Chapter 4
Entrepreneurs and Entrepreneurship in Medieval Europe
THE FIRST USE OF THE WORD ENTREPRENEUR comes to us from the late Middle Ages when this French loan word was used to describe a battlefield commander. Only very gradually was the word's meaning extended to the battlefield of business. Along the way it was used to describe the “director or manager of a public musical institution,” before the late-nineteenth-century economist Richard T. Ely rather sniffily wrote in his Introduction to Political Economy that “we have been obliged to resort to the French language for a word to designate the person who organizes and directs the productive factors, and we call such a one an entrepreneur.” The Oxford English Dictionary goes on to trace the ready adoption of the word by subsequent economists, including Keynes and of course Schumpeter, before it became worthy to be studied and cultivated in schools and institutes of higher learning.1
But surely if the word is modern, the activities it describes are not, for “productive forces” and their directors are as old as civilization. Yet the European Middle Ages-traditionally defined as the millennium from 500-1500 CE-I will argue deserve a special place in the history of entrepreneurship, for it was at the end of those thousand years that unique and characteristic qualities of behavior and character were assigned to a particular social group. These “merchants” by the fourteenth century were described in the Germanic languages as skilled in the art of the merchant, which in Flemish and German was Coopmanscepe or Kaufmannschaft, etymologically related to English's salesmanship but with a meaning much closer to our word entrepreneurship. Dante Alighieri, himself a product of the merchant city of Florence, also offers merchants a special circle in Hell where the sin particular to their profession (usury) is punished in picturesque and pungent fashion.2 In other words, by the end of the medieval period, merchants came to direct many of society's “productive forces” within cities and were subject to the corrective judgment of a society still bound to Christianity's mission to heal the rift between God and humanity and gain individual salvation for all the baptized.
From Ancient to Medieval (1–500 CE)
Edward Gibbon famously attributed the end of the ancient world to the triumph of barbarism and Christianity, as if those elements were foreign to Roman civilization by circa 500 CE. But in fact, Christianity in its Romanized form was the medium through which the migrating Germanic tribes came to know and desire the benefits of Roman civilization. For better or worse, the distilled essence of several millennia of Mediterranean civilizations, from ancient Mesopotamia to Egypt, was expressed in Christianity, that offspring of Judaism; and the central Italian city from which the most successful Mediterranean-based empire of the ancient world had its beginnings, served as the cult center for a new civilization whose political and economic foundations would take shape in areas relatively little influenced by the ancient Roman Empire except in memory. However aimlessly and unintentionally, the early medieval world took shape from the decayed remains of the Roman provincial world.
The Economics of Lordship
Karl Marx and others have famously labeled the Christian/German hybrid that arose after 500 CE as a “feudal economy,” without, however, agreeing on a precise definition of this invented term. Much recent controversy notwithstanding, it is still useful to label as feudal a legal and social system whereby a religious/military elite exercised control over a largely servile peasantry through both a monopoly of armed force and a compelling vision of human society and its purpose. Inspired by the threefold nature of their God, western European society was to consist of three sorts of people: those who prayed, those who fought and, most numerous, those who worked. Its mission was individual and collective salvation brought forth through preparation for Christ's Second Coming. From the eleventh century, this vision of “Right Order in the World” became a program of a reforming papacy under whose leadership internal discipline was preached and to a more limited degree enforced, while the boundaries of Christendom were pushed outward into lands held by Muslims, Slavs, Greeks, and Celts (Duby 1982).
Though theologically inspired, western Europe never became a theocracy chiefly because of the complementary but somewhat competing ideology of the warrior elite of Europe, who by the twelfth century called themselves knights and their common culture, chivalry. Built upon a series of military improvisations designed to repel a highly mobile adversary (Vikings, Magyars, Saracens) the chivalric class (“those who fought”) monopolized the technology of fighting on horseback with lance, sword, and shield, acting in formation under structures of command, and enforcing their will through the practice of castle building. Medieval knights insisted upon a divine sanction for their own power independent of that of popes, priests, and monks. Its expression assumed a variety of forms, from the literature of epic and romance, to tournaments and crusades, and a culture of conspicuous consumption proper to the ideal of “living nobly” (Keen 2005).
Entrepreneurial Lordship
Though differing slightly in mission, lords spiritual and lords temporal alike depended on a collection of rights and rents owed them by workers whose labor produced the material basis for this civilization. These “serfs” (from the Latin servi or slave) settled mostly in village communities in an institutional form historians call manorialism, which is best understood as the sum of man-made productive forces brought to bear on the fields, forests, and pastures of the European countryside. In return for possession-though not outright ownership-of land, European peasants owed their lord labor on his land, and they owed various in-kind and monetary payments as well. Thus they were obliged to have their grain ground in the lord's mill, their bread baked in the lord's oven, and were not free either to choose the crops they raised or to pick up stakes and migrate elsewhere without their lord's permission. On the other hand, a peasant household, unlike a slave's, could not be broken up and sold by the lord; serfs had rights to remain on the land and had customary rights against outright confiscation of the products of their labor on the land.
This new labor system was deployed to furnish the lords of Europe a diet and material existence shaped by their mixed cultural past. On the one hand, Romans had long subsisted on grain, especially wheat, usually baked into bread or cooked as a porridge; accompaniments could be a bit of meat, vegetables, with wine as the preferred beverage. Germanic peoples had long been pastoralists and expected meat and other animal products on their table. Thus a mixed farming system of cereal cultivation and animal raising took root across the arable midsection of western Europe and was transplanted in turn to the new European colonies in central and eastern Europe, Ireland and Spain, even to the semifrozen expanses of Greenland and Iceland. But a number of practical problems faced the generations of lords and farmers in the first medieval half-millennium (Hunt and Murray 1999, 250).
