{515}

CHAPTER XI

THE CAPITALISTIC REVOLUTION

SECTION 1. THE RISE OF THE POWER OF MONEY

[Sidenote: Reformation and economic revolution]

Parallel with the Reformation was taking place an economic revolution even deeper and more enduring in its consequences. Both Reformation and Revolution were manifestations of the individualistic spirit of the age; the subst.i.tution, in the latter case, of private enterprise and compet.i.tion for common effort as a method of producing wealth and of distributing it. Both were prepared for long before they actually upset the existing order; both have taken several centuries to unfold their full consequences, and in each the truly decisive steps were taken in the sixteenth century.

It is doubtless incorrect to see either in the Reformation or in the economic revolution a direct and simple cause of the other. They interacted and to a certain extent joined forces; but to a greater degree each sought to use the other, and each has at times been credited, or blamed, with the results of the other's operations.

Contemporaries noticed the effects, mostly the bad effects, of the rise of capitalism, and often mistakenly attributed them to the Reformation; and the new kings of commerce were only too ready to hide behind the mask of Protestantism while despoiling the church. Like other historical forces, while easily separable in thought, the two movements were usually inextricably interwoven in action.

[Sidenote: Rise of capitalism]

Capitalism supplanted gild-production because of its fitness as a social instrument for the production and {516} storing of wealth. In compet.i.tion with capital the medieval communism succ.u.mbed in one line of business after another--in banking, in trade, in mining, in industry and finally in agriculture--because it was unable to produce the results that capital produced. By the vast reward that the newer system gave to individual enterprise, to technical improvement and to investment, capitalism proved the aptest tool for the creation and preservation of wealth ever devised. It is true that the manifold multiplication of riches in the last four centuries is due primarily to inventions for the exploitation of natural resources, but the capitalistic method is ideally fitted for the utilization of these new discoveries and for laying up of their increment for ultimate social use. And this is an inestimable service to any society. Only a fairly rich people can afford the luxuries of beauty, knowledge, and power, that enhance the value of life and allow it to climb to ever greater heights. To balance this service, it must be taken into account that capitalism has lamentably failed justly to distribute rewards. Its tendency is to intercept the greater part of the wealth it creates for the benefit of a single cla.s.s, and thereby to rob the rest of the community of their due dividend.

[Sidenote: Primary cause of the capitalistic revolution]

So delicate is the adjustment of society that an apparently trivial new factor will often upset the whole equilibrium and produce the most incalculable results. Thus, the primary cause of the capitalistic revolution appears to have been a purely mechanical one, the increase in the production of the precious metals. Wealth could not be stored at all in the Middle Ages save in the form of specie; nor without it could large commerce be developed, nor large industry financed, nor was investment possible. Moreover the rise of prices consequent on the increase of the precious metals gave a powerful stimulus to manufacture and a {517} fillip to the merchant and to the entrepreneur such as they have rarely received before or since. It was, in short, the development of the power of money that gave rise to the money power.

In the earlier Middle Ages there prevailed a "natural economy," or system in which payments were made chiefly in the form of services and by barter; this gave place very gradually to our modern "money economy"

in which gold and silver are both the normal standards of value and the sole instruments of exchange. Already in the twelfth century money was being used in the towns of Western Europe; not until the late fourteenth or fifteenth did it become a dominant factor in rural life.

This change was not the great revolution itself, but was the indispensable prerequisite of it, and in large part its direct cause.

[Sidenote: Money-making kings]

Gold and silver could now be h.o.a.rded in the form of money, and so the first step was taken in the formation of large fortunes, known to the ancient world, but almost absent in the Middle Ages. The first great fortunes were made by kings, by n.o.bles with large landed estates, and by officers in government service. Henry VII left a large fortune to his son. Some of the popes and some of the princes of Germany and Italy h.o.a.rded money even when they were paying interest on a debt,--a testimony to the increasing estimate of the value of hard cash. The chief n.o.bles were scarcely behind the kings in acc.u.mulating treasure.

