A Titan of Old Germany

The Middle Age’s Richest Man Revolutionized Finance. [Morning Reckoning] September 05, 2024 [WEBSITE]( | [UNSUBSCRIBE]( A Titan of Old Germany Frankfurt, Germany September 05, 2024 [Sean Ring] SEAN RING Hi Reader, I’m in Frankfurt, teaching a course on fixed income. It’s my first time roaming through the city, though I’ve spent far too much time using its airport for connecting flights. I’m reminded of a piece I wrote a year ago that’s worth revisiting, thanks to Germany’s dire economic state. Once, a business titan reshaped Europe thanks to his riches and connections to the Habsburgs. No man had a more significant influence on medieval finance and politics than the man you’re about to read about. But so few Americans have heard of him. Well, sit back, relax, and enjoy the biographical piece. Who the Fugger is this? In the annals of history, few names resonate with the opulence and influence of Jakob Fugger. Dubbed 'Fugger the Rich,' this medieval magnate's wealth and power dwarf the riches of many modern billionaires. His story is a tapestry woven with threads of ambition, innovation, and strategic mastery, set against the backdrop of a Europe on the cusp of the Renaissance. Fugger wasn’t just a wealthy merchant but a pivotal figure in his era's economic and political transformation. His life story reads like a grand narrative, intertwining empires' destinies with the evolution of modern finance. Early Life and Background Born in 1459 in the imperial city of Augsburg, then a bustling mercantile center in the Holy Roman Empire, Jakob Fugger was destined for a life beyond the ordinary. His family, already established in the textile trade, provided a fertile ground for his early introduction to commerce. Fugger's education, rare for its breadth and depth during that period, was a fusion of practical business training and a broader grasp of the geopolitical landscape of the time. This blend of knowledge and acumen set the stage for his later exploits. In his early twenties, Fugger traveled extensively, a journey crucial in shaping his global perspective on trade and finance. These formative years were instrumental in developing his understanding of the interconnected nature of European economies and the emerging global trade networks. [WARNING: Apple’s Coming “AiOS” Update?]( [Click here to learn more]( If you have an iPhone, then please pay close attention. Soon, your home screen could generate this strange looking alert. Once it appears on your phone, get ready. Because the world of technology is about to change forever. [Click here now and see the shocking details for yourself.]( [LEARN MORE]( Rise to Power and Wealth Astute, bold financial moves marked Jakob Fugger's ascent to the top of European wealth. His entry into the banking world was almost accidental, born out of necessity and opportunity, but it quickly became the cornerstone of his empire. The pivotal moment came with his foray into financing the ambitions of the Habsburg dynasty, particularly Emperor Maximilian I. This was more than a mere financial transaction; it was a strategic partnership that would yield immense power and influence. His business ventures were characterized by a mix of innovation and risk-taking. He was a pioneer in the use of financial instruments such as bills of exchange and letters of credit, precursors to modern banking tools. A bill of exchange mandates that one party pay a fixed amount of money to another party at a specified time in the future. The entity that creates the bill, known as the drawer, usually issues it to another party, the drawee, who is instructed to pay a third party, the payee, or to the order of the payee. Bills of exchange are often used in transactions between buyers and sellers in different countries. They secure payment for goods or services and can be bought, sold, or traded. A key feature of a bill of exchange is that it can be endorsed to another party, making it a negotiable (in this case, “negotiable” means “tradable” or “transferable”) instrument. This means the legal ownership of the bill and the right to receive the money can be transferred. Bills of exchange are often used to guarantee payment at a future date, which can help manage cash flows and credit risks. A letter of credit is a document from a bank guaranteeing that a seller will receive payment up to the amount specified in the letter, provided certain conditions are met. In international trade, this is particularly useful as it reduces the seller's risk. The seller is assured that they will receive payment if they deliver the goods according to the agreed-upon terms. The buyer obtains the letter of credit from a bank and provides it to the seller. The bank will release the funds to the seller once the goods are shipped and the required documents are submitted. Letters of credit are crucial in international trade, where the buyer and seller may not know each other personally and operate under different legal systems. They offer a level of security in transactions, ensuring that the seller is not at risk of non-payment and that the buyer receives the goods or services as specified. His establishment of joint-stock companies was revolutionary, predating the famed Dutch East India Company by decades. But, the Dutch East India Company was the first publicly traded joint stock company. Joint-stock companies - like