The First Economists

"The Misers", by Marinus van Reymerswaele, c.1530.

The 16th Century was a century of transition in Europe.  Although common to summarize it as a "Renaissance", that is perhaps too rosy a monicker, given the travails it went through.   It is more apt to describe it as the passageway between the Medieval and the Modern age, and belonging strictly to neither.  

Humanism and Reformation

For Europe, the 16th Century began audaciously.  The short decade of the 1490s was a bewildering one.  The discovery of America by Christopher Columbus in 1492 and the opening of the sea route to India by Vasco da Gama in 1498 suddenly enlarged the physical boundaries of the Europe -- and, with it, the political, mental and spiritual boundaries of Europeans themselves.  

The Age of Discovery undermined the hitherto authoritative world views of the Ancient Greeks and Medieval Schoolmen.  Any child who had witnessed the marvels of America and Asia being unloaded on to the docks of Lisbon and Cadiz would find the classical pronouncements on geography, zoology, botany, etc. laughable.  And so the scholars wondered: if the Ancients and the Scholastics had been so completely wrong about the physical universe, what else might they have been wrong about? 

And so, in the early 1500s, a spirit of intellectual liberty and iconoclasm swept through the schools of Europe.  It was initially driven by Humanist scholars.  The Humanists had emerged in late 15th C. Italy, and soon spread to northern Europe, notably the Low Countries.  The original impetus was the rediscovery of a new wave of lost works from classical antiquity that flooded the west after the fall of Constantinople in 1453.  This broke the Medieval dependence on Aristotle, allowing them to embrace a wider variety of sources of classical knowledge.  No longer bound to narrow Scholastic pedantry and dogmatic "certainties", the Humanists began to appeal to a merger of reason and religious morality, rather than depend on authority and tradition, as the guide to doctrine. With their exquisite Latin and sharp satire, they reduced old icons and doctrines into objects of derision.  The emergence of the printing press in southern Germany, which was set up in every major European city by the end of the 15th C., allowed them to communicate quickly and efficiently, and helped forge a pan-European intellectual elite.

 The Humanists promoted classical education, particularly in philosophy, literature and history,  particularly among ruling elite, believing it would lead to a revival of public virtue and social harmony.   The early Humanists dreamt boldly and optimistically of a new European order for the new century. They naively believed that once the blinders of stifling dogma were lifted and reason allowed full reign, wars and strife would also come to an end.  The ascension of the young Hapsburg Emperor Charles V in 1519 seemed to offer a practical opportunity to their flights of fancy. The diligent work of his grandfathers had paid off handsomely and Charles V inherited an empire which included much of Europe - Spain, the Low Countries,  Italy, Germany as well as the known Americas. Many Humanists saw in Charles V the best chance yet for the political unification of Europe, the benign "universal monarchy" which would end war and disorderly strife and facilitate Europe's transition into a rational, virtuous utopia.  

But already in the 1520s, the Humanist dream began to unravel before political realities.  France had only just escaped extinction and dismemberment in the ferocious feudal chaos of the previous century and was emerging as a new unified power.  The ambitious Valois monarch was not about to succumb quietly to the universalist aspirations of a bright-eyed Hapsburg teenager.  In 1521, war broke out between France and the Hapsburg Empire which would rage, on and off, for much of the remainder of the century.

Just as political unity and peace was escaping from their grasp, hope for rational doctrinal reform was shocked by the arrival of the Reformation.  The Humanists' iconoclasm had paved the way for Martin Luther.  And while many Humanists were sympathetic to the 95 theses Luther nailed to the door at Wittenberg on that fateful day in 1517, Luther was not one of their own.   The Humanists aimed at doctrinal conciliation through reason, hoping for reform from above, by influencing the minds of the ruling classes and scholars of Europe in their witty, erudite Latin.  But the fiery Luther spoke of confrontation and certainty in his blunt, peasant German.  Luther's  stubborn stance -- "Here I stand; I can do no other" -- despaired the Humanists.  As the schism in western Christendom took shape,  the Humanist dream of a rational, universal church was turned to ashes by the torches of intolerance, sectarianism and dogmatic strife.