Their vast revenues from land were much more like government imposts than like rents. Thus Montmorency in France gave his daughter a dowry amounting to $420,000. The duke of Gandia in Spain owned estates peopled by 60,000 Moriscos and yielding a princely revenue. Vast ransoms were exacted in war, and fines, confiscation and pillage filled the coffers of the lords. After the atrocious war against the Moriscos, the duke of {518} Lerma sold their houses on his estates for 500,000 ducats.

[Sidenote: Officials]

In the monarchies of Europe the only avenue to wealth at first open to private men was the government service. Offices, benefices, naval and military commands, were bought with the expectation, often justified, of making money out of them. The farmed revenues yielded immense profit to the collectors. No small fortunes were reaped by Empson and Dudley, the tools of Henry VII, but they were far surpa.s.sed by the h.o.a.rds of Wolsey and of Cromwell. Such was the great fortune made in France by Semblancay, the son of a plain merchant of Tours, who turned the offices of treasurer and superintendent of finances to such good account that he bought himself large estates and baronies. Fortunes on a proportionately smaller scale were made by the servants of the German princes, as by John Schenitz, a minion of the Archbishop Elector Albert of Mayence. So insecure was the tenure of riches acc.u.mulated in royal or princely service that most of the men who did so, including all those mentioned in this paragraph, ended on the scaffold, save, indeed, Wolsey, who would have done so had he not died while awaiting trial.

It is to be noted that, though land was the princ.i.p.al form of wealth in the Middle Ages, no great fortunes were made from it at the beginning of the capitalistic era, save by the t.i.tled holders of enormous domains. The small landlords suffered at the expense of the burghers in Germany, and not until these burghers turned to the country and bought up landed estates did agriculture become thoroughly profitable.

[Sidenote: Banking]

The intimate connection of government and capitalism is demonstrated by the fact that, next to officials, government concessionaires and bankers were the first to make great fortunes. At this time banking was {519} closely dependent on public loans and was therefore the first great business to be established on the capitalistic basis. The first "trust" was the money trust. Though banking had been well started in the Middle Ages, it was still in an imperfect state of development.

Jews and goldsmiths made a considerable number of commercial loans but these loans were always regarded by the borrower as temporary expedients; the habitual conduct of business on borrowed capital was unknown. But, just as the new output of the German mines was increasing the supply of precious metals, the greater costliness of war, due to the subst.i.tution of mercenaries and fire-arms for feudal levies equipped with bows and pikes, made the governments of Europe need money more than ever before. They made great loans at home and abroad, and it was the interest on these that expanded the banking business until it became an international power. Well before the sixteenth century men had made a fine art of receiving deposits, loaning capital and performing other financial operations, but it was not until the late fifteenth century that the bankers reaped the full reward of their skill and of the new opportunities. The three b.a.l.l.s in the arms of the Medici testify to the heights to which a profession, once humble, might raise its experts. In Italy the science of accounting, [Sidenote: Science of accounting] or of double-entry bookkeeping, originated; it was slowly adopted in other lands. The first English work on the subject is that by John Gouge in 1543, ent.i.tled: "A Profitable Treatyce called the Instrument or Boke to learn to know the good order of the keeping of the famouse reconnynge, called in Latin, Dare et Habere, and, in Englyshe, Debitor and Creditor." It was in Italy that modern technique of clearing bills was developed; the simple system by which balances are settled not by full payment of each debt in money, but by comparing {520} the paper certificates of indebtedness. This immense saving, as developed by the Genoese, was soon extended from their own city to the whole of Northern Italy, so that the bankers would meet several times a year in the first international clearing-house. From Genoa the same system was then applied to distant cities, with great profit, even more in security than in saving of capital. If bills payable at Antwerp were bought at Genoa, they were paid at Antwerp by selling bills on Lisbon, perhaps, and these in turn by selling exchange on Genoa. These processes seem simple and are now universal, but how vastly they facilitated the development of banking and business when first discovered can hardly be over-estimated.

From the improvement of exchange the Genoese soon proceeded to arbitrage, a transaction more profitable and more socially useful at that time when poor communications made the differences in prices between bills of exchange, bullion, coins, stocks and bonds in distant markets more considerable than they are now. The Genoese bankers also invented the first subst.i.tutes for money in the form of circulating notes. In all this, and in other ways, they made enormous profits that soon induced others to copy them.

