Merchant Capitalism
In the scholarly literature, there are different answers to the question of when capitalism began. The diversity of voices results from using different concepts of capitalism as well as from the fact that unambiguous turning points rarely occur in social and economic reality.1 Early rudiments are easiest to find in long-distance trade. In Mesopotamia and the eastern Mediterranean, on the “Silk Road” and the great East-West trade route through the Indian Ocean, this trade was largely in the hands of independent merchants. These merchants traded on their own accounts, even if this was usually done in close coordination with the politically powerful, and often, moreover, in close cooperation with other merchants, typically in cross-border networks based on common ties of ethnicity, homeland, or religion. There was no lack of profit seeking, daring, dynamism, or a willingness to cope with insecurity and competition.
The first agglomerations of merchant capitalism may be observed in the intermittently emerging empires that developed serious cash requirements for their military undertakings and hence favored above all developing markets that promoted monetization and attempted to strengthen economic performance, also by building transport routes, operating mines (precious metals!), and securing a minimum of order. Early on, market and state formation went hand in hand.2 For example, the civil service state of the Chinese Han dynasty (206 BCE–CE 220) made an effort to standardize the currency, expand market relations, and promote a lively long-distance trade carried out by independent merchants. At the same time, it intervened directly in trade and commerce. In the Roman imperial era (1 BCE–CE 5), the monetization of the economy and commercialization of everyday life in the big cities reached a high level, long-distance trade in foodstuffs and luxury goods flourished, the large latifundia produced for the market at a profit, and economic transactions like the sale or lease of land took place on a contractual basis aided by precise calculations. There was also no lack of more or less free wage workers. Yet on the whole the subsistence economy was predominant, slave labor was widespread, and “the strong drive to acquire wealth was not translated into a drive to create capital” (Moses Finley). The orientation toward secure rents was more widespread than the drive for profit. Productivity growth and macroeconomic growth were kept within limits, and the orientation toward war and booty was still stronger than the orientation toward long-term market success. This is why one sometimes hesitates to call the economy of Greco-Roman antiquity capitalist.3
In order to examine what was going on with capitalism or its rudiments during the centuries that are summarized as the “Middle Ages” in European history, we turn our attention to three regions known for having been scenes of relevant developments in this period of time: China, the Indian Ocean region that increasingly came under Arab influence, and western Europe.
The basic pattern that emerged in China during the Han dynasty continued in the centuries to follow. It facilitated the expansion of international trade relations and an ever livelier exchange with regions to its west, that is, with India and the Arab world in particular. The Confucianism practiced by the civil servants who exercised political power included such elements as a rejection of pronounced inequality and hence of too much independent wealth, the promotion of agriculture, and state controls over money, the credit system, and trade. These controls extended as far as a willingness to operate estates, supply depots, and workshops under state management. Buddhism, which started in India and spread out from there to places in Asia where it was practiced above all by traders and merchants, had a more positive attitude toward commercial activity. Buddhist cloisters not only accepted extensive donations from believers. Eyed suspiciously by the state bureaucracy and at times suppressed, they also operated as centers of capital formation, lending, and of profit-making investment of capital in agricultural and commercial companies. In the middle of the eighth century, Guangzhou was depicted as a lively and prosperous port and mercantile city. Foreign visitors testified to the country’s high living standard.
That living standard was especially true of China under the rule of the trade-friendly Sung dynasty (960–1279). With the support of the government and its gigantic new fleet, the merchants expanded maritime trade, especially with Southeast Asia, India, the Arab world, East Africa, and even with Egypt. Domestically, too, the importance of money and market relations increased considerably. Through the thirteenth century in some regions, especially in the southeastern part of the country, the traditional subsistence economy developed into a different kind of economy, one relying on supraregional exports and producing both luxury goods and a variety of commercial consumer goods made out of stone, porcelain, and metal. In exchange, the region imported foodstuffs, especially rice, from other provinces. Overall, trade and industry spread in China, partly in workshops operated by civil servants or merchants where wage workers were continuously employed. The country exported above all processed products (porcelain, paper, silk, art objects, metalwares), but also tea and metals like tin and lead. It imported horses, spices, medicines, precious stones, and other luxury goods, but also cotton fabrics. To some extent, economic activities were subordinated to the central state, which also saw to it that streets and canals were built; intermittently exercised monopoly rights with respect to salt, tea, and incense; controlled the currency; and made an effort to control the business in bills of exchange, developed by merchant bankers since the ninth century but still quite elementary, that had led to the circulation of notes and represented a kind of de facto money. But in principle the economic boom was supported by profit-oriented merchants whose investments, although restricted by the state, were considerable, and whose social status rose in that period. Historians have discussed a Chinese “commercial revolution” in the eleventh and twelfth century. There were also pathbreaking technological innovations: gunpowder, the compass, and the printing press. In actuality, the boom happened in a mixed-economy system.