today’s publically traded companies - have several defining features: Shared Ownership: In a joint-stock company, ownership is divided into shares, each representing a portion of the company. Individuals or entities can buy and sell these shares, and they are known as shareholders or stockholders. Limited Liability: Shareholders in a joint-stock company typically have limited liability. This means they are only liable for the company's debts and obligations up to their invested amount. The shareholders' personal assets are generally protected if the company goes bankrupt or faces legal issues. Capital Accumulation: One of the main advantages of joint-stock companies is their ability to accumulate large amounts of capital. By selling shares, a company can raise significant funds from a broad base of investors, making it easier to finance large-scale projects and ventures. Transferability of Shares: Shares in a joint-stock company can be freely bought and sold (transferred) on stock exchanges or privately. This transferability makes it attractive for investors, who can liquidate their investments if necessary. Separate Legal Entity: A joint-stock company is a separate legal entity from its owners. This means it can own property, enter into contracts, sue, and be sued in its name. Governance Structure: Such companies are usually managed by a board of directors elected by the shareholders. The board makes major decisions and oversees the company's overall strategy, while executives appointed by the board manage the day-to-day operations. Perpetual Succession: Joint-stock companies continue to exist even if the ownership or the board members change. This perpetual succession is not dependent on the life of its shareholders or directors, giving the company stability and an indefinite lifespan. Without these three innovations, we simply don’t have world trade or modern finance. Major Business Ventures and Achievements The scope of Fugger's business ventures was vast, covering everything from mining operations in Central Europe to trade expeditions to the Far East and Africa. His investment in the mining industry was a testament to his business acumen and a strategic move to control essential resources. The Thuringian copper mine, for example, provided him with not only immense wealth but also a commodity in high demand across Europe. Fugger’s involvement in the spice trade was another cornerstone of his empire. He understood the value of these commodities in a way that few others did, capitalizing on the burgeoning demand for luxury goods in Europe. His trade routes were not just commercial enterprises; they were geopolitical tools that helped him build a network of influence that extended far beyond the borders of Augsburg. His monopoly over the European copper market was akin to controlling a precious lifeline of the continent's economy. This control afforded him leverage over commercial and political realms, making him indispensable in European power dynamics. Political Influence and Relationships Jakob Fugger's wealth and business acumen catapulted him into the upper echelons of European politics. His financial support was crucial in securing Charles V's election as Holy Roman Emperor, which reshaped European politics for decades. His influence extended beyond mere financial transactions; he was a crucial player in the complex chess game of European politics. His carefully cultivated relationships with monarchs and church leaders allowed him to navigate the tumultuous political landscape of the time. He balanced his business interests with political alliances, often acting as a mediator and advisor to the most powerful figures of his era. Legacy and Impact on Banking and Finance Jakob Fugger’s contributions to the field of finance were revolutionary. His pioneering of financial instruments like letters of credit and bills of exchange laid the groundwork for the modern financial system. His practices in banking and finance were ahead of their time, setting the stage for a more interconnected and efficient economic world. His legacy in finance is comparable to that of modern financial innovators. Fugger was a visionary who saw the potential of financial markets long before the concept of globalized economies had taken shape. His impact is felt even today in the principles and practices of banking and trade. Personal Life and Philanthropy Despite his immense wealth and influence, Fugger's personal life was marked by a commitment to his community and a deeply ingrained sense of responsibility. His establishment of the Fuggerei, a housing complex for those in need that still operates today, is a testament to his philanthropic vision. He was a devout Catholic, and his faith played a significant role in his charitable endeavors. His personal life was characterized by a balance between his ambitious business pursuits and a commitment to social welfare. This aspect of his character often contrasts with the typical image of a shrewd and ruthless businessman, showcasing a complexity that defines the man behind the wealth. Wrap Up Jakob Fugger's life and achievements represent a pivotal chapter in the history of finance and economics. He was more than just a merchant or a banker; he was a visionary who transformed the economic landscape of his time. His story is a blend of ambition, innovation, and strategic mastery, underscored by a nuanced understanding of the power of wealth. Fugger was not just a man of the Middle Ages; he was a figure who laid the foundations for the modern economic world, a legacy that continues to influence the way we understand and engage with finance and economics. