Industry, commerce and trade are closely related to one another due to the following reasons.
(i) Industry provides goods and services for distribution by commerce. No commercial activity is possible in the absence of production by industry. Thus, industry provides the base for commerce and services as the backbone of commerce.
(ii) Industrial production is meaningless without the distribution of goods and services by commerce. Commerce provides support to industry by maintaining a smooth flow of goods from producers to consumers. Industry cannot function without commerce and trade. Commerce serves as the life line of industry.
(iii)Trade provides the necessary support to industry by serving as a link between producers and consumers. Trade provides the base for auxiliary activities such as transportation, warehousing, banking, insurance.
Economic Basis of Commerce
Economics is the basis of all commercial activities. Economics is concerned with the satisfaction of human wants. In order to satisfy human wants goods and services are produced.
Exchange or transfer of goods and services becomes necessary once goods are produced. According to Evelyn Thomas, “Economics is the study of man’s behavior in earning his living.
To earn this living, men enter into a wide variety of occupations concerned with the production of goods and services that are needed by community in which they live.”
In economics all economic activities are studied. Human beings make efforts to earn their livelihood through production and distribution of goods and services.
Economics is concerned with the creation and distribution of wealth which comprises goods and services, commerce involves exchange of these goods and services. All the factors and forces which add value to the existing goods help in producing wealth.
Commerce creates wealth by making goods and services more useful to society. Therefore, economics provides a theoretical background for analysing commercial and industrial activities. Commercial intercourse takes place due to the following reasons’
1. Differences in human wants:
Human wants are unlimited, whereas resources available to satisfy them are limited. Every customer likes to make the best use of his resources so as to satisfy his wants as far as possible.
Commerce makes goods and services available at reasonable prices. Things produced anywhere in the world are brought to the place where they are needed by consumers.
2. Division of labour:
Everyone specializes in activities in which he is most efficient. Every country also produces only those products in which its costs are the lowest.
In other words no individual or country is best fitted for the production of all the commodities it requires. This is called the Theory of Comparative Advantage or Costs. It is the basis of trade.
According to this theory every individual or region or country should concentrate in producing those things which it can produce most efficiently.
It should exchange its surplus output with the things it needs but does not produce. Thus, division of labour gives rise to trade and aids to trade.
3. Uneven geographical distribution of resources:
Natural resources are unevenly distributed in different regions and countries. A particular region or country cannot produce all its requirements due to non-availability of certain resources.
For example, petrol is needed in all countries but every country does not have oil fields. Therefore, a region or country obtains those commodities, which it cannot produce itself, from other regions or countries.
The foregoing description clearly proves that the commercial activities of mankind have originated from economics.