Banking and money-lending

New types of fi nancial organization also played a role in this commercial expansion. In the fi fteenth century, the most important European banks were run by Italian merchants in Florence, Venice, and Genoa. They loaned money to individuals and governments, issued maritime insurance on overseas voyages, speculated in foreign exchange, and accepted deposits of coins. Deposit banks with similar functions became common in major cities, but they often made speculative loans and frequently failed. These failures led to the creation of public banks, overseen by government offi cials, of which the fi rst was the Taula de Canvi of Barcelona, founded in 1401. In the middle of the sixteenth century, Naples and Palermo founded public banks, and the northern Italian cities soon followed; those in Genoa were specifi cally designed to handle the gold and silver coming in from the Spanish New World. Public banks were opened in Amsterdam and other Dutch and north German cities in the early seventeenth century, and gradually took over more and more business from private merchant banks. Though both private and public banks issued various forms of paper bills of exchange and statements of deposit, most business in the fi fteenth and sixteenth centuries was carried out with coins – gold fl orins or ducats or écus or nobles for the large transactions of nobles and merchants, large silver gros tournois or groats or guldiner or taler for rents and major purchases, smaller silver deniers or copper pennies, or coins made of a mixture of metals (called billon) for everyday purchases. Mints that made coins were monitored and taxed by government authorities, but generally operated privately. When governments needed money, they ordered mints to make smaller coins or use less precious metal, thus increasing the amount of taxes fl owing to the government for the same amount of metal. Debased gold coins grew smaller and their purity declined from 24 carats to 18 or even less, while “silver” coins turned black because of their high copper content, or grew so thin that they crumbled and bent. Merchants thus often weighed coins rather than counting them, and relied on networks of information about which coins were to be particularly avoided, though debasement still led to infl ation. Certain coins, especially Venetian gold ducats and gold fl orins minted fi rst in Florence and then elsewhere, were widely recognized and became a standard in international exchange in the fi fteenth century. In the sixteenth century, these were joined by the larger Spanish doubloon and the English sovereign, both made from New World gold. New sources of silver in central Europe and the New World also allowed for larger silver coins, such as the English crown, the French franc, and the Spanish piece of eight, so called because it was worth eight of the older Spanish silver coins. Thus when pirate rhymes talk of “gold doubloons and pieces of eight,” they are referring to large Spanish gold and silver coins made from New World metal. Most people – and no doubt many would-be pirates – never saw large gold or silver coins. They paid their taxes and rent and bought food and clothing with small silver or copper or mixed-metal coins. If they needed cash quickly, they went to a local money- lender, who often took an item of clothing or household goods as security on the loan, so acting as a pawnbroker as well. Stands with men and women selling used merchandise of all types, along with other small items not regulated by guilds such as soap or wooden dishes, fi lled the market place of any early modern city. They received their goods from people who needed money, or from the households of people who had died. Many cities required such individuals to register, pay a fee, and swear an oath not to take in stolen merchandise, not to make agreements with each other to fi x prices, and not to take more than a certain rate of commission. During outbreaks of the plague, they were forbidden to sell clothing or bed linen from sick people, and during times of war, they were specifi cally prohibited from selling soldiers’ booty. Such regulations were diffi cult to enforce. “Thieves’ markets” sprang up from time to time, were closed down, opened in another place in town, and were closed down again. Sellers hid things when market offi cials were nearby, leading a frustrated city council in Nuremberg at one point to prohibit female pawnbrokers from sitting while selling, as they suspected the women were hiding illegal merchandise under their long skirts. The market for used merchandise was simply too good and the need for ready cash too great; even smaller towns and villages had a pawnbroker/money-lender or two who facilitated the movement of capital at the lowest level and sold small items. Men and women also loaned their neighbors and family members money through informal agreements, which allowed them to buy food or tools, or perhaps pay back gambling debts. This culture of credit extended up the social hierarchy to the very top, as people relied on their friends and associates to loan them money, often with no more than their personal or household reputation as the guarantee for the loan. The activities of village pawnbrokers differed in scale, but little in kind from those of Europe’s wealthiest merchant-entrepreneurs. Of these, Jacob Fugger ( 1459–1525) of Augsburg in southern Germany was perhaps the most successful in the sixteenth century. His grandfather had been a prosperous weaver and cloth dealer, and Jacob continued to sell cloth, both traditional heavy woolen cloth and newer, lighter varieties, including cotton and fustian, a blend of cotton and linen. He used business techniques that had fi rst been developed in the cities of northern Italy, developing a network of branch offi ces in many parts of Europe and eventually overseas. His agents kept detailed fi nancial records, using account books, ledgers, registers, and double-entry bookkeeping; they also spied on competitors, sending regular reports back to the central offi ce in Augsburg. Fugger loaned money to nobles, church leaders, and rulers, accepting