good and/or services are not immediately delivered. So there is a risk that something might happen during transport. This was especially true in international trade since sea travel was fairly risky.

    To limit their risk, traders would put together a consortium of investor to contribute to the trade, thereby limiting the risk to any one individual. Just common sense.
    Lol if all it took was common sense, everyone would be an economic expert.

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