The dissolution of the Roman Empire in the west had been preceded and accompanied by wholesale neglect of much of the agrarian infrastructure. The majority of the grain consumed in Italy and elsewhere was grown in North Africa and Sicily on slave-worked plantations, and was acquired on contract by urban governments for public distribution. Undercut by large-scale agriculture and depopulated, much of the Italian and cisalpine countryside reverted to marsh and forest. Huge swaths of northern Gaul were never farmed at all because the soil type was foreign to Mediterranean cultivation methods and investments in technology and labor were never feasible. Providing incentives to peasants and investing in labor-saving technologies were the hallmarks of the largely anonymous revolution produced by enterprising lords.
Investment in technology by European lords consisted of the major implements needed to till the fields. In the north of Europe, these, as well as the draft animals needed to propel them, were a considerable investment, involving a stout iron plowshare, a moldboard to turn over heavy clay soils, and a team of two to four oxen, or more rarely horses (Langdon 1986). Such heavy, wheeled plows more than justified their expense, and by the eleventh century were the standard tillers of the fields across most of northern Europe. And by this time, the large swath of plains from central France to Poland was well on its way to becoming the breadbasket of Europe.
A second implement provided by the lord but benefiting all was the watermill. Like the heavy plow, watermills had been known and used by the Romans. But medieval lords faced with labor shortages in the countryside invested in the construction of innumerable mills across Europe-England in 1086 had some 6,082-and this spared peasants the work of milling their own grain, so that their labor could be directed to more productive ends. This was especially true for women's work, which had traditionally included the hand milling of grain for domestic consumption. By the twelfth century, the windmill had joined the watermill as a flexible and effective technology that could be put to many uses (Lucas 2006; Langdon 2004). These uses went well beyond milling of grain and included mills that sawed lumber, mills that hammered metals, mills devoted to fulling of cloth, and on and on.
Improvement in technology and land use alone could not have produced the surge in production achieved in Europe by the turn of the millennium. Enhanced production of cereal crops and animals demanded more lands beyond what had been settled islands of traditional village communities often surrounded by forest. The conquest of the medieval forest frontier from the ninth to the thirteenth century is perhaps the best demonstration of the power of entrepreneurial lordship: lords provided capital and incentives to peasants in order to capture their labor for a variety of objectives. Here lords-monasteries, princes, bishops, and so on-offered special privileges and power over newly won agricultural land. Such incentives caused settled rural communities to chip away constantly at the surrounding wasteland, bringing more and more of it under the plow.
The second form of lord-peasant cooperation that helped revolutionize agriculture was the recruitment of settlers to lands newly obtained by conquest. To secure colonists, lords often drew up agreements with representatives of prospective settlers, offering terms far more favorable than those of the old population centers. In exchange for payment of a small tax per homestead, such colonists received much more power over the land they farmed as well as rights that amounted to personal freedom. One example was Wichmann, archbishop of Magdeburg (1152–92) who sent out locatores to make the pitch for settlers from among the relatively crowded countryside of Flanders and Holland. The attractions were considerable: freedom from all forced labor on the lord's land, and possession of land in return for a relatively small rent. By the late twelfth century, German speakers were settled in eastern Europe from Estonia to the Carpathian Mountains. Nor all were farmers. It was Germans who worked the gold and silver mines that were developed to exploit the mineral deposits discovered in the Slavic midsection of Europe (Bartlett 1994).
What explains the dynamic growth at the core of rural Europe in the centuries from the end of Roman civilization and the High Middle Ages? Certainly neither form of lordship—seigneurial or ecclesiastical—had entrepreneurial growth as its raison d'être. Yet intended or not, Europe's escape from backwardness was driven by demand generated by lords great and small, from the most obscure bishop to the holder of the most isolated castle. This demand was both inherited from the Roman past and developed from the Germanic roots of chivalry, yielding a sophisticated and often expensive level of material culture given to conspicuous display and consumption. Dietary expectations, for example, were a remnant of the Mediterranean-based expectations of bread and wine, with olive oil as the edible fat of choice. Transplanting such a diet to the soil and weather conditions of Europe north of the Alps became the central challenge of Dark Age agriculture, and resulted in a hierarchy of bread grains produced, from wheat for the lords, to barley, rye, and spelt for the peasant. Beverages were most often grain-derived ale for commoners, with wine reserved for the wealthiest even among the lords. Stock raising always remained an adjunct to grain farming in the medieval countryside, with pork the favorite meat and cattle and sheep distant runners-up (Biddick 1989; Berman 1986).
Yet the requirements of diet were only the starting points of lordly desire. Churches and monasteries required vestments and relics, buildings and books. Knights required horses and armor, swords and lances; and castles themselves became ever more elaborate in materials and design from their beginnings as wood palisades, which were replaced by stone structures after 1100. And all Christians felt the compulsion to journey on pilgrimage in search of spiritual and physical healing, with the greatest sinners obliged to travel the longest distances.
The following are a few examples of enterprise conspicuous before the turn of the medieval millennium. Ecclesiastical demand kept a long-distance trading network alive throughout the Dark Ages. Some of the remarkable variety of items traded are unsurprising, thus common liturgical goods such as incense; and silk textiles; and other spices used for medicinal purposes (McCormick 2001, 291–93). What is surprising is the frequency and quantity of relics of Mediterranean provenance that came to form major collections in the ecclesiastical heartland of Francia. By the year 1000, for example, the surviving collection at Sens in Burgundy numbered over 600 items. A significant number originated from Mediterranean saints' shrines, and many of those came from the distant eastern Mediterranean. A second Frankish relic collection, this one at Chelles (Ile de France), reached its height slightly later in time, therefore showing more evidence of trading contact with Italy (especially Rome) and the Holy Land. Thus recent research shows the endurance of long-distance communication and trade links in Francia from 500 to 750 CE.
