What is Commerce? In the old days, goods were traded for goods. Production was restricted to domestic consumption. As human wants are unlimited, the mass production of goods was developed.
Due to the growth of civilization and the standard of living of people, business activities were also developed. As a result, money as a medium of exchange came into existence. All business-related activities have shown tremendous growth.
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Business activities are classified into industry and commerce. Here, commerce involves trade and aids to trade such as transport, banking, insurance, warehousing, advertising, etc.
The Barter System
Before the innovation of money, goods were swapped over for some other goods. In order for the barter system to work effectively, the following three conditions must be satisfied.
- Each person must have surplus stock so that he may exchange that surplus with another person willing to transfer his own surplus
- Meeting in person is essential for the exchange of
- The needs of both parties must coincide, i.e., each party is willing to take what the other person is
Difficulties of the Barter System
The barter system envisages a mutual exchange of one’s goods for another’s goods without money as a medium of exchange. The barter system had many disadvantages.
1. Lack of double coincidence of wants: The two people desiring exchange must have a demand for the goods under each other’s possession. For instance, let us take the case of Jack having surplus rice and Henry having surplus wheat.
Now Jack must be in need of wheat and at the same time, Henry must also have the need for rice. Unless their wants match or meet with each other’s assets, they cannot have a straight trade of their goods. Such a coincidence of wants may not always be possible.
2. Absence of a common measure of value or a medium of exchange: Under the barter system, we have a direct exchange of goods against For each exchange we have separate valuation. There is no common denominator of values. It is complex to contrast the values of all items in the absence of a pricing system.
3. Absence of direct contact between producer and consumer: A seller and a buyer may not always have direct contact. A seller and a buyer must have a face-to-face meeting for the barter system to work. Such a meeting in a wider market may not be
Lack of surplus stocks: When there is no surplus stock, the barter system is not possible.
The four difficulties of the barter system listed above were huge obstacles for the development of commerce and trade. Besides, while exchanging or distributing the goods from the place of production to the place of consumption.
Some difficulties are encountered, e.g., person, place, time, risk, knowledge, finance, etc. The introduction of money could remove all these difficulties of the barter system.
The Wheel Of Commerce
In the modern world, we can enjoy a very happy life and a good standard of living because of the development of commerce. Commerce makes available all the stuff we need to direct a happy life.
Commerce refers to all those actions that are essential to bringing goods and services from their place of production to their place of consumption. It comprises trade and aids to trade. The aids to trade include transport, banking, insurance, warehousing, advertising, and communication services.
In ordinary language, the term commerce means the exchange of goods and services of value. But commerce is a more comprehensive term. It includes not only the exchange of goods and services of value but also the services rendered by various other agencies in the free flow of goods and services.
Commerce relates to all economic activities resulting in the production, exchange, distribution, and consumption of commodities and services.
Definition of Commerce
- Stephenson defines commerce as “the sum total of those processes that are engaged in the removal of hindrances of person, place, and time in the exchange of commodities.” Evelyn Thomas defines commercial activities as “activities dealing with the buying and selling of goods and the distribution of finished products from the producers to the customers.”
The Nature of Commerce
Commerce is regarded as to be a part of the business. Some feel that commerce and business are synonymous, but this is not the case. Below are some characteristics that will help in understanding the nature of commerce.
- Economic activities: All economic actions are carried out to earn a profit. Commerce involves all economic activities essential for profit. Some activities may be both economic and non-economic. A trader purchase goods to resale them and earn a profit whereas a consumer buys goods for consumption. In the first case, the purpose is to earn a profit. In the second case, the purpose of earning a profit is absent. Thus, commerce is concerned with all economic activities directed towards earning
- Exchange of goods and services: Commerce based on the trade of goods and services for Goods may be produced for the purpose of resale to customers.
- Earning motive: Profit is an incentive for undertaking all commercial activities. Any activity that does not have the incentive of profit will not be a part of, For example, if a trader gives some goods as a charity then it will not be a part of commerce because the profit motive is missing.
- Creation of utility: Commerce creates form, place, and time utility in
By the conversion of raw material into finished products, the form utility is created. For example, when a carpenter makes furniture out of wood, the goods may not be consumed at the place of production.
The goods may be needed in different places. The goods are therefore taken to those places where they are needed. Transportation facilities help in creating the place utility of goods.
The supplies are also required in different periods of time. It may not be possible to generate the supplies every time they are demanded. The methods go on producing goods as per their capacity. The goods are stored up to the time until they are demanded.
The production is completed at one time and the consumer acquires them as per their necessitate. The storage services produce the time utility of goods.
5. The regularity of transaction: The transaction should be regular. No irregular transaction will be a component of commerce. The sale of old furniture for replacement by new furniture is not a part of commerce. Similarly, the sale of furniture by a furniture dealer is commerce because the transaction is regular.
