A bibliography accompanies the chapter by Cunningham on **Economic change, Cambridge mod. hist., vol. 1, which furnishes the best brief account in English of topics considered in this chapter.
Histories of various countries at the period of the Reformation present descriptions of their agricultural, industrial, and commercial organization; but I know of no general and comprehensive treatment in English of topics treated here.
The only topic on which there is abundant material available is that of commercial organization. See Cheyney, **Eur. background, chap. 7 (chartered commercial companies), chap. 8 (typical American colonizing companies); Hewins, **English trade, chap. 3 (trading companies); Hunter, Hist. Brit. India (East India Co.). R. B. Westerfield, *Middlemen in English business, Trans. Conn. Acad., May, 1915, 19; 111-445, is a scholarly study of the development of the organization of marketing, and W. R. Scott, *The constitution and finance of joint-stock companies, Cambridge Univ. Press, 3 vol., 1910-1912, is an authoritative work on the history of that subject.
CHAPTER XVII
CREDIT AND CRISES
168. Growth of credit business and of banking.—The rise of the joint stock companies was a great step in the development of the power of capital and of credit. Individual savings, which before might have been hoarded and made useless to society, were drawn from their hiding-places to form the capital and loans by which the great companies extended the scope of commerce in this period. Another step in advance, which deserves notice here, was the extension of banking north of the Alps. The medieval doctrine that it was wrong to take interest on loans lost its force when it appeared that loans were wanted by merchants who would put them to a good use; and society concluded that it was wise to encourage the lending of money by permitting the lender to take interest for it. There is a great difference, however, between the lending by an ordinary individual, who has more than he knows what to do with, and the business of lending as practised by a banker. The difference is this, that an ordinary individual lends his own money, while a banker lends that of somebody else. When credit operations have become sufficiently extensive the banker appears as a man who makes dealing in credit his profession. He steps in between the people who have capital but lack the ability or inclination to employ it profitably, and the people who have the ability and inclination to conduct business enterprises but lack the desirable amount of capital. The banker is a specialist in this profession, and by his special knowledge can do more than any one else could to collect the surplus capital and place it where it can be used to the best advantage.
169. Description of the rise of discount and deposit banking in England.—The history of banking is too large a topic to be considered here in detail. The early banks were marked by a number of individual peculiarities, and occupied often a public position as agents of the government; these points need not detain us. The development of ordinary commercial banking can be illustrated by the business of the London goldsmiths in the seventeenth century. The goldsmiths were required by the character of their stock to keep strong-boxes (“safes”), which served the purpose of a modern safe-deposit vault; and they united dealings in gold and silver coin with their original business. They were naturally the persons to whom a man would apply who wanted the means of keeping cash and other valuables more securely than was possible on his person or at his office or home; and thus they received in time considerable deposits from merchants and others. Probably they made some charge at first for the accommodation, but soon they were encouraging deposits by paying some interest, and by undertaking to perform services such as collection and remittance for their customers. They could afford to do this by reason of the fact that they did not let the cash lie idle in their vaults, but lent it to the government and to business men; they had become banks of discount and deposit. A tract published in 1676, entitled “The Mystery of the New fashioned Goldsmiths or Bankers,” gives this account of their operations. “Having thus got Money into their hands, they presumed upon some to come as fast as others was paid away, and upon that confidence of a running Cash (as they call it) they begun to accommodate men with moneys for Weeks and Moneths, upon extraordinary gratuities, and supply all necessitous Merchants that overtraded their Stock, with present Money for their Bills of Exchange, discounting sometimes double, perhaps treble interest for the time, as they found the Merchant more or less pinched.”
170. Rise of “money-power” as shown in the history of the Fugger family.—The reader will perhaps comprehend more clearly the great development of business in the modern period if we follow here the history of one of the families of South Germany which rose to the first rank among the money powers. The Fugger family was descended from a simple country weaver, who settled in Augsburg and died there in 1409. His sons rose to high place in the crafts of weavers and merchants, and accumulated wealth, like many others, by trade in spices, silks, and woolen cloth. Under a grandson, Jacob (1459-1526), who had been trained in Venice, the family business underwent a striking change. We should call Jacob a financier rather than a merchant. He and his brothers continued, it is true, to deal in merchandise, but they made their great profits by dealing in money and capital. If a prince or king wanted a loan they made it to him, charging a good round sum in commission and interest, gaining often a security for their advance, such as a mine or the right to collect some taxes, from which they could make good profit. If a king like Charles V, whose dominions were widely scattered, wanted to disburse some of his revenues in a distant province, they undertook to sell him the necessary exchange and avoided the transportation of the coin itself. Their business extended from Hungary and Poland in the East to Spain in the West, from Antwerp in the North to Naples in the South.
171. Description of the Fugger business.—The records of the Fugger firm have been preserved, and we can learn the extent and character of its business by the statement of its resources as they appeared in 1527. The figures are in florins, of which each had a purchasing power equal roughly to eight dollars to-day.
| Mines (Tyrol, Hungary) | 270,000 |
| Other real estate (city and country) | 150,000 |
| Merchandise (copper, silver, brass, textiles) | 380,000 |
| Cash (in home office and 14 factories) | 50,000 |
| Loans | 1,650,000 |
| Private accounts of associates | 430,000 |
| Various current affairs | 70,000 |
| 3,000,000 |
The reader will note the large sums appearing under mines and merchandise, showing that the Fuggers still maintained their dealings in wares, after they made finance their special business. The chief item, however, is that of loans, which included sums borrowed by the Pope, the Emperor, and kings of Europe. The Fuggers and other great financiers had immense influence on the politics of their time, for they could command money and credit while sovereigns were still trying in vain to build up an adequate revenue system. They made fabulous profits, over 50 per cent a year, in prosperous periods, and the Fuggers managed to make an average profit of over 30 per cent a year for over thirty years. In the case of most firms, however, there were lean years as well as fat ones, and the general average would be very much less. More striking than the rate of profit is the increase in the size of the capital. Taking two Italian banking firms, the Peruzzi about 1300, and the Medici about 1440, and comparing them with the Fuggers in 1546, we find that the capital was about as follows, expressed in modern purchasing power: Peruzzi, $800,000, Medici $7,500,000, Fuggers $40,000,000.