Even by charitable estimate, the world of the early Franks was profoundly underdeveloped by the standards of the Muslim and Byzantine states that surrounded it. Yet entrepreneurs remained at work in the interstices of those cultures and economies, supplying the one western commodity much in demand across the Mediterranean from the eighth through the tenth centuries: slaves. Fragmentary records attest to slave hunting and transport, with Anglo-Saxon slaves captured and conveyed to markets in southern France, northern Italy, and Rome. Volume swelled under the Carolingians after 750, when conquests in central and eastern Europe brought heathen Slavs to market, leaving that name sclavus as the permanent marker of this source of captives. By the eighth century, Venice had become a great slave port, with Venetian traders functioning as middlemen in the sale of slaves to southern and eastern Mediterranean markets. Michael McCormick is bold enough to insist, “The European commercial economy in the Mediterranean was born precisely in the dynamic centers of the slave trade with the Arab world, in Naples and Amalfi, and in Venice” (2001, 736–39, 776; and see Schwarcz 2003, 279–82).
For all the accomplishments of European lords in the two centuries before the turn of the millennium, by far their greatest creation was the medieval city. This was a creative effort of unparalleled size and geographical extent, and it produced a new form of urban community, one that would serve as a laboratory for entrepreneur- ship until the end of the twentieth century. This urban revolution occurred across the long twelfth century, roughly 1050–1220, during which time urban Europe expanded both in absolute numbers of towns and cities, and in the size and extent of older communities. Most impressive is the fact that European population probably doubled in the period 950–1200, but the number of urban areas quadrupled (Nicholas 2003, 1–23).
Generalizing about this revolution is difficult, given the variety and number of urban foundations. In southern Europe few new cities were actually founded in the Middle Ages, but their enclosed areas and populations expanded exponentially, with the northern half of the Italian peninsula excelling the south in the number and importance of its cities. Thus Genoa, Venice, and the new upstart inland city, Florence, had no ancient antecedents. Elsewhere, particularly in the new European colonial areas of Spain and Slavic and Celtic Europe, lords founded new enclaves, often on site of previous settlements or for particular political ends. In Spain, new settlements were founded as defensive strong points against the Muslims. In Ireland, the Normans used fortified urban areas as their way to settle and domesticate the countryside. In Flanders, the counts founded a series of towns, but only a handful ever became significant. And in Germany east of the Elbe River, a large number of urban plantations became significant after the thirteenth-century revival of the Baltic trade. Thus cities as distant and disparate from one another as Munich and Lübeck owe their origins to princely founders.3
Abundant and messy as the details of this urban wave may have been, two permanent changes to the contours of economic life resulted. First, the urban map became more or less fixed by 1220, with two poles of intense urbanization, one in the European south, the other in the north, stretching from southeast England through Paris, and across the plains of Picardy and Flanders to Cologne, the great city of the Rhine. Second, these communities evolved from seigniorial to merchant centers, where demand for a wide variety of goods-not just luxuries-fueled the medieval entrepreneur. Lords by no means withdrew from these developing market centers, for many European cities became the seats of important bureaucracies, for town lords both bought merchants' goods and brought capital to the towns, and often their grant of privileges and monopolies was critical to urban growth. Such transitions could be turbulent, as urban residents, called bourgeois or burghers, often agitated for change and increased autonomy over the opposition of bishop, count, abbot, or cathedral chapter. But despite some spectacular flare-ups of violence, Europe's first urban revolution was relatively peaceful (Nicholas 2003, 92–97).
The signal service of lords in this transitional age was to function as a site of consumption and therefore as a pole attracting entrepreneurial interest. Most eleventh-century settlements that became centers of long-distance trade had communities of resident Jews, who loaned money to the town lords and may have contributed capital to the industries that began to flourish in the suburbs. The twelfth century was the high point of Jewish involvement in capital formation and concentration in the cities. Thereafter changes such as princely persecution, plus a new wave of Christian moneylenders employing more sophisticated financial techniques (whose purpose was to evade the church's usury proscription) effectively took over this early Jewish entrepreneurial impulse.
The two urban poles of Europe provided the congeries of markets and networks that resulted in what Peter Spufford has described as a “critical mass, so that qualitative as well as merely quantitative changes in the nature of commerce began to take place” (2002, 19, 388–89). The sum of these changes is known in economic history as the “commercial revolution,” which must be understood as the result of enterprise in the two distinct urban laboratories north and south; and more importantly as the result of the interaction of the two from the thirteenth century to the early modern period. It can be fairly said that most of the innovations and hallmarks of European business and economic history were developed in this bipolar urban network, stoked with bullion from the gold and silver mines of central Europe.
The Super-Company Phenomenon
The most significant achievement of medieval southern businessmen was the super-company, a form of enterprise that most effectively combined the possibilities of profit in the thirteenth century and thus may serve as a suitable case study for our purposes. These organizations were unusually large and qualitatively different, engaged simultaneously in an exceptional range of activity-general trading, commodity trading, banking, and manufacturing-over a wide geographical area for an extended period. They all took root in the fruitful commercial soil of Florence, amid a competitive and contentious archipelago of cities. The demand for food generated by these urban populations challenged the entrepreneurs who formed these companies, which pooled capital in order to lock up long-term grain contracts with the Angevin rulers of southern Italy, and from that base diversified into long-distance trade and local manufacture alike. How were these large firms organized? Like most Italian firms of significant size, they were quasi-permanent multiple partnerships that did not dissolve upon the death or removal of the managing partners. Even upon “dissolution” partnerships were instantly renewed. Partnerships lasted as long as was found suitable, from two to twelve years in practice, and often had a core of closely related individuals as the major providers of capital. Often the company (derived from the expression “those of one bread”) took the name of this family clan-for example, Bardi, Peruzzi-though at no time was the company composed exclusively of family members. For example, the Peruzzi Company of 1300 incorporated with seven family members and ten outsiders who combined in a 60/40 ratio to amass a capital of 85,000 florins, a staggering sum for the time (Hunt and Murray 1999, 105). Partnerships could be diversified even further, as in the Bardi company of 1310, which consisted of fifty-six shares, each transferable and survivable, and company capital could be further augmented by deposits by outsiders carrying fixed rates of interest much like modern debentures. Like contemporary hedge funds, the medieval ancestors of “high net-worth individuals,” be they aristocrats or wealthy merchants, invested their excess cash with one or more of these companies (Spufford 2002, 22–23).