[Sidenote: Great firms]

Though the Italians invented modern banking they were eventually surpa.s.sed by the Germans, if not in technique at least in the size of the firms established. The largest Florentine bank in 1529 was that of Thomas Guadegni with a capital of 520,000 florins ($1,170,000). The capital of the house of Fugger at Augsburg, distinct from the personal fortunes of its members, was in 1546, 4,700,000 gold gulden ($11,500,000). The average annual profits of the Fuggers during the years 1511-27 were 54.5 per cent.; from 1534-6, 2.2 per cent.; from 1540-46, 19 per cent.; from 1547-53, 5.6 per cent. Another Augsburg firm, the Welsers, averaged 9 per {521} cent. for the fifteen years 1502-17. Dividends were not declared annually, but a general casting up of accounts was made every few years and a new balance struck, each partner withdrawing as much as he wished, or leaving it to be credited to his account as new capital.

[Sidenote: Risks of banking]

Though the Fuggers and other firms soon went into large business of all sorts, they remained primarily bankers. As such they enjoyed boundless credit with the public from whom they received deposits at regular interest. The proportion of these deposits to the capital continually rose. This general tendency, together with the habit of changing the amount of capital every few years, is evident from the following table of the liabilities of the Fuggers in gold gulden at several different periods:

Year Capital Deposits 1527 . . . . . . . 2,000,000 290,000 1536 . . . . . . . 1,500,000 900,000 1546 . . . . . . . 4,700,000 1,300,000 1563 . . . . . . . 2,000,000 3,100,000 1577 . . . . . . . 1,300,000 4,000,000

A smaller Augsburg firm, the Haugs, had in 1560, a capital of 140,000 florins and deposits of 648,000. As all these deposits were subject to be withdrawn at sight, and as the firms usually kept a very small reserve of specie, it would seem that banking was subject to great risks. The unsoundness of the method was counterbalanced by the fact that most of the deposits were made by members of the banker's family, or by friends, who harbored a strong sentiment against embarra.s.sing the bank by withdrawing at inconvenient seasons. Doubtless the almost uniformly profitable career of most firms for many years concealed many dangers.

The crash came finally as the result of the bankruptcy {522} of the Spanish and French governments. [Sidenote: Bankruptcy of France and Spain, 1557] Spain's repudiation of her debt was partial, taking the form of consolidation and conversion; France, however, simply stopped all payments of interest and amortization. Many banks throughout Europe failed, and drew down with them their creditors. The years 1557-64 saw the first of these characteristically modern phenomena, international financial crises. There were hard times everywhere.

Other states followed the example of the French and Spanish governments, England const.i.tuting the fortunate exception. Recovery followed at length, however, and speculation boomed; but a second Spanish state bankruptcy [Sidenote: 1575] brought on another crisis, and there was a third, following the defeat of the Armada. The failure of many of the great private companies was followed by the inst.i.tution of state banks. The first to be erected was the Banco di Rialto in Venice. [Sidenote: 1587]

The banks were the agencies for the spread of the capitalistic system to other fields. The great firms either bought up, or obtained as concessions from some government, the natural resources requisite for the production of wealth. One of the very first things seized by them were the mines. [Sidenote: Mining] Indeed, the profitable exploitation of the German mines especially dates from their acquisition by the Fuggers and other bankers late in the fifteenth century. Partly by the development of new methods of refining ore, but chiefly by driving large numbers of laborers to their maximum effort, the new mine-owners increased the production of metal almost at a bound, and thereby poured untold wealth into their own coffers. The total value of metals produced in Germany in 1525 amounted to $4,800,000 per annum, and employed over 100,000 men. Until 1545 the German production of silver was greater than the American, and copper was almost as valuable {523} a product. Notwithstanding its increased production, its value doubled between 1527 and 1557. The shares in these great companies were, like the "Fugger letters," or certificates of interest-bearing deposits in banks, a.s.signable and were actively traded in on various bourses. Each share was a certificate of partnership which then carried with it unlimited liability for the debts of the company. One of the favorite speculative issues was found in the shares of the Mansfeld Copper Co., established in 1524 with a capital of 70,000 gulden, which was increased to 120,000 gulden in 1528.