By 1555, the Emperor was exhausted and Germany was divided and delivered to its princes.  The Valois-Hapsburg hostilities were suspended by Cateau-Cambresis (1559).  But now it was France's turn to be enveloped in religious chaos. Calvinism, a more radical form of Reformed Christianity, centered at Geneva since the 1540s, had been spreading deeply throughout France.  In the 1560s, a tripartite civil war ripped France apart - the Calvinist Huguenots demanded religious tolerance, the ultras of the Catholic League demanded nothing short of an inquisition while a middle faction of politiques attempted to navigate between them and desperately keep France stitched together.  As the religious militias took to each other's throats, the crown of France tumbled nearly into irrelevance. The resolution - the Edict of Nantes in 1598 - bought an uneasy peace.  The French crown was delivered to the House of Bourbon,  and the great citadels of the west and south of France were left in the hands of the Huguenots, a precarious state-within-a-state.  Now France too was divided.

The Reformation had a substantial impact on European attitudes.    However, the two main protagonists of the Reformation, Luther and Calvin, had different ideas on economic matters.  Martin Luther, on the advice of the logician Philipp Melancthon, did not depart much from the old Scholastic positions.  For instance Luther agreed to the ban on usury and condemned monopolistic practices, financial speculation, importation of luxury goods, etc. with even more verve than the Scholastics had done.  Given the end of Ecclesiastical authorities, Luther insisted that secular authorities step in to enforce these rules, a call for intervention which was may have encouraged later Mercantilism.  His promotion of "political communities" may further explain its nationalistic flavor. In contrast, John Calvin's impact was less associated with Mercantilism and more with the capitalist age which followed it.  Calvin's theology had no room for nationalism or the State, both of which were seen as subordinate to religious authority.  Unlike Luther, Calvin was willing to drop the Scholastic economic doctrines entirely.  He was a critic of the traditional ban on usury, arguing that as long as it was not excessive, it was entirely acceptable.  

Several commentators (notably, Max Weber and R.H. Tawney) have given great relevance to relationship between capitalism and the "Protestant ethic".   Their claim, in effect, is that Calvinist dogma "excused" and even "encouraged" (directly or indirectly) private acquisitiveness and accumulation.  Of course, the mercantile-minded Renaissance princes, many of them Catholics, did not need to subscribe to the doctrines of Luther or Calvin, to justify themselves.  Their Machiavellian outlook and demeanors sufficed.

Rise of Antwerp

The 16th century claimed two other significant casualties - the great commercial empires of the Venetian Republic in the Mediterranean and the Hanseatic League in the North and Baltic Seas.

There is little doubt that the 1400s had belonged to Venice.  In the course of that century, her ancient and deadly rival, Genoa, fell on hard times, while Venice had gone from strength to strength.  Through the markets of Alexandria, Venice had exclusive access to African gold and Asian spices. While the rest of Europe was suffering a precious metal drought and debasing their currencies in a hurry, Venice alone could maintain the purity of her gold ducat.  Venice used these riches to go adventuring in Italy, nabbing great chunks of the Italian mainland, whether through hired mercenary armies, or as foreclosures on her loans. 

But Venice's fortunes changed quickly by the turn of the century.  In 1498, the Portuguese captain Vasco da Gama swung around the Cape of Good Hope, opening up an alternative direct sea route to India.  In a few short years,  the Portuguese quickly seized control of the Indian Ocean lanes and severed Venice's old routes to Asian trade.  As if this was not enough, the Genoese came roaring back into the picture, placing their financing, trade networks  and expertise at Portugal's disposal.  The Genoese helped set up Antwerp as a keystone of a new, rival commercial complex.  Portuguese spice ships returning from Asia would forward their cargo to Antwerp, to be sold throughout northern Europe.  Silver from the new mines of Tyrol and Bohemia, in Venice's backyard, so necessary for the Asian spice trade, were redirected by Augsburg and Nuremberg merchants by river routes up to Antwerp, where it would be loaded onto Portuguese ships heading back to Asia.  In the opposite direction, African gold, carried by the Portuguese from the Akan goldfields of west Africa, poured into Antwerp in exchange for the German silver.   