Such quantities of relatively cheap capital opened a world of possibilities. Each company deployed its resources differently, though all established branches or supported representatives in the key cities of European commerce, often staffed by shareholders under the authority of a managing board headed by the capo or chairman, who was almost always a leading member of the family whose name formed part of the company title. The presence of these men both at home and in foreign posts gave assurance to their clients that the company was an enduring organization, notwithstanding the frequent dissolution of partnerships. This sense of permanence was enhanced by the use of a company logo of distinctive or heraldic design (Spufford 2002, 44, 46).
Although there is no direct evidence that any of the great companies had drawn up formal divisions of responsibility or lines of authority, the many references in the surviving records of the Peruzzi company to the various parts of the company's operations in Florence and abroad offer a reasonable idea of how they worked in practice. They suggest that the Peruzzi had a form of organization that permitted a degree of decentralization at the operating level, but reserved important areas of decision-making to the powerful chairman's office in Florence. Operations in Florence were fairly centralized, with several subsidiary companies reporting directly to the chairman. Roughly speaking, the so-called tavola (literally “table”) dealt primarily with banking operations managed in Florence, and the mercanzia with trading and logistics outside Florence. The drapperia controlled a small textile contract manufacturing operation. “Special accounts” oversaw directly from Florence such important foreign customers as the Order of the Hospitalers and certain church dignitaries. The limosina was simply an account through which the company's charities were channeled. About 2 percent of the company's capital was set aside for “God's work,” from which the limosina received allocations of profit (Hunt 1994, 76–100).
Employees numbered in the hundreds for these large firms, from the 133 employed by the Peruzzi in the 1330s to the 346 who worked for the Bardi in the period 1310 to 1345. Very few of these men were related to the family whose name the company bore, which suggests that nepotism was not the dominant criterion for selection and advancement. Interfamilial alliances were the rule, however, as family members of rival companies were not found among the employees, suggesting that the mercantile elite sent its brightest sons along well-worn paths of patronage and mutual obligation. Young men were often schooled in the secrets and practices of a particular company by foreign postings, returning to Florence as mature and accomplished merchants with enough wealth to start their own families and enterprises.
Tools of Trade
Super-companies both inherited and developed a toolkit of business practices that sought to overcome constraints on trade posed by both society and distance. One of the most pervasive problems besetting medieval entrepreneurs was the rigidity of the money supply, and some of the most creative innovations were directed at alleviating that problem. In the thirteenth century, money in circulation was overwhelmingly in the form of minted coins. Some lower-value coins might be minted from base metals and bear more a fiduciary value as small change for daily purchases. Most money in use in trade consisted of coins of intrinsic value, made primarily of silver, and also, from the middle of the thirteenth century, of gold. The money supply was therefore profoundly affected by physical phenomena associated with precious metals—the production of mines, losses from wear and hoarding, diversion into objects of art, and constant exports to cover trade imbalances with the East. The European economy could afford the siphoning off of great quantities of specie as long as mining output remained high. In fact, the effects of such a trade in bullion could be downright positive by stimulating general trade and reducing inflationary pressures. But when mining output faltered and exports continued, Europe experienced the deflationary effects of repeated “bullion famines” in the fourteenth and fifteenth centuries (Spufford 1988, 339–62).
Entrepreneurs were happy to move precious metals from place to place either as export commodities or as materials for minting if they could realize a profit. Moving coins as money, however, was a business expense that added no value to the transaction. The expense of tolls, security, and transport could be considerable. And the annoyance of sending messengers with coins across urban markets must have been considerable, particularly if the bullion content of each and every coin had to be measured. One solution to the inconveniences of coin was the money changer, who was a ubiquitous figure in markets across Europe, and was the originator of medieval banking. These changers performed the useful service of bringing order into a coin-dominated economy, through their skills in assessing the weight and fineness of coins. They also supplied service to governments as the main suppliers of bullion and used coins to the mints. Their superior knowledge of bullion prices and exchange rates of foreign coins gave them commercial advantage over their fellow merchants, but also imposed an obligation for fair dealing. Some changers acquired sufficient customers and enough specie on deposit that they recorded such deposits for safekeeping in terms of a standard money of account. Such “book” money began to be traded by merchants in place of the real thing (Murray 2005, 119–77).
In this manner, merchant money changers gradually became merchant-bankers, executing payments, not by issuing checks (at least not before the fourteenth century), but by transferring charges and credits in the accounts of their clients. This was the so-called giro system (from the Italian girare, to rotate), still in use in contemporary Europe. The system worked because the bankers and their merchant clients knew each other and gave their instructions orally at the banker's table, so that the entries could be made on the spot. The personal nature of the business and the fact that the banks also took deposits for safekeeping inevitably led to the extension of credit by means of overdrafts. This lending on the principle of fractional reserves in effect created additional money supply, albeit only in a very few leading commercial cities (de Roover 1948).
The most important financial innovation of the commercial revolution was the bill of exchange, which combined three attributes of great value to the international entrepreneurs who traded within western Europe. It avoided the cost of transporting specie; it provided a practical mechanism for international credit and currency exchange, and it finessed the church's prohibition of usury. The bill of exchange found its definitive form by the end of the thirteenth century, after evolving from the notarized exchange instrument first used in the Italian port city of Genoa (Murray 2005, 65; Spufford 2002, 34–35). The fully developed bill of exchange made it possible for one party to receive a sum of money in one currency in one place on one date and repay it in another currency at another place at a later date. The transaction involved four parties, the borrower and lender in the town of issue and the borrower's correspondent (the payer) and the lender's representative (the payee) in the town of repayment. The difference in dates, called “usuance,” normally reflected the generally accepted time required to move goods between the two locations, such as sixty days between Venice and Bruges and ninety days between Venice and London. The bills, of course, could move much more quickly, and we know of specialized courier services maintained between the cities of Tuscany and the Champagne fairs from the 1260s (Spufford 1988, 25). Besides the destination and the date of issue and redemption, the bill specified the currency exchange rate, with the objective of giving the issuer a reasonable profit on the deal. The lender's representative might be instructed to use the foreign exchange to buy merchandise, or to convert it into the lender's own currency by drawing up a new bill in the opposite direction. And although the bill of exchange was developed by merchants for merchants, its advantages were enjoyed not only by merchants but also by the great institutions of the church and government (Murray 2005, 66 and n. 9; Spufford 2002, 37).
