Finance

Charles V, money problems, and the Fugger family

In 1523 Jacob Fugger, the wealthy financier, wrote to Charles. Having emphasised his loyalty to the House of Austria, and reminded Charles of his services to his ‘Grandsire, the late Emperor Maximilian’, he continued: ‘It is well known that Your Imperial Majesty could not have gained the Roman Crown save with mine aid, and I can prove the same by writings of Your Majesty’s agents given by their own hand. In this matter I have not studied mine own profit. For had I left the House of Austria and had been minded to further France, I had obtained much money and property, such as was then offered to me’i. Jacob was writing to complain about the failure to repay loans that he had made to the Habsburgs. He must have been either supremely confident of his position or foolhardy in the extreme to write in this way to the most powerful man in Europe. How had this situation come about?

Charles had enormous powers over the life and death of his subjects and in matters such as war and peace but when it came to taxation he was severely constrained by his subjects’ ability and willingness to pay. During the Renaissance many rulers badly needed money for a range of activities that were becoming increasingly expensive: war, bureaucracy, diplomacy, the administration of justice, and, for many, spending on palaces, works of art and displays of wealthi. Charles was by no means the most extravagant in his personal spending but his revenues did not match the rising level of expenditure. Despite all his possessions, he was limited in the amount of money that was readily available for his immediate use. This depended not only on his subjects’ wealth but also on their privileges and rights in each territory.

When the traditional taxes and revenues were not sufficient then other means of raising money needed to be used. New demands for taxes could cause serious problems especially if his subjects knew or believed that the money would be spent outside their lands. Family lands might be sold - but only once. Offices in the judiciary or administration could be handed to the highest bidder. More money could be produced from the mint, but this had the obvious danger of currency depreciation, so that in the end more money did not buy more! The rights to certain taxes were sometimes ‘farmed out’ to individuals or groups who then had the right to collect the taxes for a period of time. Customs duties could be applied to more products and monopolies sold to merchants. ‘Forced loans’ (i.e. loans where there was no choice about the provision of the money and no security that it would be returned) could be imposed on wealthy sections of the community, though the unpopularity of these ‘loans’ is easy to imagine. At various times, in various places, Charles used all of these methods in attempts to increase his revenue.

When all such options failed to meet the pressing needs of the time Charles had to resort to some form of credit. Ready money and credit have always been necessary for commerce to develop and flourish. Without them trade cannot be facilitated and economic development will usually stagnate. Since early times money had often been in the form of metals, although clay tablets were used in the Middle East to promise payment of a specific amount of a certain commodity as early as the 3rdmillenium B.C. and paper money existed in China in the 7th century.ii ‘Bills of exchange’ started to be used by merchants, promising to pay a particular sum (or an amount of a commodity) to the holder in the future when ready cash was not available. Since these ‘bills’ could be sold on for cash or other goods they not only oiled the wheels of exchange and commerce, but also provided the merchants/financiers with the opportunity to make a profit from such an exchange.

But if this system was to become fully acceptable it required a change in attitudes to finance. In medieval Europe, usury - the lending of money for interest - was condemned by Christian teachings whereas there was no such restriction in Judaism.

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In 1179 the 3rd Lateran Council declared that those engaged in usury would be excommunicatedi. To Thomas Aquinas (1225-1274), whose thinking was to remain influential for many centuries, money was a measure of value or an intermediary in exchange and any attempt to gain wealth by usury was wrong. Pope Clement V stated in 1311 that the belief in the right to usury was a heresy. Even as late as the 1580’s Pope Sixtus V declared interest to be ‘detestable to God and man, damned by the sacred canons and contrary to Christian charity’. However the view that usury meant ‘unreasonable’ interest was gaining ground, implying that moderate interest was admissible. The concept of a just price for commodities - that which is fair and affordable - was still widely supported by both Lutheran and Catholic theologians, although merchants believed that the laws of supply and demand meant that they should charge whatever price that they could get. It was increasingly recognised that money was necessary to facilitate trade, and that using it for a moderate profit was acceptable.

If Christianity had traditionally opposed the lending of money for interest there was no such ban for Jews. The Old Testament (Deuteronomy 23: 20-21) held that lending money for interest to a ‘brother’ was forbidden, but that it was reasonable to do so to a ‘foreigner’ii; hence the role of the Jews as moneylenders in medieval Europe. For much of the time this practice was tolerated, because it served a useful function to both rulers and citizens, even though Jews had limited rights and were often permitted to live only in specific areas of towns, the ghettos, one of the first being in Venice. However it also left them vulnerable to persecution, especially in times of economic hardship. In late 13th century England Edward I took advantage of widespread resentment against the Jews, using Christian religious belief to outlaw usury and then expel the Jews in 1290. This benefitted royal finances, through the take-over of Jewish properties, and his popularity, by removing the need for many citizens to repay their debts. Similar actions had already taken place in France and were to re-occur in various parts of Europe in future centuries.