Just as the Venetian were attempting to come to grips with the new competition, they felt the weight of two military onslaughts. From the east, the rising Ottoman Turks, who had conquered Constantinople back in 1453, learned to sail and took to the sea.  Before the end of the century, the Ottomans had destroyed the Venetian navy and begun nabbing Venice's overseas possessions in the east Mediterranean.  This culminated in the Ottoman conquest of Mameluke Egypt and its all-important commercial port of Alexandria in 1516.  From the west, the crowned heads of Europe finally got their act together and began to fight back back against Venice's pretensions.  In the League of Cambrai, nearly all the major European powers combined to launch a joint offensive on the Most Serene Republic, seeking to dispossess the hated hyperpower of her mainland possessions.   Miraculously, Venice divided her enemies and survived another day. But she was never to be as powerful again.

The new Portuguese-Genoese-Augsburg commercial complex, centered at Antwerp, dominated European commerce for much of the 16th century. But precious metal was a strain. The gold the Portuguese brought in from West Africa was never enough, and the Augsburg silver, however great, soon began running out.  To liberate precious metal for the Asian trade and finance the endless Hapsburg-Valois wars,  Italian and German merchants pioneered the use of correspondence trade and bills of exchange. By the mid-1550s, much of inter-European commerce was conducted by paper. 

Parallel to this, the Hanseatic League, which had once enjoyed as dominant a monopoly in the north as Venice had had in the south, suffered a similar ignominious fate in the course of the 16th C.   The new Antwerp network side-stepped the old Hanseatic channels, and fostered the rise of non-Hanseatic merchants and fleets in the Low Countries.  The Hansa faced not only new competition, but a more technically advanced one as well.  The Hansa's old cogs were not as profitably designed as the new Dutch ships; unable to strike into open ocean, they missed out on the great Atlantic cod-fishing bonanza and overseas trade.  The Hansa were also slow to pick up on the credit  revolution pioneered on the continent.  As the Hansa struggled to compete, they were delivered a series of terrific political blows - their positions in the Baltics were upturned by an expansionary Muscovy,  the always-troublesome king of Denmark had grown more assertive,  and the monarchs of England, finding new sources of finance closer to home, began stripping the Hanseatic merchants of their privileges and, by 1597, had expelled them from England altogether.

The age of Antwerp set in motion the transition of European commercial life from the Mediterranean Sea to the Atlantic Ocean, and eventually from southern Europe to northern Europe, that would accelerate in the 17th Century

The Golden Age of Spain

The Hapsburg empire was divided in 1555 into Spanish and Austrian branches.  The Spanish branch got the lion's share, including the all-important Low Countries and wealthy Antwerp.  In 1580, the Spanish monarch stumbled on another piece of luck when the Portuguese dynasty expired and her Asian commercial empire fell into his lap.  With France crippled by civil war, the Spanish monarch Philip II, could concentrate on internal matters, hammering the once-disparate domains into a centrally-administered kingdom, and presiding over an age of Spanish imperial supremacy.

For his centralizing efforts, Philip II of Spain relied on a growing state bureaucracy, the Holy Inquisition and a standing army in Flanders, three greatly expensive state institutions that, at any other time, would have been fiscally impossible to maintain.  The Spanish monarch needed gold, vast sums of it, to maintain them all.   The conquest of the Aztec and Inca empires in the 1520s and 1530s had given the Hapsburgs two great injections from the accumulated gold stocks of the American empires, topped off with a little gold panning in the West Indies, but that was all quickly spent.  The trickling from the Portuguese sources in west Africa were welcome, but insufficient for the needs of the Spanish crown.

The real jackpot was the massive silver strikes in Zacatecas (Mexico) and above all, Potosi (Bolivia) in the mid-century.  Spanish treasure fleets were soon carrying mind-boggling volumes of silver into the ports of Cadiz and Seville.   The trick was now to turn that silver into the service of a state and army that insisted on being paid on gold.  The Augsburg bankers, the traditional financiers of the Hapsburgs, had been hobbled by the first Spanish state default of 1557.  But the Genoese had risen to replace them.  They erected an intricate money market network centered on three vertices - Antwerp, Besançon (later Piacenza) and Medina del Campo.  There, they pioneered the development of asientos, Spanish state bonds, to be purchased by gold and redeemed in silver.  Silver shipments, touching Cadiz, would make their way to Genoa, where they were swapped for gold in the Italian markets, the silver shipped right back out to Asia, the gold carried overland along the "Spanish Road" to Antwerp. Once spent on Spanish garrisons in Flanders, the gold went back into circulation, so Genoese agents set about recovering it, deploying bills of exchange to clear any imbalance of payments and retain as much gold as possible within Hapsburg crown lands.  