A second significant entrepreneurial breakthrough of Italian merchants was in accounting. A vast range of merchants and bureaucracies had long used single-entry accounting. This form of bookkeeping had the advantage of providing at low cost a rational basis for decision-making, as credits and debts could be easily tracked. Its disadvantage was that it failed to account for profits automatically and it could not provide a separate measurement of capital and revenue. Most significant, however, it made concealment of fraud easy, thus requiring frequent audits and other antifraud measures. The complexities of super-company trade and accounting led to the double entry of cash receipts, first discharging the account of the debtor, then charging the account of the cashier, thereby permitting the establishment of cross-references. By 1300 the new system had spread widely among Italian firms and quickly reached a sophisticated level of development, providing balance sheet data and separate accounting of capital and revenue, and had introduced useful concepts such as accruals and depreciation.
Tools for managing risk were also a signal development of this great age of enterprise. Previous to 1300 merchants had often separated their merchandise among several ships, and often maritime property was divided among multiple owners to shield any one person from catastrophic loss. Primitive forms of spreading risks in the form of the insurance loan date from the thirteenth century. This involved two parties, the shipowner, who advanced the merchant shipping goods with him a sum equal in value to the whole or part of the goods entrusted to his ship. If the cargo arrived safely, the merchant repaid the loan/advance with an extra charge to cover the costs of freight and risk. If the freight was lost, the merchant kept the advance as compensation for the loss. Marine insurance as we understand it began in the first half of the fourteenth century in Genoa, when premiums were charged explicitly to insure against loss and recorded in notarial instruments. By the end of the century insurance underwriters were at work in Pisa, Venice, and elsewhere in Italy assessing risk and quoting insurance rates based on a host of variables affecting risk. By the late fifteenth century marine insurance was available at all the major European ports including those of the Netherlands (Spufford 2002, 33).
But the fate of the Florentine super-companies shows that not all risk was insurable and that changes in the business climate could topple even the most elaborate business edifice. The foundation of these firms had always been the very profitable grain trade with southern Italy, which was racked by weather-related difficulties, and these increased government interference in price setting and supply. Even the famine of 1329, far from being a boon to grain distributors, was so severe and widespread that the great companies were forced into a classic price squeeze. They were required to supply grain at politically tolerable prices while scrambling for supply in a seller's market. By the 1330s, city governments were stepping in as grain purchasers, thus cutting out the companies from provisioning a number of cities, and population was falling across Italy even before the advent of the Plague in 1347. The bankruptcies of both the Bardi and Peruzzi within a thirty-month period shocked Europe and led some contemporaries to blame the unpaid debts of the English king as the cause. Yet the real culprit was a change in economic conditions that made such giant firms unnecessary. The fact that many of their techniques and innovations continued as standard business practice shows the long-term success of short-term failure.
The European North
The north developed in different and distinct ways from the south, although the north could not escape the power and influence of southern, mostly Italian, entrepreneurs and entrepreneurial techniques. Yet it would be a mistake to underestimate the sophistication of northern European business or to consider it merely derivative. Indeed the entrepreneurial innovations that in many ways began with the Champagne fairs, that great meeting ground of south and north, were eventually captured and urbanized in Bruges by the fourteenth century, to be passed on and expanded by Antwerp and Amsterdam in turn.
A critical difference between northern and southern urban communities was the early movement of industry to northern towns, especially the manufacture of woolen textiles. With the invention of the treadle-operated horizontal loom in the eleventh century, probably in Flanders, economies of scale and vast improvements in quality became possible. Quality was further enhanced with the replacement of the horizontal loom with the broadloom in the thirteenth century. Weaving became primarily a male occupation, centered in the cities and subject to regulatory control. Immigrants from the surrounding countryside provided abundant labor, although some cloth- making crafts such as wool cleansing and spinning remained rural occupations. Expanding production created demand for raw materials, chiefly wool and dyestuffs. By the twelfth century, the towns of Flanders and the pastures of England had been integrated, so that large quantities of wool from English sheep were turned into finished cloth by Flemish weavers, fullers, and dyers. Demand for Flemish cloth came from far distant economic areas, necessitating periodic markets where cloth could be exchanged for spices (including dyestuffs). Thus were the fairs of Champagne born (Nicholas 1992; Munro 2003).
The six Champagne fairs are an interesting example of the constraints and opportunities within which northern entrepreneurs worked. Roughly equidistant between the Low Countries and Italy, the twin poles of European urbanism, the county of Champagne was ruled by a series of counts eager to initiate and maintain trade by granting fair privileges to local communities as well as by guaranteeing the physical security of those journeying to the county. By circa 1175, medium grades of cloth were commonly brought south by Flemish merchants, to be sold to Italian merchants who made of European woolen textiles an important export commodity throughout the Mediterranean. Over the next century the rhythm of the six fairs and constant attendance of merchants created a financial system of credit and payment that formed the beginnings, however tentative, of merchant banking. Capital-rich Italians not only granted credit to be repaid at future fairs, they also advanced money to be repaid in Italy. Besides the Italians, the great beneficiaries of the Champagne-centered economy were the cloth entrepreneurs of a number of northern French/Flemish cities, notably Arras, Lille, Cambrai, Tournai, and Valenciennes, and Arras emerged as the financial center of the region (Spufford 2002, 144–47).
This distribution of industrial production, finance, and exchange left a permanent mark on northern entrepreneurs. They tended to band together in merchant guilds-Henri Pirenne conjectured that this was a result of traveling together in caravan from fair to fair. By the twelfth century, merchant group consciousness was carried over into important social and political functions in cities from England to Germany. By long habit, then, northern merchants formed shorter-lived, more dynamic business relations with each other than did southerners. Fewer of these would be based on extended family, in favor of more fluid relationships formed by the merchant guild. And it was along these associative links that investment capital, even urban finance, tended to flow. It was not until well into the fifteenth century that northern merchants began to imitate the joint-stock companies of the Italians, and even then the northern merchant often acted alone or in company with a few others, often in single business ventures. These tendencies were to find full expression in the streets and marketplaces of Bruges.