BUSINESS – INDUSTRY – TRADE
In an economic sense, the term “business” means work, effort, and acts of people, all of which are connected to the production of wealth and activities that in turn have the object of making a profit. Production and the distribution of goods to consumers for a profit constitute a business. The term “business” also includes services.
We may distinguish the business from profession and employment. In the case of the profession, specialized services have to be rendered by professional people like lawyers, engineers, doctors, etc.
They must acquire the qualification set by law or by their association. In the case of employment, the employee has to work as per the agreement and do the work assigned by the employer.
Important Characteristics of Business
- All business activities are mainly concerned with the transfer or exchange of goods and services of value to satisfy human
- Business deals with goods and
- The exchange of goods and services should take place
- An important unique feature of the business is the profit motive.
- The business has a variety of risks, and this may result in massive loss and uncertainty of
Business activities may be classified into two broad categories, namely, industry and commerce.
The industry involves the production of goods and materials. The term industry refers to that part of business activities that concerns itself with an increase in production. When the goods of the industry are used for final consumption they are called “consumer goods.”
Examples are toothpaste, soap, televisions, etc.
But if another industrial undertaking for further production uses the goods of an industry, it is called “capital goods.” Examples are machine tools, spare parts, etc.
The Six Types of Industries
- Extractive industries: Industries that are engaged in the supply of commodities extracted from the earth are called extractive industries. Examples are hunting, fishing, mining,
- Genetic industries: Actions that deal with reproducing and growing certain species of plants and animals with the aim of earning profit from the sale are called genetic industries. Fishery, poultry, and piggery are its examples.
- Construction industries: Industries that are engaged in the construction of buildings, dams, and bridges, are called construction industries. They use the products of manufacturing industries, especially cement, iron, and
- Manufacturing industries: Industries that are occupied in the renovation of raw materials or semi-finished products into refined products are known as manufacturing industries. A cotton textile mill is an example, as it converts raw cotton into yarn and yarn into fine cloth. Two categories of manufacturing industries are continuous and assembling
- Continuous industries: In these industries, raw materials are fed from one end of the factory and they appear as finished products from the other end after passing through a variety of processes. Examples are textile, paper, and sugar
- Assembling industries: In this type of industry the components are produced by different industries and assembled to turn out new useful products, such as in the form of cars, bicycles, computers,
Trade means the buying and selling of goods for money. There are two people involved in trade, namely, the buyer and the seller.
Hindrances of Trade
1. Hindrance of people: Producers are few in number and are separated from millions of consumers. the manufacturer cannot deal directly with each and every purchase. This means that the producer and the consumer do not know each other.
This trouble is called “personal hindrance.” But in real life, we do not even think that such a hurdle is present. Specialist or professional middlemen operate in the process of buying and selling goods. They provide a link between producers and consumers.
Wholesalers, retailers, and intermediaries buy and grasp the goods and arrange for their sale or distribution to consumers in various
2. Hindrance of place: Goods are produced in a few places but are required for use at different places. Geographical distance separates producers and consumers. This difficulty of distance is removed by transport.
For example, electronic products produced in Japan are sold throughout the world. French wine is widely consumed in Paris and other places with the help of various means of transport. If supplies are not existing at a place where they are needed, their production has no value.
Transport ensures a rapid supply of goods at diverse places where demand exists. It has linked up all the areas of the world and enabled the people of all countries to benefit through the exchange of
3. Hindrance of time: It is common knowledge that certain goods are produced during particular seasons but are demanded throughout the year. Examples are grain, cotton, etc. Similarly, a few goods are demanded only during a particular season but they have to be manufactured and stored much earlier.
For example, wool goods are needed in winter, and umbrellas and raincoats in the rainy seasons, but they have to be produced and stored far ahead of the season. Products must be made accessible at a time when consumers wish or choose to Warehousing removes this difficulty by storing the goods in ready stock to meet any essential or unusual demand.
4. Hindrance of risk: During the movement of goods from place to place or during storage, there is the possibility that the goods may be lost or damaged. Damage by fire, loss due to hurricanes, or deterioration due to natural causes are a few examples of risks. Insurance companies cover various kinds of risks by accepting premiums.
5. Hindrance of knowledge: Consumers may not buy the best products available on the market because they may not possess knowledge of the market Hence it is known as the hindrance of knowledge. The absence of information about products is a great hindrance when buying. It is overcome by means of advertisements and salesmanship.
6. Hindrance of finance: The problem of finance affects the producer, the trader, and the consumer. If the producer is to continue production without any break if the trader is to run his business without lack of stock.
And if the clients are to satisfy their various requirements, sufficient finance is vital for the producer, the trader, the consumer, and all others connected with trade. There is constantly a time gap between production and use and between buy and sale.
Banks and other financial institutions make available the required funds on certain principles and proper securities.