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [Urgent: Claim Your Copy Of This New Book From America’s #1 Retirement Expert!]( [Click here to learn more]( Forget everything you’ve ever been told about retirement. According to [this new book]( – written by America’s #1 retirement expert – you don’t have to wait until you’re 65+… and you don’t need millions of dollars. [The strategy you’ll find outlined inside this book]( is completely different… All you have to do is tap into the little-known income streams revealed inside this book… And you’ll learn exactly how you can generate almost effortless income every month… instantly, in some cases! [And today, for a limited only, you have the chance to claim a copy of this book for just $1. Click here now to claim your special book offer.]( [LEARN MORE]( In Case You Missed It… A Guide for America’s Monetary Revival Sean Ring, Editor [Sean Ring] SEAN RING Good morning Reader, The doom and gloom surrounding the Presidential race is both undeniable and justified. America seems tapped out. It’s out of money. It has lost the moral high ground. It resorts to coercion to keep its allies – or rather, vassal states – in line. And it prints money to cover its lies. There’s a reason the Founding Fathers wrote hard money into the Constitution. Article 1, Section 10 of the Constitution reads as follows: No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility. The Fathers knew that the new government wouldn’t succeed for very long with elastic fiat paper money. Heck, “not worth a Continental” became a saying soon after the Continental Congress began issuing Continental notes. From [AIER]( In 1775, practically at the outset of hostilities, the Continental Congress authorized an issue of $2 million in paper money. By the end of 1776, $25 million was in circulation, already at a 30 percent discount relative to silver. By the end of 1777, $38 million was in circulation, at a 70 percent discount relative to silver. By the end of 1779, $192 million was in circulation, and $1 in paper money was worth only 1 or 2¢ in silver. The states were issuing their own paper money, contributing to the inflation. So, from our own history, we know elastic currencies all go to their intrinsic value: zero. And we even know how to get out of the mess: by making gold and silver legal tender. But in these dark times, it’s worth learning how another empire bought itself another 700 years. We don’t concentrate too much on that empire in our history classes, much to our detriment. The Byzantine Empire has much to teach us, particularly about how to get out of an elastic currency hole. The Byzantine Empire offers a critical case study of the effective restoration of economic stability through monetary reform. As the United States grapples with the consequences of its long experiment with elastic money, it’s worth examining how the Byzantines saved themselves from similar turmoil. This historical blueprint could provide a roadmap for America to reclaim financial integrity and stability. But first, let’s review why elastic fiat paper money is a bad thing. Problems with Elastic Money One of the most significant risks of elastic money is inflation. As the money supply increases, the value of money decreases, leading to higher prices for goods and services. We still haven’t recovered from Bidenflation in 2022 and may never do so. With no tangible value backing it, fiat currency is susceptible to devaluation. This devaluation erodes savings and diminishes purchasing power. The dollar has lost 97% of its purchasing power since the Federal Reserve came into being in 1913. The ability to print money can lead to fiscal irresponsibility. Governments may finance deficits and debt through money creation rather than sound economic policies, leading to long-term economic instability. You’re living through a case study in fiscal dominance, which is when a legislature handcuffs a central bank from doing its rightful job of raising rates and forces the bank to buy the government’s debt. Now, let’s go back in time to see how the Byzantines made a mistake and corrected it. The Byzantine Example: From Crisis to Stability A Brief History of Byzantine Currency The Byzantine Empire, which arose from the Eastern Roman Empire, initially continued the Roman tradition of solid gold coinage with the solidus. However, by the 7th century, the empire faced severe economic pressures: invasions, plagues, and internal strife. These challenges led to the debasement of their currency. The once-reliable gold solidus became increasingly adulterated with lesser metals, undermining trust in the currency and destabilizing the economy. By the 10th century, the Byzantines had realized the perils of a debased currency and initiated a series of reforms. Under the leadership of emperors like Constantine VII, the gold content of the nomisma (the Greek term for the solidus) was restored to its former purity. This move re-established the currency’s integrity, stabilized the economy, and restored trust both domestically and internationally. The Byzantine Reforms The Byzantines recommitted