Through a series of changes and perturbations, Bruges emerged as the new focal point of exchange after 1300, and for the first time the city also became the center of finance for the entire north, including the larger cities of Paris and London. Bruges's new status owed much to a favorable geographical position as the traditional port of entry for English wool, and its situation at the intersection of eastern, western, and southern overland trade routes. The city benefited enormously by the shift in transport preference to ships, and Bruges became the destination point for Mediterranean trade fleets, which first docked there in the 1280s. Because of its traditional role in the English wool and Flemish cloth trades, Bruges was able to provide profitable return cargo for the Italian ships. And the “Easterners,” as German and other Hanse members were called, were themselves attracted by the merchandise conveyed by the Italians and by the chance to sell their own regional products: furs, wax, honey, amber, and later grain, beer, and metal. Another reason to journey to Bruges was to take advantage of the demand generated by the wealthy hinterland of the Low Countries and northern France. So Bruges became the natural distribution point of the luxuries consumed by the rulers of Flanders, Brabant, and Hainault, and by the principalities of western Germany. As a key transshipment point, the city attracted colonies of foreign merchants, including large numbers of English, Germans, and Italians from a variety of cities, as well as Catalans, northern Spaniards, and Portuguese (Murray 2005, 95–97).
Coinciding with the this shift in patterns of trade was the displacement of the Flemish by Italians as the middlemen in the export of English wool to the continent. War played some role in this substitution, as the English kings retaliated against their French rivals by instituting a series of embargoes, retaliatory confiscations, export taxes, and acts of piracy, which placed Flanders, essentially part of France yet tied economically to England, in the crossfire. The Italians also brought large amounts of cash, with which they purchased future wool clips and financed the English war effort (other Italian companies financed the French king). Step by step, the Flemish were forced to reorient their efforts away from the transport and direct trade in commodities, favoring instead the sedentary and stable role of broker, partner, and entrepreneur.
The government of Bruges furthered this reorientation by sparing neither effort nor expense in building up the city's business infrastructure. Even before the city had a proper town hall, it boasted two major commercial buildings, several municipal scales, and the huge man-powered crane made famous by generations of Flemish artists. Bruges was also the first city in the Low Countries to ban thatched roofs in the heart of the city in an effort to contain that curse of medieval towns, outbreaks of fire. The many impressive works in support of business no doubt added to the city's luster, but its most important attraction was the web of human relationships that offered lodging, banking, brokering, and business contacts to the foreign merchant (Hunt and Murray 1999, 160–64).
Essential to Bruges's success was the system of book transfers and complementary payment services offered by the city's innkeepers and money changers. This intricate and far-reaching system of book transfers permitted those merchants with an account in Bruges to make payments for goods and services far beyond the city's walls. In effect, the Bruges money changers extended the giro transfer system to foreign trade as well as to local transactions. One nearby example was the ability of merchants residing in Bruges to draw upon their Bruges accounts while visiting Antwerp during its trade fairs. As important as money changers were, they were in most respects the junior partners of the innkeepers, who provided multifarious services to their foreign merchant customers, from legal representation before the city aldermen to financial and other business. But most of all, Bruges innkeepers were financiers investing capital entrusted with them by their customers, organizing partnerships and pursuing opportunities on their own account. Thus were the payment and financial systems, previously divided between the fair towns of Champagne and financial centers like Arras, brought together in one city (Murray 2005, 216–58).
This was a centralized economic system only insofar as its intersection was in Bruges, where all significant long-distance merchants had to have a presence, if not be actually present. Thus rather like a node in a computer network, Bruges brought together distinct geographical and financial systems—from Tuscany to the remotest town of the German Hanse—and made it possible for these merchants to exchange and cooperate. This was the essential background to the Bourse of Bruges, a public square that in the course of the fifteenth century was set aside for merchants to gather and do business. The connection to innkeeping and brokerage was explicit in the name Bourse, which was taken from the family name of a prominent inn that stood on that public square. These “merchants of the Bourse” gathered to exchange information, upon which exchange rates were based, and thereby bills of exchange were drawn up. For nearly a century, this was the leading money market of Europe (Murray 2005, 178–215).
Societal Constraints: Usury, Chivalry, and Guilds
Christian teaching and church authority affected day-to-day business activity in profound ways, given that business and personal values were so closely intertwined. Evidence of the pervasiveness of religious attitudes appears in the most mundane of commercial documents. A company's books normally opened with a prayer for the success of the business and the health and safety of its personnel. Flemish bankers initiated their account books with the words “To the Glory of God.” Christian scriptures and church (or canon) law were more than merely ornamental; they constituted a vital part of the fabric of entrepreneurial life. The medieval concept of “just price,” formalized in the thirteenth century, had its basis in Christ's injunction in Matthew's Gospel “so whatever you wish that men would do to you, do so to them, for this is the law and the prophets.” This message was especially relevant to the agrarian and small-town cultures of western Europe, where life was seen as a zero-sum game in which one person's gain came inevitably at the expense of others. Church theologians and lawyers closely examined all kinds of economic transactions and pronounced on their morality and legality. During the commercial revolution the number and diversity of such pronouncements increased, keeping pace with the growth in commerce.
The issue most affecting the entrepreneurial climate of Europe was the treatment of usury. The medieval doctrine of usury, with roots in both the Old and New Testaments, regarded any interest, not just excessive interest, as a mortal sin. Church councils recalled this prohibition in the fourth through ninth centuries, and even the emperor Charlemagne promulgated a usury ban upon both clerics and laymen. And in lengthy restatements of usury doctrine in the thirteenth century, scholastic theologians drew upon the views of Aristotle, who regarded lending money at interest as contrary to natural law. Church and civil penalties for those practicing usury were issued from the late twelfth century through the fourteenth century, depriving usurers of burial in consecrated ground, sacraments, even the ability to make a valid will (Armstrong 2003).
