A history of commerce

by Clive Day

172. Weakness of the Fugger and other banking firms.—The great financial firms of the sixteenth century seem to have been premature. They lacked the permanence of the later joint stock companies, for they still retained the medieval form of a company based chiefly on family relationship, and required constant reorganization. Their success in the hazardous operations of the time depended entirely on the sagacity of the heads of the family, and as genius cannot be transmitted indefinitely they went to pieces ordinarily in the third generation from their establishment. The head of the Fugger firm about 1550 tried to wind up the business and withdraw the capital, but found it impossible to do this, and became involved in more and more enterprises. The balance of the firm in 1563 showed decided weakness; members of the family began to quarrel among themselves; and the firm finally lost in unfortunate loans practically all its accumulations. The bankruptcy of one of these firms involved wide-spread disaster, for as time went on they carried on their business less and less on the money contributed by members, and more and more on their credit. All classes in the community—nobles, burghers, peasants whose savings did not exceed ten florins, even servants—deposited their money at interest with the financiers, and were involved in their fall.

173. Description of business in Antwerp in the sixteenth century.—After considering the new forms of business from the standpoint of individual firms it will be profitable to study them in the city that was the business center of the time, where all the great firms were represented by agents. This city, in the first part of the sixteenth century, was Antwerp, which rose as the medieval port of Bruges declined. There have been, of course, greater cities and greater markets since that time, but never before or since, it is said, has the world seen such concentration of the trade of different peoples in a single place. The town owed its development almost entirely to the foreigners who flocked there to trade, and though it saw less of Italians and Hanseatics than Bruges had done, it was the one great gathering place for the Portuguese, Spanish, English, and German merchants who were now the leaders. It is said that over five hundred vessels sailed in or out of the port in one day, and that the English merchants alone employed over 20,000 persons in the city. The poet Daniel Rogiers said of the Antwerp exchange, “One heard there a confused murmur of all languages, one saw there a motley mixture of all possible costumes; in short the Antwerp bourse seemed to be a little world in which all parts of the great were united.” In contrast with Bruges, trade in Antwerp was almost entirely unrestricted, and this was perhaps the chief reason why the merchants of the time selected it as the place in which to develop the new forms of business.

174. Rise of the Antwerp exchange; its significance.—Antwerp presented in the sixteenth century the first case of a great bourse or exchange, that is, a place in which men meet daily and effect their exchanges without displaying and transferring the wares themselves, by the use of paper securities representing the wares. Such an institution cannot exist until the volume of trade is large enough to cause a steady and continuous flow of wares, in contrast to the spurts that marked the period of the fairs. It requires, moreover, that the objects dealt in be of such a kind that they can be represented at the exchange by some document or sample, so that the buyer can learn the quality of the ware without actually inspecting it. This is possible when a ware can be graded, put into a certain class the characteristics of which are so closely defined and so well known that the buyer needs only to decide whether he cares to take a certain quantity at a certain price.

175. Development of business on the exchanges; produce and money.—The use of the word “ware” in the foregoing description may suggest the produce exchange as the earliest and most important form of the exchange. Produce of various kinds, especially pepper, did form an object of exchange trade in Antwerp; and there was a considerable development of the produce exchange later in Amsterdam. At the “candle-auctions” on the Royal Exchange of London in the seventeenth century, goods were offered with an inch of lighted candle on the desk, and were knocked down before the candle went out; a single parcel of silk, indigo, or spice sold in this way was sometimes worth half a million dollars. The produce exchange, however, did not reach its full development until the nineteenth century, and we shall leave its significance in the commercial organization for later consideration.

The “ware” which formed the main object of trade on the Antwerp exchange was loanable capital, represented by various paper instruments. Princes who desired to borrow money, and who formerly would have applied to individual financiers like the Fuggers, turned to the exchange of Antwerp or of Lyons, where loanable capital from all over Europe was collected. Through the medium of the exchange a French king could and did borrow money of a Turkish pasha; and it was said that payments amounting to a million crowns were made in a single morning without the use of a penny of cash.