BRANCHES OF COMMERCE
All those activities that are connected with the transferring of goods and services from producers to users come under commerce. In between these two ends, a number of obstacles have to be crossed. The aim of commerce is to make sure a suitable flow of goods and services for the benefit of producers and clients.
There may be trouble with respect to trade, transport, distribution, finance, storage, insurance, publicity, etc. These features are dealt with, and the branches of commerce get rid of diverse difficulties.
1. Trade: Trade removes the hindrance of people through wholesalers, retailers, and mercantile agents. cargo is owned and possessed by those who generate them. Unless these goods go into the hands of the consumers they will have no meaning for society.
Ownership and possession of goods must pass from the producers to the ultimate consumers. Then only consumers can enjoy these goods. This is made possible by the organization of trade. Wholesale traders get goods from the manufacturers and from the wholesale traders.
Retail traders deliver the supplies to the consumers. Hence trade through traders removes the barrier of
2. Transport: Transport eliminates the difficulty of place. Products may be created at places where they are in fewer demands. These goods are delivered to the place of utilization. With the help of transport services, we can form “place utility” in goods.
The goods are taken from a place where there are fewer demands to the localities where they are in extra demand. The place utility helps the producer to increase production and earn a remunerative price. The consumer is also helped by supplying him with the goods that otherwise might not have reached him.
The various modes of transport, i.e., road, rail, sea, and air, have helped the growth of commerce and industry. A producer can manufacture supplies on any scale, according to the
3. Warehousing: Warehousing covers the obstacle of time. Many goods, such as cotton, juice, food grains, sugar, etc., are produced during particular seasons of the year, but they are needed year-round. To make these goods available throughout the year, arrangements must be made for their proper.
Similarly, certain goods are needed in particular seasons, e.g., the wool cloth is required during winter. Raincoats and umbrellas are essential during the rainy season. These goods must be stocked in enough capacity before the start of the season. This is prepared with the help of warehousing.
4. Banking: There is also the difficulty of finance to consider. There is constantly a time gap between the time of production and use. During this time, traders require funds to continue their trade. These funds are made available by commercial banks and other financial
5. Advertisement and salesmanship: Consumers may not be aware of the availability of various goods in the market. Misinformation about goods is a great barrier to buying them. The manufacturer will also like to have extra clients.
Advertisement and salesmanship help in informing consumers about the availability and usefulness of various products in the market. With the advent of radio, television, the Internet, etc., consumer awareness about various goods is increasing.
6. Insurance: There is a risk concerned with transporting supplies from one place to another. This can be a risk of fire or theft. The fear of loss of goods due to any reason is a barrier to the expansion of trade. Insurance companies provide coverage for all types of losses of goods. Insurance coverage has given a boost to not only national trade but also to international.
7. Communication: The buyers and sellers want the services of different agencies for communicating their messages between themselves. The producers notify their clients about the construction of goods. The intending buyers send orders to the manufacturer for the delivery of goods.
The services of post offices, private courier services, faxes, telephones, cell phones, etc., are utilized for communication.
COMMERCE AND TRADE
The two terms “commerce” and “trade” are interrelated. They do not mean the same thing. “Commerce” has much broader inference and value than “trade.” While trade refers to buying and selling by yourself, commerce is concerned with not just buying and selling.
But also facilitates a flat flow of goods and services from the maker to the consumer with the help of aids to trade. Trade means the buying and selling of supplies. A trader buys goods not for his own use but for the reason of sales to other traders and clients at a profit.
Traders act as an agent among producers and consumers and make a profit from buying and selling operations in the path of exchange.
DISTINCTION BETWEEN TRADE, BUSINESS, AND INDUSTRY
|1. Meaning||It is related to the purchase and sale of goods.||Activities concerned with earning money through the production and exchange of goods and services.||Activities that deal with the conversion of raw materials into finished goods.|
|2. Capital||The requirement of capital is less in the trade as compared to business.||The capital requirements and other resources depend upon the nature and operations of the business.||Capital requirements in an industry are greater because it requires heavy investments in plants, machinery, and other assets.|
|3.Scope||Trade deals only with the purchase and sale of goods.||It deals with the production and distribution of goods and services in order to earn|
profit and acquire wealth.
|Industry deals with those goods that relate to primary manufacturing,|
|4. Risk||It involves a greater risk of decreasing|
prices or change in demand.
|The risk element is always present, so profit is uncertain.||The industry involves greater amounts of risk as|
compared to any other activity.
The Importance of Commerce
Every person wants to lead a happy and comfortable life. Every nation wants to attain a high standard of living. This is possible when goods are produced in plenty at a cheaper cost. It enables the smooth flow of goods from production centers to consumption centers.
The continuous flow of goods from one country to another country has to lead to the equalization of prices for many commodities in the international market. By frequent trade contacts, people of different countries have come to know of the culture and civilization of other countries.
As a result, cultural integration takes place at an international level.