Money

The Richest Man Who Ever Lived by Greg Steinmetz. For centuries, lending (or usury) stood as one of the worst sins in Christianity, proscribed in such biblical texts as Luke 6:35, "Lend and expect nothing in return." The sin was defined as either lending at all or charging interest rates that were too high, but in any event, the practical effect was that the business of lending was left to those of the Jewish faith. That is, until the business became too profitable to ignore, and Renaissance-era families in Venice and Florence elbowed their way in, side-stepping the theological problem by using other names for interest such as penalties, processing fees, gifts and loss charges. [Note that this is the same issue Islamic bankers struggle with today]. In a monumental historical milestone, the matter was ultimately settled by the German Jacob Fugger, the wealthiest man of his era, and his actions set the stage for the modern era of capitalism: "Change came in Germany a century later. Anxious to catch the Italians and lured by interest rates as high as 43 percent, German cities cleared the field of incumbents. Augsburg expelled its Jews in 1438 and used the gravestones from the Jewish cemetery to build a new city hall. A textile trader named Hans Meuthing became the first Augsburger to try finance on a major scale. He made a large loan to Archduke Sigmund of Tyrol, which was backed, just like Fugger's later loan to the duke, by the output of the Schwaz silver mine. Others jumped in, replacing Jewish lenders on transactions, large and small. The German satirist Sebastian Brant noted the development in his best-selling Ship of Fools (1494): 'You borrow ten, eleven's due. They're more usurious than the Jew. Their business now the Jews may lose, for it is done by Christian Jews.' Fugger took lending further than anyone, but even he, like the Italians, used dodges to mask interest. He took silver instead of cash for the Tyrolean activities, making the loan repayments look more like purchases than loans. "The Nuremberg circle [who were competitors to Fugger and the Augsbergians] smartly targeted moneylending as a way to contain Fugger and the new economy he was helping to create. They knew there was no quicker way to stop him than by turning off the cash spigot. ... Fugger had to respond. With his support, Augsburg schoolmaster Sebastian Illsung wrote a defense of lending by focusing on the narrow subject of the Augsburg Contract -- the legal agreement Fugger signed with depositors that promised them 5 percent. Illsung argued the contract was valid if the lender, like the borrower, risked bankruptcy. Then a young theologian named Johannes Eck caught Fugger's eye by echoing Illsung's arguments in a university lecture. Fugger asked Eck to write a dissertation on the Augsburg Contract and enter a debate -- a public showdown with scholars as judges -- to validate it. "Fugger was taking a risk. The Augsburg Contract mayor may not have been legal under church law. But it was in wide use and Fugger needed it to raise money. If Eck lost the debate and the judges declared the contract usurious, Fugger's depositors would refuse to give him money. This would be lethal. It was one thing to operate in a gray area. It was another to engage in a practice specifically ruled heretical. Fugger must have felt extremely confident because he sought nothing short of a Scopes trial, a winner-take-all smackdown pitting dogma against modernity, but with money instead of monkeys at the center. He had at least one precedent on his side. After theologians squared off over the subject of annuities -- the interest-earning pension schemes that cities sold to raise money -- the pope had sanctioned them. Maybe Pope Leo, who had replaced the 'Warrior Pope' Julius II earlier that year, would do the same with the Augsburg Contract. There was also the fact that Leo was a member of the Medici banking family. Legalization would serve his personal interests. Even better was that Leo himself was a borrower of Fugger's. It goes without saying that Leo would be favorably inclined towards someone who gave him money. Johann Maier von Eck "Eck taught at the University of Ingolstadt. He later became notorious for reporting Luther's heresies to Rome and prompting his excommunication. He could advance his career if he won but faced ridicule if he lost. When Eck finished his paper, he submitted it to the university and asked it to host the contest. ... Fugger and Eck turned to Italy where, thanks to Venice and Florence, the universities were open-minded about lending. They found a willing participant in the University of Bologna, Europe's oldest university and among its most prestigious. Thomas Becket, Erasmus, Copernicus and Mirandola had studied there. On his way to Bologna, Eck passed through Augsburg. Fugger assigned him a translator and other assistants. Another Augsburger, the Dominican priest Johannes Fabri, made his own way to Bologna to argue the other side. For all we know, Fugger may have picked Fabri. It was a way of fixing the outcome. But Fabri appears to have been his own man. Johann Fabri "On July 12, 1515, Eck and Fabri met at St. Petronius, the city's mammoth fourteenth-century basilica. The doors opened at four in the afternoon. Eager for a good show, students and professors came to watch and walked past an enormous painting of a hideous, two-mouthed Lucifer -- a reminder of what awaited heretics -- as they took their seats in the pews. Organizers engineered these things to entertain. They allowed heckling and encouraged cheering. Eck and Fabri went at it for five hours. Eck avoided scriptural references and focused on intent. Only evil intentions could make a transaction usurious, he declared. A lender committed usury if he aimed to harm the borrower. But he acted legally if he had a legitimate business interest. When his turn came, Fabri rehashed the old arguments; Aristotle, Aquinas and the rest. Eck thought he crushed Fabri. Three professors in the audience agreed with him. But the judges saw merits on both sides. They refused to call a winner and the contest ended in an unsatisfying draw. "Fugger might have been disappointed, but he could take comfort. The judges had refused to call the Augsburg Contract heretical. Eck and Fabri had presented a cut-and-dried case of charging interest on loaned money, and had given the judges a perfect chance to confirm Luke 6:35. But the judges refused to make a call, a call that could have put Fugger out of business. That was tacit approval. What's more, Fugger's letter to Pope Leo had gotten through and made an impact. Leo ignored the question about debate venues but, in a decree issued that same year, Leo went to the heart of the matter and signed a papal bull that, in direct contradiction of Aristotle and other ancient commentators, acknowledged the legitimacy of charging interest. 'Usury means nothing else than gain or profit drawn from such a thing that is by its nature sterile, a profit that is acquired without labor, cost or risk.' It didn't matter that money wasn't like a cow and provided no milk. Labor, cost and risk were enough to make it unsterile and make interest charges lawful. This was a thunderclap. Usury was a sin. But what defined usury? According to the new doctrine of the church, usury was no longer strictly about what Jesus said about charging interest. It was about charging interest without labor, cost or risk. And what loan didn't involve one of the three? As long as a loan passed that easy test, the lender was off the hook. Fugger's lobbying had paid off in spectacular fashion. He and others were now free to charge borrowers and pay depositors interest with the full blessing of the church. Leo's decree, issued in conjunction with the Fifth Lateran Council, was a breakthrough for capitalism. Debt financing accelerated. The modern economy was under way."

The Richest Man Who Ever Lived: The Life and Times of Jacob Fugger Author: Greg Steinmetz Publisher: Simon & Schuster