control of mining properties as security on the loans. He gradually established a monopoly of silver and copper mining in Tyrol, Hungary, and Slovakia, which provided him with 1.5 million fl orins profi t. That profi t was recirculated into further loans, and Fugger made an enormous fortune; his contemporaries called him “Jacob the Rich.” He fi nanced the imperial election of Charles V – a Habsburg – in 1519, for which he was given control of mercury and silver mines in Spain; one of these, the Almadén mercury mine, employed more than a thousand people by 1600. Fugger was a fi rm opponent of the Protestant Reformation, and even more opposed to peasant demands for change. He made sure that plenty of copper for casting cannons was delivered from his eastern European mines during the German Peasants’ War. That copper was also put to the same use closer to its origin, when a miners’ revolt broke out in mines run by a Fugger subsidiary in Slovakia in 1525. Miners discontented with their shrinking wages in an era of rising prices attacked company offi cials, and, like the peasants, mixed in some Lutheran ideas; they were defeated, and their leaders arrested and executed. Though the Fuggers had plenty of metal because of their control of mining operations, they also used various types of non-metallic money: paper bills of exchange, bank notes, and personal promissory notes. The Fuggers were patrons of the arts, commissioning paintings, buying books, collecting ancient sculpture and coins, and supporting musicians and composers. Jacob also had philanthropic concerns, building a housing development called the Fuggerei for poor families in Augsburg, many of them less successful weavers. The Fuggerei charged very low rents, but required tenants to be Catholic and pray for Jacob’s soul; the housing development continues in operation today, still charging only a token rent. Jacob Fugger and his descendants became fabulously wealthy by loaning money to rulers and church offi cials, especially the Habsburg family, but this was also their downfall. Spain declared bankruptcy in 1557, 1575, and 1607, which meant that the Fuggers could not claim repayment on their loans. Loans to Spain and the Spanish-ruled Netherlands represented more than half the Fuggers’ assets, and by the middle of the seventeenth century it was clear these would never be repaid; the company was dissolved in 1650. Other merchant families made fortunes nearly equal to that of the Fuggers. The Mendes family of Portugal (later known as the Nasi family), who had been forcibly converted from Judaism, fl ed to the Netherlands, and established large-scale banking operations in Antwerp. Gracia Nasi (1510–68), the widow of the fi rm’s founder, ran the family business from Antwerp, Venice, Ferrara, and eventually Constantinople, making an alliance with Süleyman the Magnifi cent for trading and fi nancial privileges. She reconverted to Judaism, and established an “underground railroad” to get Jews out of Portugal and Spain, convincing Süleyman to grant her a long-term lease on property in Greece where these refugees could resettle. Like Jacob Fugger, Gracia Nasi patronized learning and the arts, especially the publication of Hebrew books, and a number of Jewish scholarly works from the sixteenth century were dedicated to her. Her nephew Joseph Nasi (1524–79) became a close adviser to Sultan Selim II ( ruled 1566–74), and the governor of several territories. His power declined when the Turks reestablished their commercial ties with France, however, and his hopes for a commercial empire centered in Constantinople ended when the Turkish fl eet was defeated at Lepanto in 1571. In the fi rst half of the sixteenth century, Antwerp was the largest center of fi nancial activities in Europe and one of the world’s richest cities. Shortly after Portuguese voyages to the East Indies began bringing in signifi cant amounts of spices, Portugal made Antwerp the main outlet for spices in Europe, and the Habsburg emperors favored the city’s bankers and merchants. The English Merchant Adventurers, a confederation of independent merchants, mostly from London, that controlled the export of English cloth, established their continental base in Antwerp. The fi rst stock exchange or Bourse was set up there in 1460, and in 1531 this moved into an elaborate new building, the fi rst building in the world designed to be a stock and trade exchange. Sir Thomas Gresham (1519–79), an English merchant and royal offi cial in Antwerp, admired this building so much that he persuaded Queen Elizabeth to build an exchange patterned after it in London; this Royal Exchange was built in 1566–7, and became the center of London’s commercial and banking activities. The most profi table business arena was loaning money to governments, for which interest rates could be extremely high, but this was also very risky. Along with the Fuggers, other banking houses in Genoa, Antwerp, Amsterdam, and London made huge loans to governments, which could not keep up with their fi nancial needs in an era of infl ation and frequent warfare, despite charging higher and higher taxes. Some of these were repaid and some were not, for there was no way that a private bank could collect when a government declared bankruptcy. Antwerp reached the height of its prosperity about 1560, just before the revolt of the Netherlands. In 1576, Spanish troops housed in the city, who had received no pay because of the bankruptcy of the Spanish crown, mutinied; they seized everything of value, burned many buildings, raped women, and slaughtered about six or seven thousand city residents. This “Spanish fury” was followed by another round of destruction, the “French fury” in 1583 when the duke of Anjou, the brother of the French king, attempted to take Antwerp from the Spanish. This was unsuccessful, but Dutch troops later blocked Antwerp’s access to the sea, limiting its role in international trade. With this, Amsterdam became Europe’s most important fi nancial and commercial center, aided in its rise by the immigration of Protestant and Jewish merchants and artisans from all over Europe, including Antwerp.