It was the two chief mendicant orders, the Franciscans and Dominicans, who took the church's virulent antiusury position to the people. Francis was himself the son of a Tuscan cloth merchant, and his horror of money and commerce gave a special edge to the generations of Franciscan preachers who fanned out through Europe to tend to the spiritual needs of Europe's urban classes. Dominicans were the medieval preachers par excellence, and they lent intellectual rigor to church doctrines regarding money and its use. Both Thomas Aquinas and Albert the Great wrote penetratingly about the essential nature of usury, which both viewed as theft. And all Europeans must have become familiar with the lurid exempla promulgated to illustrate the eternal horrors that awaited the rapacious usurer. These achieved literary expression in Dante's Commedia, with usurers occupying a particularly low niche in hell alongside murderers, blasphemers, and sodomites.
The main problem with church teaching on usury for the medieval entrepreneur was that it did not distinguish between loans for consumption and loans for productive purposes: all loans at interest were sinful. As the need for credit swelled business finance from the twelfth century, tension developed between what was licit and illicit moneylending. On the one hand, providers of consumption credit were marginalized—both Jewish and Christian pawnbrokers and casual moneylenders suffered legal and social penalties for their profession. But even “legitimate” merchants such as money changers and others did not escape the taint of usury, as many merchants made restitution of gains in their wills, despite having cloaked interest profits in bills of exchange. Yet the absolute prohibition of usury was eroded in the writings of several theorists such as Peter John Olivi and Bernardino of Siena, who argued for certain types of nonconsumption loans as licit because of loss of earnings for the lender—an early conception of the time-value of money (Little 1978; Hunt and Murray 1999, 70–74).
The Chivalric Ethos
One of the oldest stereotypes in European history is the leisured aristocrat who abhors commerce as derogatory and beneath his social status. Being “in trade” was considered ignoble, and in some European countries before the eighteenth century, notably France, titled aristocrats were legally barred from any business but farming, government (royal) service, and warfare. As the “noble life,” that is, the material and social comforts of elite status, always remained the goal of the few socially mobile individuals across the medieval and early modern centuries, this ethos would seem to pose a powerful countervailing force to entrepreneurial endeavors. But, as with so much else in the history of economic growth in the Middle Ages, this obstacle was more apparent than real.
A story from chivalry's formative century is a good example. In an epic poem celebrating the life of William Marshal (ca. 1146–1219), the hero was traveling in northwest France accompanied by his squire when he by chance encountered a monk and a young noblewoman who were eloping. When interrogated by William, it turned out that that their plan was to live together in an unnamed city outside the reach of the young woman's family, upon the proceeds of a sum of money to be invested with local moneylenders. William did nothing to stop the pair from riding on, even though he knew the young woman's family and could not have approved of her actions. Before he let them pass, however, he confiscated the money they intended to live on, thus “saving” them from the sin and scandal of usury. Even though this might appear a transparent excuse for theft, it does reveal the abhorrence that a paragon of chivalry shows for the misuse of money. To live upon interest was unthinkable for a nobleman; but William's use of money is significant as well. Upon his return to his entourage at a local inn, he had his squire count out the money (he would not deign to touch it himself) and distribute it to his retinue, while also paying for an elaborate round of drinking and eating. In other words, money was intended to cement personal bonds and enhance status, not as an end in itself.4
Yet knights had a complicated relationship with money even if they did not care to amass or invest it in trade. Again, William Marshal provides a telling example of knight as entrepreneur. As a younger son of a family of lesser nobles, William had no legal share of the family lands and possessions; nor did his father make any special provision for him in his will, as sometimes happened for younger sons and daughters. After completing his training in arms in the household of a wealthier and more powerful relative, William took to the road to ply and perfect the craft of fighting in that mélange of combat, sport, and commerce called the tournament. Marshal's career commenced just as the tournament gained respectability among kings and at least grudging acceptance from the clerical establishment, which had at first excommunicated all participants and refused burial rites to anyone killed in a tournament. Tourneying had also become a big money sport owing to its sponsorship by great lords and the wealth that could be gained by capturing and ransoming adversaries. Indeed, some clerics used the same word for both tournaments and trade fairs, which must have appeared quite similar to the uninitiated (Crouch 2002, 192–99).
William Marshal was an unmatched moneymaker in his sixteen-year career as a tourneyer, unhorsing opponents right and left and turning his victories into silver payment in return for the freedom and equipment of the vanquished opponent. So lucrative did this pursuit prove, that Marshal joined forces with another knight in a veritable fighting company with Marshal's kitchen clerk serving as accountant. In the course of two years of hard fighting, with tournaments across France and Flanders at intervals as short as two weeks during the season, these knightly entrepreneurs took as many as 500 knights captive. The wealth Marshal gained thereby was expended on entertainment, equipment, and lavish gifts for those around him, all investments in his reputation and social standing. Ultimately, this once landless knight became regent of England and its chief general in the years after the death of King John. This was a rich return indeed for the greatest knight of the age (Crouch 2002, 194).
Medieval Guilds
Guilds have traditionally been high on the list of impediments to entrepreneurship, and even if contemporary historians no longer subscribe to this assessment, the myth of guild obstructionism still holds sway in popular histories. This is an unfortunate result of an older historiography that relied too heavily on literal interpretations of guild statutes as well as on a too blind adherence to Marxist and liberal ideologies. The last half-century of research has added considerable nuance to the traditional picture, and has shown that craft guilds could be a force for innovation and economic change, as well as insurers of the status quo. Much depended on the industry and market conditions of the particular guild, as well as the geographical location and political context within which the guild operated (Black 1984; Stabel 2004).