[Sidenote: Commerce]

Whereas, in banking and in mining, capital had almost created the opportunities for its employment, in commerce it partly supplanted the older system and partly entered into new paths. In the Middle Ages domestic, and to some extent international, commerce was carried on by fairs adapted to bring producer and consumer together and hence reduce the functions of middleman to the narrowest limits. Such was the annual fair at Stourbridge; such the famous bookmart at Frankfort-on-the-Main, and such were the fairs in Lyons, Antwerp, and many other cities. Only in the larger towns was a market perpetually open. Foreign commerce was also carried on by companies formed on the a.n.a.logy of the medieval gilds.

New conditions called for fresh means of meeting them. The great change in sea-borne trade effected by the discovery of the new routes to India and America, was not so much in the quant.i.ty of goods carried as in the paths by which they traveled. The commerce of the two inland seas, the Mediterranean and the Baltic, relatively declined, while that of the Atlantic seaboard grew by leaps and bounds. New and large companies came into existence, formed on the joint-stock principle.

Over them the various governments exercised a large control, giving them a semi-political character.

{524} [Sidenote: Portugal]

As Portugal was the first to tap the wealth of the gorgeous East, into her lap fell the stream of gold from that quarter. The secret of her windfall was the small bulk and enormous value of her cargoes. From Malabar she fetched pepper and ginger, from Ceylon cinnamon and pearls, from Bengal opium, the only known conqueror of pain, and with it frankincense and indigo. Borneo supplied camphor, Amboyna nutmegs and mace, and two small islands, Temote and Tidor, offered cloves. These products sold for forty times as much in London or in Antwerp as they cost in the Orient. No wonder that wealth came in a gale of perfume to Lisbon. The cost of the ship and of the voyage, averaging two years from departure to return, was $20,000, and any ship might bring back a cargo worth $750,000. But the risks were great. Of the 104 ships that sailed from 1497-1506 only 72 returned. In the following century of about 800 Portuguese vessels engaged in the India trade nearly one-eighth were lost. Even the risk of loss in sailing from Lisbon to the ports of northern Europe was appreciable. The king of Portugal insured ships on a voyage from Lisbon to Antwerp for a premium of six per cent.

[Sidenote: Spain]

Spain found the path towards the setting sun as golden as Portugal had found the reflection of his rising beams. At her height she had a thousand merchant galleons. The chief imports were the precious metals, but they were not the only ones. Cochineal, selling at $370 a hundredweight in London, surpa.s.sed in value any spice from Celebes.

Dye-wood, ebony, some drugs, nuts and a few other articles richly repaid importation. There was also a very considerable export trade.

Cadiz and Seville sent to the Indies annually 2,240,000 gallons of wine, with quant.i.ties of oil, clothes and other necessities. Many ships, not {525} only Spanish but Portuguese and English, were weighted with human flesh from Africa as heavily as Christian with his black load of sin, and in the case of Portugal, at least, the load almost sent its bearer to the City of Destruction.

But Spanish keels made other wakes than westward. To Flanders oil and wool were sent to be exchanged for manufactured wares, tapestries and books. Italy asked hides and dyes in return for her brocades, pearls and linen. The undoubtedly great extent of Spanish commerce even in places where it had no monopoly, is all the more remarkable in that it was at the first burdened by what in the end choked it, government regulation. Cadiz had the best harbor, but Seville was favored by the king; even ships allowed to unload at Cadiz could do so only on condition that their cargoes be transported directly to Seville. A particularly crushing tax was the alcabala, or 10 per cent. impost on all sales. Other import duties, royalties on metals, excise on food, monopolies, and petty regulations finally handicapped Spain's merchants so effectually that they fell behind those of other countries in the race for supremacy.