Increasingly those with money to lend developed various means to get around the prohibition on usury. Money lenders were never popular but they were often needed, and given the risks of non-payment of debts, they considered that they ought to be compensated. Many financiers could not see a problem with that or could justify their business methods to their consciences. Some ignored the ban and then asked for forgiveness in confession. Lending to princes was sometimes excluded from the ban since the outcome was believed to be for the general good. Loans were sometimes in the form of commodities which were not covered by the ban. Frequently a sum was added to the original capital as repayment for the ‘trouble, danger and expense’ of the lender.

Centres where the bills of exchange were widely used became known as ‘bourse’ (after bursa the Latin for bag or purse) and grew up in the Low Countries (Bruges, Ghent, Amsterdam and Antwerp), Italy (Venice, Florence, Pisa, Siena and Genoa), France (Lyon and Paris), Spain (Medina del Campo) and Germany (Augsburg and Nuremburg). They had developed from the markets and fairs of medieval Europe where there was a large wholesale trade and a standardisation of goods, so that they could be traded without being seen. Those who transacted many of these exchanges became known as banchiere or bankers, after the banci or benches on which they sat while negotiating their business. 14th century Italian banking houses such as the Peruzzi and Bardi made, but then lost, fortunes. The losses were largely a result of rulers (e.g. Edward III of England) defaulting on their debts. The most famous such family were the Medici of Florence, who converted economic supremacy into political power, while the Fugger and others from southern Germany became prominent in the late 15th and early 16th centuries.

A ruler’s answer to the problem of lack of revenue and the need for immediate funds was to borrow, which Charles did heavily throughout his reign. As for anyone who is entering a financial contract, the level of credit that could be offered would depend upon the belief of the lender that the borrower can, will and must repay the debt.i As the belief declines then the level of security required will increase. The sums added for ‘trouble, danger and expense’ added to the repayment will not always suffice if the likelihood of repayment is low. In such cases it is much better to require solid securities, such as existing assets of the borrower or access to their future revenues. In the case of rulers like Charles, most lenders believed that they ‘could’ pay – eventually; they had revenues from their territories which could be used. Their ‘will’ to pay, however, was often overtaken by short term pressures that might divert funds originally intended to repay a loan.

Whether rulers ‘must’ pay, especially the debts of their predecessors, was more in question. Certainly if they wished to have access to future loans from the same creditors, which they increasingly did, then non-payment was unwise. However in extreme circumstances rulers could declare their state bankrupt. This happened in the second half of the 16th century in Spain and France, a result of the unsustainable expenditure of Charles V and Philip II, Francis I and Henry II. In 1557 both Spanish and French monarchs were bankrupt and this played a major part in bringing about peace in 1559. Cities usually had a better credit rating than rulers, since individual burghers could be made liable for the debts taken on by the city and these burghers, with their increasing wealth, were often able to pay. As a result rulers often used the guarantee of a city to secure loans for themselves or took out loans in the name of a city or a high official.

Charles’ largest creditor was the Fugger family of Augsburg. First recorded as tax-payers in Augsburg in 1367ii, they started as weavers and became involved in the lucrative cloth trade. Within three generations they were in a position to bankroll the Emperor’s election and provide loans that enabled Charles to finance his wars.

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In the 15th century Jacob Fugger the elder (died 1469) became master of the Weavers’ Guild, married Barbara Basinger, the daughter of the master of the Augsburg mint, and had seven sons. Initially the eldest, Ulrich, along with Georg and Peter, took over his growing commercial interests, but when Peter died in 1474 the youngest son, fifteen year old Jacob, who had already started training for a career in the church, joined the businessi. He spent over two years (1477-1479) based in the Fondaco dei Tedeschi, the German business house in Venice on the Grand Canal close to the Rialto bridge, where he learnt double entry book keeping and experienced the Italian methods of business and finance. It was here that he began to develop the drive, the objective view to business deals and the attention to detail that enabled him to thrive.

Augsburg was ideally placed to take advantage of the trade in goods coming in from the east through Venice to northern Europe, such as the spices and silk that the Fugger family were already involved in by the 1470’s. In the late 1480’s and 1490’s they developed access to markets across Europe, from Lisbon to Hungary, from Naples to Antwerp. This, in turn, led to involvement in the growing international financial system. The family also developed close links with the Habsburgs. In 1473 Ulrich Fugger had provided fine clothes for the Habsburg Emperor Frederick III, his son Maximilian, and their entourage, who were travelling to the betrothal of Maximilian and Mary of Burgundy. Maximilian regularly borrowed large sums, for instance in 1496 (148,600 florins), 1507 (200,000 florins), and 1508 (over 130,000 florins), in return for securities such as property (usually land), trading rights, income from silver and copper mines and anticipated future revenues from taxes. Already by 1500 the Fugger’s business had gained control not only of trade in copper but also its production, with mines in Hungary (along with the Thurzo family) and Tyrolii. This is an example of the monopolistic approach that they were to be accused of as their wealth accumulated.

