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What is Commerce?

By Ava Einsley
Updated May 16, 2024
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Commerce is the exchange of items of value between persons or companies. Any exchange of money for a product, service or information is considered a transaction of commerce. The trading of items for other items also is included in the definition of commerce. These trades do not need to occur physically in a single location, and transactions made over the Internet — also known as ecommerce — became widespread during the early 21st century.

Early Barter Systems

In early times, people traded their excess goods with others for needed goods. So, for example, when a produce farmer had excess crops, he might trade with a neighbor who raised animals. This deal enabled both of them to have meat and produce to eat. This type of barter does not always work effectively, however, because the produce farmer's crop might not be ripe when the animal farmer has animals to trade. Such situations led to the development of money, which permits each type of good to be traded more easily.

The Effects of Transportation

Before technological advances, people were able to trade only face to face, usually with their neighbors. As new methods of transportation developed, people became able to trade with people from distant places. The discovery of America resulted from an attempt to improve commerce. That is, it was an unplanned result of the Europeans' attempt to find a more direct route to Asia to trade goods for Indian spices.

Technological Advances

Historically, trades between distant places was very expensive. Modern technology has not only greatly reduced the costs of foreign trade, it also has made foreign trade available between individuals. Both the Internet and efficient postal and shipping systems have made international commerce convenient for businesses as well as individuals.

Capitalism

Commerce is an essential element of capitalism. In a capitalistic economy, an individual or company develops something of value that it can sell. Commerce allows this entity to profit from its trade, and the more widespread the trades can be, the more demand there will be for goods and services.

Trades Involving Currency

Today, most trade involves a form of currency, which might be in the form of paper money or coins, but trades also can be made electronically from one account to another. When a needed product is developed, people trade money for that product. Needed services are obtained by people who trade money for those services. When new ideas are secured by patent, people trade money for the rights to those ideas. Although the most important part of commerce is trade for necessities, it also promotes new ideas, technologies and inventions through the prospect of making a profit.

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Discussion Comments
By WildRacer — On Jul 15, 2010

@ToolMaker – You're right, commerce was greatly enhanced by the institution of commodity money. An interesting thing to note, however, is that the development of "savings" also led to the development of "hoarding."

Where once it made very little sense to obtain more goods than you could feasibly use before said goods went bad, the advent of money gave people reason to desire disproportionate amounts. This new form of commerce has both improved our standard of living and increased the disparity between individuals' living situations.

By ToolMaker — On Jul 15, 2010

The development of commodity money was a great boon to the growth of commerce for a number of reasons. First, as the article mentions, it alleviates temporal problems (e.g. being desirous of a good, but unable to barter for it as you wait for your own good to become marketable). This relates to a second benefit to commerce, which is the creation of savings. And finally, commodity money allows individuals more freedom to make an exchange and then pick amongst the goods provided by many more people than the individual they just sold to – it's simply more efficient.

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