[Sidenote: France]

As the mariners of the Iberian peninsula drooped under the shackles of unwise laws, hardy sailors sprang into their places. Neither of the other Latin nations, however, was able to do so. The once proud supremacy of Venice and of Genoa was gone; the former sank as Lisbon rose and the latter, who held her own at least as a money market until 1540, was about that time surpa.s.sed, though she was never wholly superseded, by Antwerp. Italy exported wheat, flax, woad and other products, but chiefly by land routes or in foreign keels. Nor was France able to take any great part in maritime trade. Content with the freight brought her by other nations, she sent out few {526} expeditions, and those few, like that of James Cartier, had no present result either in commerce or in colonies. Her greatest mart was Lyons, the fairs there being carefully fostered by the kings and being naturally favored by the growth of manufacture, while the maritime harbors either declined or at least gained nothing. For a few years La Roch.e.l.le battened on religious piracy, but that was all.

[Sidenote: Germany]

In no country is the struggle for existence between the medieval and the modern commercial methods plainer than in Germany. The trade of the Hanse towns failed to grow, partly for the reason that their merchants had not command of the fluid wealth that raised to pre-eminence the southern cities. There were, indeed, other causes for the decline of the Hanseatic Baltic trade. The discovery of new routes, especially the opening of Archangel on the White Sea, short-circuited the current that had previously flowed through the Kattegat and the Skager Rak. Moreover, the development of both wheat-growing and of commerce in the Netherlands and in England proved disastrous to the Hanse. The sh.o.r.es of the Baltic had at one time been the granary of Europe, but they suffered somewhat by the greater yield of the more intensive agriculture introduced at that time elsewhere.

Even then their export continued to be considerable, though diverted from the northern to the southern ports of Europe. In 1563, for example, 6630 loads of grain were exported from Konigsberg, and in 1573 7730 loads.

The Hanse towns lost their English trade in compet.i.tion with the new companies there formed. A bitter diplomatic struggle was carried on by Henry VIII. The privileges to the Germans of the Steelyard confirmed and extended by him were abridged by his son, partly restored by Mary and again taken {527} away by Elizabeth. The emperor, in agreement with the cities' senates, started retaliatory measures against English merchants, endeavoring to a.s.sure the Hanse towns that they should at least "continue the ancient concord of their dear native country and the good Dutches that now presently inhabit it." He therefore ordered English merchants banished, against which Elizabeth protested.

While the North of Germany was suffering from its failure to adapt itself to new conditions, a power was rising in the South capable of levying tribute not only from the whole Empire but from the habitable earth. Among the merchant princes who, in Augsburg, in Nuremberg, in Stra.s.sburg, placed on their own brows the golden crown of riches, the Fuggers were both typical and supreme. James Fugger "the Rich,"

[Sidenote: James Fugger, 1459-1525] springing from a family already opulent, was one of those geniuses of finance that turn everything touched into gold. He carried on a large banking business, he loaned money to emperors and princes, he bought up mines and fitted out fleets, he re-organized great industries, he speculated in politics and religion. For the princes of the empire he farmed taxes; for the pope he sold indulgences at a 33 1/3 per cent. commission, and collected annates and other dues. In Hungary, in Spain, in Italy, in the New World, his agents were delving for money and skilfully diverting it into his coffers. He was also a pillar of the church and a philanthropist, founding a library at Augsburg and building model tenements for poor workers. He became the incarnation of a new Great Power, that of international finance. A contemporary chronicler says: "emperors, kings, princes and governors have sent amba.s.sage unto him; the pope hath greeted him as his beloved son and hath embraced him; cardinals have risen before him. . . . He hath become the glory {528} of the whole German land." His sons, Raymond, Anthony and Jerome, were raised by Charles V to the rank and privileges of counts, bannerets and barons.

Throughout the century corporations became less and less family partnerships and more and more impersonal or "soulless." They were semi-public, semi-private affairs, resting on special charters and actively promoted, not only in Germany but in England and other countries, by the emperor, king, or territorial prince. On the other hand the capital was largely subscribed by private business men and the direction of the companies' affairs was left in their hands. Liability was unlimited.

[Sidenote: Monopolies]