Part 40 (1/2)

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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]