The Genoese-managed terpsichory kept Spanish state finances humming and enabled it to enjoy its ascendancy.  For their services, the Genoese financiers charged huge middlemen slices and exorbitant interest on bridging loans that pricked at the sensitivities of the Spanish Cortes.  It was this parliament that forced the Spanish crown into its second great default in 1575, in an effort to write out the Genoese.  But they soon learned their lesson - with Genoese financing suspended, the Spanish Army of Flanders went unpaid, and in 1576, went on a rampage, destroying nearly a third of the great city of Antwerp.  The sack of Antwerp drove people, merchants and business away from that great commercial city, north to the hitherto sleepy port of Amsterdam, opening a new chapter in the commercial and economic history of Europe.

The Revolt of the Netherlands

The centralizing tendencies of the Catholic monarchs of Spain put them at odds with local authorities.  So, it should be no surprise to find, already by the 1560s, the princes and statholders of the Low Countries trying to push back and reclaim their prerogatives. Mistakes were made, the argument soured, and soon the quarrel between the Spanish monarch and his renegade vassals in the Low Countries careened into all-out open revolt.   In 1579, led by Holland, seventeen provinces of the Calvinist-heavy north seceded from the Spanish-controlled and Catholic-heavy south and declared independence, forming the United Provinces of the Netherlands, a new country who's dizzying ascendancy and fortunes over the next century would be the envy of Europe.

Queen Elizabeth of England's surreptitious support of the Dutch rebels brought the island-kingdom into conflict with the Spanish hyperpower.  In 1588, she narrowly escaped grievous punishment when the Great Spanish Armada met with disaster off the coast.  The individual heroics of England's fledgling pirate-captains, like Sir Francis Drake and Sir Walter Raleigh, zipping defiantly in-and-out of  her Atlantic ports and overseas colonies, mocked the might of the Spain.  Although little more than an irritation to Spain, the overseas adventures of English captains were more significant in changing English mentality. Traditionally, English policy had been focused on her lost dominions in continental France and her commerce had been abdicated into the hands of Italian and Hanseatic merchants.  Now England began entertaining the idea of looking westwards, and maybe going overseas herself.   Her adventurers had build her up a navy from scratch, her merchants had grown more confident.

The Great Inflation

Beyond the superstructure, there were two great underlying economic changes in western Europe: a population boom and the great inflation.  Since the Great Plague of the 1350s, the population of European countries had remained relatively flat - certainly in the countryside.  But this now began to change, and population growth began to pick up in the early 16th C. and would continue into the early decades of the next.   With greater population, came greater demand - for goods and land.  So it is unsurprising that, starting around the 1510s, the prices of commodities, notably consumer essentials like grain, also began a century-long secular rise.  Given that the flat or declining prices of the previous centuries, this is commonly called the "price revolution" or "great inflation" of the 16th C. 

Parallel to this entered a new kind of farmer.  Wealthy urban merchants and manufacturers invested their accumulated  fortunes in land, hoping to capitalize on rising food prices and rents (and acquire the social status associated with landownership),   This  was particularly accentuated in northern Europe, where the Protestant Reformation brought a a lot of church-owned lands into the hands of the princes, who promptly sold them to the highest bidder to finance their wars.   But unlike the old gentry, with their paternalist noblesse oblige towards the peasantry, the nouveau riche brought their urban profit-seeking ethos along with them, treating their farms as just another business, "factories of corn and beef".  Ancient, tradition-bound rural relations between landlord and tenant, already strained by land scarcity, were upset as they were confronted with landlords prepared to enclose land and evict tenants to make way for sheep and other more profitable ventures.  