It was Jacob II, known as Jacob ‘the Rich’, who is mainly associated with the growth of the Fugger fortune and achieving its place in history. During the 1490’s the brothers (Ulrich, Georg and Jacob) agreed that they and their male descendants should leave their property in the company (while making provision for the dowries of daughters) so that the family business would remain undivided. With the death of Georg in 1506 and Ulrich in 1510, Jacob became head of the family firm but took his nephews, Ulrich and Hieronymous (sons of Ulrich), Raymund and Anton (sons of Georg), into partnership as ‘Jacob Fugger and Nephews’. Although at times Jacob resisted Maximilian’s requests for further credit, pointing out that earlier loans had not yet been repaid and that the securities of silver and copper had already been pledged for several years to come, he was nevertheless raised to the nobility within the Holy Roman Empire in 1511. His extensive financial network acted as the agent for the transfer of grants from the king of England to the Emperor after 1515i and by 1519 he was in a position to lend Charles over 600,000 ducats in order to secure his election as emperor.

Like Maximilian, Charles was frequently in need of ready money, often to pay for armies. Since the use of mercenary troops was normal practice this created problems. Without ready money there would be no army. The non-payment of mercenaries already engaged would result in desertions or looting and atrocities, thus harming the reputation of the monarch, even though at times they had to collude in order to keep the soldiers loyal. For Charles in particular, given the widespread nature of his territories and commitments, money was not always available in sufficient quantity, at the right time, in the right place, particularly in time of war. The result was that he frequently wished to borrow money and have it paid wherever it was needed, even if eventual repayment was to come from elsewhere. This is precisely what the Fugger family were not only able to offer but became renowned for – at a price. It was not uncommon for this price to be the equivalent of over 10% a year. Jacob’s letter to the Emperor did him no harm at all. When accused of monopolistic practices and usury by those jealous of his position he was able to gain Charles’ support. In May 1525 Charles decreed that contracts which placed wholesale trade in ore in the hands of a few merchants should not be regarded as monopolistic. On 25th October 1525 a further decree provided specific protection for the Fugger mining interests. In this statement the Fugger are described as ‘honest people’ and that they have done nothing that ‘is condemned by law, or is unseemly or criminal’ii. In addition Fugger links with Spain (and Naples) were developing in the early 1520’s, just at the time when the bullion from the New World was starting to flow into Spain in ever increasing quantities. Charles was able to use this new source of income to secure further loans from the Fugger and other financial houses.

Jacob had become one of the richest men in Europe. In 1511 his business had a balance of 196,791 florins; by 1526 he had left for his successors a balance of 2,021,202 florinsiii. A financier to monarchs, a devout Catholic, said to be modest with a pleasant manner, he was envied by many. In addition to the near monopoly he had gained over trade in certain commodities, defended by Charles, he was particularly unpopular for his involvement in what some saw as the abuses of the church because of his links with the sale of indulgences. In his own mind he was able to reconcile his business practices with his God. He was responsible for the construction of the Fuggerkapelle in St Anna’s church, Augsburg (1508-1518) and he funded an early example of a social housing scheme, the Fuggerei, for ‘innocently impoverished’ citizens of Augsburg, which by 1523 had 52 houses available. A model of order and organisation, the wide streets, good water supply, church, school and medical facility provided shelter for those Catholic citizens of Augsburg of good character and proven need, in return for a minimal rent and daily prayers for the Fugger family.

Jacob died childless on 30th December 1525, and leadership of the business passed to his nephew Anton who continued the close links with Charles for another three decades. (see more about this, and how Charles attempted to increase his revenues in his various lands, in ‘Duty and Dynasty’).

The bringing together of political power (Charles V) and financial power (Jacob and Anton Fugger) was criticised on the grounds that resources were used ‘not to finance new productive work, but to finance war loans and speculations’iv. The great demand for credit pushed payments for ‘trouble, danger and expense’ ever higher and these would eventually have to be paid for by the tax-payers, who were therefore paying for the profits of the wealthy lenders. Little wonder that there was hostility towards them. If on the other hand the loans were not repaid, then the ruler would lose the support of the wealthy elements of the population who had provided the loans in the first place. Links with the house of Fugger and other banking houses were of major importance to Charles if he was to achieve his aims. Charles’ reign saw a growing population and developing economic activity in many of his lands, but also increasing taxation levels and often a decline in the real living standards of the people.