to a high gold content in their primary coinage, re-establishing the nomisma as a coin of significant value and reliability. Byzantine rulers enforced strict controls to maintain the gold content, preventing future debasement. With a stable and trustworthy currency, the Byzantine economy flourished. Trade expanded, and economic confidence was restored, leading to several centuries of relative prosperity. The answer is quite simple, but not easy. Get America back on the gold standard and stop printing its way out of trouble. Money has to be reliable and trustworthy. The American Experiment with Elastic Money The United States’ monetary policy has undergone significant transformations, especially since the abandonment of the gold standard with the Nixon Shock in 1971. This shift marked the beginning of the elastic money era, characterized by the Federal Reserve’s ability to expand and contract the money supply at will. While this system offers flexibility in responding to economic crises, it also presents risks, including inflation, currency devaluation, and loss of fiscal discipline. We’ve experienced all these things in the past few years. Learning from the Byzantines: Steps for U.S. Monetary Reform First Step: Reestablish a Hard Money Standard The first step for the United States is to reestablish a hard money standard, akin to the Byzantine return to the gold nomisma. This could be done in one of two ways. Pegging the U.S. dollar to a fixed quantity of gold would limit the Federal Reserve’s ability to print money indiscriminately. This move would stabilize the currency and restore confidence domestically and internationally. If returning to the gold standard is politically or practically unfeasible, the U.S. could introduce a new gold-backed currency alongside the existing dollar. This dual system would allow market forces to determine the preferred medium of exchange. Second Step: Implementing Strict Monetary Controls Just as the Byzantines enforced strict controls to maintain the gold content of their coinage, the U.S. would need robust mechanisms to uphold the integrity of its hard money standard. The U.S. must establish an independent monetary authority to oversee the implementation and maintenance of the hard money standard. This body should operate free from political influence to ensure objective decision-making. Finally, listen to Ron Paul’s excellent advice: conducting regular audits and transparent reporting on gold reserves and monetary policy would foster trust and accountability. Third Step: Fiscal Discipline and Economic Policy Monetary reform must be accompanied by sound fiscal policies to ensure long-term economic stability. The U.S. must reduce fiscal deficits through prudent spending and efficient tax policies. This move would complement the hard money standard by reducing the need for debt financing through money creation. It must also create tax incentives for savings and investment that would support economic growth and stability. A stable currency would naturally encourage these behaviors by preserving the value of savings. Fourth Step: Restoring Confidence and Encouraging Trade Hopefully, this step takes care of itself. A stable, gold-backed currency would restore confidence in the U.S. dollar, encouraging domestic and international trade. With a trustworthy currency, consumers and businesses would be more likely to engage in long-term planning and investment, driving economic growth. A gold-backed dollar would be attractive in international markets, potentially becoming the preferred currency for global trade. This move would enhance the U.S. position in the global economy and increase demand for the dollar. Wrap Up The Byzantine Empire’s return to hard money offers valuable lessons for the United States. By restoring the integrity of their currency, the Byzantines stabilized their economy and laid the foundation for centuries of prosperity. The U.S. can replicate this success by committing to a hard money standard and implementing complementary fiscal and economic policies. The United States stands at a crossroads. The experiment with elastic money has yielded the current undesirable state, and the risks of continuing on this path are becoming increasingly evident. By learning from the Byzantine Empire and returning to a hard money standard, the U.S. can restore economic stability, control inflation, and foster long-term prosperity. The path forward requires courage and discipline, but the rewards are substantial. A stable, trustworthy currency would benefit all Americans, preserving the value of their hard-earned money and fostering a more robust and resilient economy. The Byzantine blueprint is a proven model, and it’s time for the United States to embrace it. By adopting these reforms, the U.S. can overcome the economic challenges posed by elastic money and secure a stable and prosperous future for posterity. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Sean Ring] [Sean Ring, CAIA, FRM and CMT]( is a former banker and financial educator and is the editor of the Rude Awakening. Sean has trained interns and graduates from Goldman Sachs, Morgan Stanley, Citi, Bank of America, Standard Chartered Bank, DBS (Singapore), the Abu Dhabi Investment Authority (ADIA), Bank Indonesia (the central bank), HSBC, Barclays, RBS, and BlackRock. 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