Economic principles are enduring, although the applications of it change because the environment changes. This chapter examines the enduring power of principes at three points in time: 1840, 1910 and today. These dates are chosen because they represent milestones in the evolution of the business environment.

The world in 1840
This era was dominated by a lack of knowledge about prices, buyers and sellers, and the associated risks, this dramatically shaped the nature of business. With a few exceptions most firms in 1840 were small and mainly runned by individuals or families. Because of problems with transportation and communication, firms could not justify investing in the acquisition of raw materials or the distribution of final products, even though this might have allowed them to more efficiently coordinate the production process. As a result, production and distribution required the coordination of many small, local firms. Market conditions at that time made any other system impractical.

Conditions of business in 1840: Life without a modern infrastructure
The dominance of the family-run small business in 1840 was a direct consequence of the infrastructure that was then in place. Infrastructure includes those assets that assist in the production or distribution of goods and services that the firm itself cannot easily provide. Infrastructure facilitates transportation, communication, and financing. The government has a key role in a nation's infrastructure, because it affects the conditions under which firms do business.

Transportation underwent a revolution in the first half of the nineteenth century, due to the harnessing of steam power. By 1840, railroads had begun to replace the horse and wagon.

Communications: in the 1840 communication mainly took place via public mail. The first modern form of communication was the telegraph, which required laying ires between points of service. By the 1860's transatlantic cables connected the US and europe.

Finance: Financial markets bring together providers and users of capital, enabling them to smooth out cash flows and reduce the risk of price fluctuation. However, in the first half of the nineteenth century, financial markets were immature. Investors found it hard to protect themselves against the increased risks of larger capital projects. Private banks mainly provided their clients with credits. By offering short-term credit, banks smoothed the cash flows of buyers and sellers and facilitated reliable transactions.

Production technology: production technology was relatively undeveloped in 1840.

The lack of a modern infrastructure limited economic activity in 1840.

Doing business in 1910