As capitalist agriculture began to take root, small tenants were turned into wage laborers, adding to a labor supply already expanding with population growth, and kept wages flat despite rising prices.  Although poverty always existed,  the numbers and desperation of the poor increased greatly in scale in the 16th C.  Accentuating the problem, social institutions, like the rural commons and monasteries, which had long served as a safety net for the very poor, were beginning to disappear or had disappeared altogether, leaving many little option but to migrate, roaming the roads, looking desperately for work, begging as they went. 

For many contemporaries, all this seemed to have appeared out of nowhere.   While the effects were visible --  the rising prices, the mass surge of beggars, etc., -- the causes were unknown.  Some dusted off old tried-and-true explanations that had occasionally served in the past,  but the sustained nature of  the new economic distress defied them.  And policy was nearly as lost - no matter how often they were whipped, the beggars simply did not disappear.   

What we have called the "first economists" are the disparate collection of commentators of the 16th Century, who attempted to grapple with the new economic order, and come up with new explanations.  Most had little by way of guidance.  Unlike the Scholastics they were not bound by past writings or authority, but looked to facts as they could see them, and best explanations their wit could reckon.

The first economists wracked their brains to discover its cause of the Great Inflation and how to bring it under control.    "Commonwealth" writers like John Hales, saw it in the new agrarian order.  Many blamed merchants who were "deliberately" withholding goods from the market (which many were, but usually after the inflation set in, in anticipation of higher future prices).  Others blamed foreign commerce, arguing that the export of commodities had created scarcities at home.  Others, observing rising land rents and interest rates, blamed capitalist landlords and unscrupulous bankers.

Some looked to the monetary side of things.  The Sieur de Malestroict, for instance, suggested that if coins have less pure precious metal in them, their "intrinsic value" will decline relative to the prices of other goods. Hence, the recent inflation could be at least partly blamed on the debasement policies of European monarchs.  Where no debasement had occurred, then the falling precious metal content of coins must surely be due to a rise in illegal forgery and "coin-clipping" (the cutting off of the rough edges of minted coins).  Accordingly, the penalties meted out to anybody caught (or suspected) of these monetary crimes were among the most draconian on the books.

However, from the 1550s onwards, a new idea began to take hold that it was not so much the intrinsic value of coins that had declined, but rather that the sheer quantity of coins had increased relative to the total supply of goods. This "Quantity Theory of Money" was first articulated by Nicholas Copernicus in 1526, but it only gained wider acceptance in the latter half of the century.  The Salamanca scholars such as Navarrus, the French jurist Jean Bodin and the Florentine banker Davanzati, were among the more ardent exponents of the Quantity Theory.

For the Quantity Theorists, a rising supply of coins, regardless of the precise way by which it was increased, was the one cause behind all inflation.  They agreed that debasements and coin-clipping may cause inflation, not because they decrease the "intrinsic value" of coins, but rather because they cause more coins to be minted from a given stock of metal.  The Quantity Theorists, particularly Bodin, were keen to associate the surge in inflation in the 1550s and 1560s with the great flows of silver pouring into Spain from America after the discovery of the fabulous Potosí silver mines of Peru.  However, we should note that the Great Inflation was already in place long before any large-scale mining began.

For the ever-watchful Catholic church, inflation posed a second difficulty.  By reducing the value of debt, lenders were thereby forced to charge high levels of interest to compensate for the loss.  Although it seemed just that lenders should recover at least what they lent, it was still usury.  The debate over justum pretium ("just price") was resurrected in Ecclesiastical ranks in an effort to clarify the appropriate commercial practice. The Spanish School of Salamanca led the way in the revision, arguing that the "just price" is exactly what the market decides it is and usury is no great sin.

The 16th Century was a century of transition in Europe.  Although common to summarize it as a "Renaissance", that is perhaps too rosy a monicker, given the travails it went through.   It is more apt to describe it as the passageway between the Medieval and the Modern age, and belonging strictly to neither. It was a century that began with high hopes of universal peace, harmony, rationality and prosperity and ended with more war, more division, more intolerance and greater mass poverty than it began.  The modern world had indeed begun.  And so had economics. 

(For economic thinking in the 15th Century and before, see our page on the Ancients  and Scholastics; for 17th Century economic thinking, see our page on Mercantilism and Social Philosophers).


 

 

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