176. Advantages offered to industry and commerce by the exchanges.—Antwerp and Lyons had served especially political needs in their loans; they were embarrassed by the insolvency of royal debtors, and soon declined. Their place was taken by Amsterdam, London, Hamburg, Frankfort, and other cities, and with the rise of these new money centers a change of importance is to be noted. The new exchanges attracted capital for investment in private or semi-private economic undertakings, serving the needs of the new companies which were being established. Ordinary people with comparatively small savings would not have known (as they would not know now) where to invest their money if they had not had the stock exchange to turn to for an indication of enterprises seeking capital, and of the current price of the stock. The stock exchange was the natural and necessary accompaniment of the stock company.

Shares of trading and industrial companies and of public debts became the objects of a regular commerce, which was not confined by national boundaries, but which drew capital from all sources. When shares of the Dutch East India Company were put on the market in 1602 they were taken up to a considerable extent by capitalists of Antwerp who no longer had use for their money at home; much of the money needed to rebuild London after the fire of 1666, and a large part of the capital of the Bank of England, came from the Dutch; shares of the English companies trading with Asia and Africa circulated freely on the Amsterdam exchange; a loan to the German Emperor was floated in London.

177. Growth of speculation; early abuses.—Modern forms of speculative business grew up with the exchanges. A pamphlet published as early as 1542 described the “monstrous thing” that Antwerp merchants had devised; they bet with each other on the course of foreign exchange, one saying it would be 2 per cent, one 3 per cent, etc., and afterwards they settled by paying the differences. This is substantially the same operation as that which is carried on regularly to-day. When the trade in shares of stock was established traders would speculate on a rise or a fall, or a combination of both. Shrewd speculators organized a system of news gathering and forwarding which gave them the first knowledge of important events affecting the price of securities, and enabled them to anticipate the turn of the market. London speculators got word through a private channel of the signing of the treaty of Rijswijk in 1697, a day before the English ambassador arrived with the official announcement; their eagerness to buy bank stock aroused suspicion, and the reason for their purchase appeared when the news was published and the price of the stock rose from 84 to 97.

Underhanded methods of trade were common. Speculators would set afloat rumors to depress the price of securities, and then buy in. One day during the reign of Anne in England a well-dressed man rode furiously through the street proclaiming the death of the Queen. The news spread and the funds fell; the Jew interest on the exchange bought eagerly, and were suspected later of being responsible for the hoax, though it was not proved against them. The Englishman, Child, who made a fortune in speculation, and who was called in a pamphlet of 1719 “the original of stock-jobbing,” would have one set of brokers spread rumors of disaster, and sell a little of his stock publicly, while another set bought for him “with privacy and caution”; in a few weeks he would reverse the process and come out ten or twenty per cent ahead.

178. Dangers of the new system of business; promotion of unprofitable enterprises.—The appeal of joint stock companies to the public through the medium of the stock exchange proved to be so effective in gathering capital that a great many worthless undertakings were floated. When times were good, that is, when enterprises had proved successful, when people had saved money for investment and looked with confidence to the future, almost anything in the shape of a company could get subscribers to its stock. The reader should note that there were two sides, one good and one bad, to the new methods by which commerce was being developed. The facility of getting capital from a great number of subscribers made possible more and larger undertakings than had been known before, and was an unmixed benefit when the new undertakings were devised to fill a real need of society. There was, however, a separation before unknown between the subscriber and the undertaking; the contributor of capital might be entirely ignorant of the economic basis of the enterprise, and might sink his money for a return which came late or not at all. There was thus a chance for the diversion of the capital of society to worthless purposes; the business organization had become more powerful, but at the same time more delicate and subject to derangement. We find in this period the beginning of commercial crises marked by the misdirection of invested capital, disappointment of investors, and distrust and lethargy, until spirits rose with the recovery of lost ground, and good times began again.