The first myth to be dispelled is that guilds functioned as monolithic institutions, staunchly protected by legal monopolies and impenetrable social structures. As we know now, the very demography of medieval cities made unwavering stability of any institution impossible owing to the extremely high mortality rates that affected all sectors of the population. High death rates due to infant mortality, infectious disease, crime, and military action meant that medieval guilds had to be open to immigrants in order to remain viable in a market economy. Openness to newcomers seems to have been greatest among guilds whose products were involved in longdistance trade, such as the cloth industry of the Low Countries and northern Italy. In fifteenth-century Bruges, for example, more than three-quarters of the masters in several guilds were either foreigners or unaffiliated locals. Those guilds that did tend to restrict mastership to sons of masters were concentrated in the less dynamic, food-centered trades, which depended on control of stalls in local sales halls (Stabel 2004, 194).
Craft guilds could also be important partners with merchant entrepreneurs in re-organizing an industry in the face of competition and changes in market conditions. As organizers of the labor force and guarantors of product quality, guild masters often collaborated with others in reorienting production. This fluidity and collaborative ability was aided by the power structures in medieval cities, which brought together leaders of guilds and merchant groups in the exercise of urban authority. Thus in medieval Flanders, a profound reorientation of output was achieved in the great cloth cities through specialization in production of high-quality textiles, abandoning some cloth types and enforcing elaborate content and quality standards. This profound shift was a result of long-term negotiation with merchant-traders and guild leaders of the cloth crafts in response to market data and changes in the security of long-distance transportation networks. Higher-priced textiles, the products of a complex, guild-orchestrated production process, were better able to withstand the higher transaction costs imposed by a war-torn Europe. A variation of this guild- organized enterprise is found in the textile industry of northern Italy, which was able to challenge the supremacy of northern textiles by imitating their quality while reducing costs (Hunt and Murray 1999, 166–70).
Conclusions
The history of entrepreneurs across the medieval millennium (500–1500) is instructive on a number of counts. First is the lesson that medieval society could be entrepreneurial (i.e., effective in achieving economic growth) often without visible individual entrepreneurs. This flies in the face of modern notions of the triumphant individual who grasps and exploits economic opportunities, quite apart from, indeed often challenging, social and political norms. What drove growth across the era was not individual profit maximization, but dedication to a variety of communal goals, all of which emanated from a church-defined mission of a Christian society. Within that framework, church institutions, such as the papacy and monasteries, were able to expand their economic reach to encompass an expanding Europe, so that by 1200 Benedictine and Cistercian monasteries organized agricultural production from Ireland to Silesia, and Sicily to Norway, and revenues from these areas and those in between flowed to papal Rome in Europe's first long-distance financial network. Moreover, medieval aristocrats, in taking up their God-given vocation to protect Christendom, both expanded the geographical borders of Europe and invented a way of life that required horses, arms, armor, as well as the leisure to master their use. The potent combination of lordly demand and investment in the means to obtain it fueled the waves of agrarian growth beginning in the ninth and tenth centuries and continuing even across the downturns of the fourteenth century.
This early medieval entrepreneurship without entrepreneurs was responsible for crucial investments in agrarian machinery, that is, water and windmills, techniques of capturing animal power (plows and harnesses), and techniques of productive land use. Monasteries pioneered in management and record-keeping technologies, often overlooked, that refined and improved seeds and crops as well as the domestic animals so critical to maintenance of soil fertility. It was not accidental that monks tended the largest flocks of sheep in England, as well as the most valuable vineyards of France by 1200. Income from these innovations supported grand construction projects, investments in religious culture, and the trading networks that brought gold, silks, and spices to the liturgies and refectory tables of monastic Europe. Quintessentially long-term institutions, monasteries provided the important admixture of stability and investment necessary to settle and transform the European countryside across the medieval centuries.
The greatest entrepreneurial institution of all, the medieval city, owed its beginnings to the actions of lords, both clerical and secular, in generating the demand for goods and services that enabled economically specialized communities to gather around castles and monasteries. And beyond being customers, lords granted a variety of liberties and exemptions that unfettered trade in incipient towns, and lords acted as guarantors of markets and courts that served to attract outsiders and their money. This combination of production and distributive trade against a background of relative freedom and legal guarantees of property and exchange was the common denominator of the return of urban communities to Europe. Moreover, unlike cities in the Roman or Greek past, medieval towns and cities had at their center an entrepreneurial essence that made them the leading laboratories of economic innovation down to the present day. They also produced by the later Middle Ages the first clear individual entrepreneurs in European history, as well as encouraging the merchant-artisan community whose values both defined and limited the horizons of the medieval entrepreneur.
Individuals from the leading commercial cities of Europe could become immensely rich from their entrepreneurial endeavors, but wealth was almost never the ultimate goal of their ambitions. Wealthy merchant dynasties like the Medici of Florence used money as a means to dominate local and regional politics in Italy, in the process benefiting the arts as well, all to enhance their status. The wealthy English merchant William de la Pole became a powerful government official and royal financier, but he was the only entrepreneur in a family that joined the lower aristocracy in the next generations. The examples could be multiplied, and all show strategies designed to enhance power and social status, not to gain permanent business or economic advantage. Already by the fourteenth and fifteenth centuries, the pattern of wealthy urban families intermarrying with destitute aristocratic clans became widespread. Thus social advancement in the Middle Ages was defined by the aristocracy, not by successful entrepreneurs. This was true all over Europe and well into modern times.
Study of the medieval entrepreneur cautions us against making any universal claims for some kind of eternal entrepreneur who acts independently of time and context. In many (if not most) times and places, the creative destruction in the name of economic progress that Joseph Schumpeter posited was neither present nor desirable. And equally significant, the relative absence or unimportance of the standalone entrepreneur did not preclude economic growth. The economic historian must be aware of and alert to the unique proclivities of other times and cultures, and this should encourage a healthy skepticism of sweeping generalizations or excessively abstract models.
Notes
1 This essay owes much to my earlier work in Hunt and Murray 1999, copyright © 1999 Edwin S. Hunt and James M. Murray. Reprinted with the permission of Cambridge University Press.
2 Divine Comedy, Canto XVII.
3 Nicholas 2003, 11; globally more towns through growth than foundation except in Spain and Germany.
4 Duby 1985; but note the corrections and elaborations of David Crouch (2002).
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