Much of this was continued when China was ruled by the invading Mongols (1279–1368) and then later by the Ming dynasty (1368–1644). But in the following centuries, China did not keep up the extraordinary dynamism that it had achieved under the Sung dynasty. This became most evident after Chinese policy shifted following the spectacular sea expeditions that Admiral Zheng-He, using large crews, successfully undertook to the distant coasts of western Asia and Africa on diplomatic missions for the emperor. In the 1430s policy shifted away from sea trade and opted for letting the fleet deteriorate, making foreign journeys more difficult for merchants and turning China inward. This much-discussed change of course, with its long-term impact, certainly coincided with the demanding task of protecting the empire’s north against the Mongols and other possible invaders. It was the outcome of an internal power shift—within the tension-filled mixture of cooperation and conflict between state power and market economy, between merchants as junior partners and civil servants as senior partners—whereby a more conservative faction of landowners and Confucian civil servants emerged victorious. The ever-present mistrust of commerce and capital accumulation gained the upper hand. The Chinese form of merchant capitalism, politically controlled and embedded, proved poorly equipped to resist and insufficiently robust to oppose this political change of course by a powerful central state.4
A second major region for medieval merchant capitalism was located in the Arabian empire that existed under the Umayyads and Abbasids between the late seventh and mid-thirteenth centuries, encompassing western Asia, North Africa, and the Iberian peninsula, and established Islam as a world religion. Even as early as the emergence of Islam at the beginning of the seventh century, there was no lack of merchant capitalist elements. Mecca and Medina were then lively merchant cities conveniently located on major caravan routes. Mohammed himself came from an urban mercantile milieu. The spread of Islam, which went hand in hand with the construction of an Arab-dominated, Muslim-influenced state, soon to be an empire, happened unusually rapidly. This did not take place, however, primarily by way of merchants and the expansionary forces of the market but rather by political force, violence, and conquest—and with the enormous impetus of a newly created missionary religion that pursued universal aspirations and used highly efficient mercenary troops who quickly triumphed after the downfall of the Roman and Middle Eastern empires, subjugated various peoples, plundered in grand style, and complemented all this with a steady stream of slaves, mostly from the stock of its defeated enemies. In just a few years (until 632), the Arabian peninsula was subjugated, within two additional decades the Near and Middle East as well as Egypt and Libya were occupied, and in the late seventh and early eighth centuries there followed the incorporation of northwestern India, western North Africa, and the Iberian peninsula.
It was on the basis of this empire in formation, starting in the eighth century, that Arab and Persian merchants and traders, shipowners and seafarers, caravan operators and agents of all kinds began to dominate existing trade routes running through the Eurasian continent and the great maritime trading routes as they simultaneously developed new trade links: toward Africa, toward Southeast Asia, and into western Europe. The most important one was still the great East-West link from the Mediterranean across the Arabian deserts, Persian Gulf, and Indian Ocean toward India, Southeast Asia, and China. In the major harbors where silk and porcelain, gold and silver and all kinds of metals, but also linens and metal utensils, high-grade wood, spices and oils, furniture and jewelry, slaves, and many other goods were transshipped, stacked, sold and resold, the facilities that these transactions required were in the hands of Persians and Arabs who increasingly put together the ships’ crews, led the caravans, and provided all the necessary information. Muslim-oriented law apparently provided a good foundation for concluding commercial-mercantile contracts, for borrowing, and for collecting debts. It provided viable cross-border rules, without which long-distance trade, risky in any event, could quickly deteriorate. On the basis of a common language, religion, and also to some extent culture, there emerged new networks of Arab merchants in which—in spite of all the conflicts, competition, and infractions of rules—it was possible to fall back on a potential of trust that reduced insecurity, facilitated cooperation, and so created market relationships across great distances and heterogeneous regions.
Yet the rise of long-distance trade also had a domestic impact. Prosperity was clustered along the trade routes. To be sure, the subsistence economy remained dominant everywhere in this expanse, as did the practice of skimming off acquired assets by exerting political authority rather than by recourse to the market. But the integration of many sites and regions in developing market relations did lead to a differentiation of agricultural and commercial products. Thus, one can show on the basis of examples from northeastern Persia between the seventh and eleventh centuries that some places specialized in damask or satin, others by contrast on processing pelts and hides. There were places there that concentrated on making soap and perfume, others on weapons, metal crockery, and tools. The workshops, which were involved in fluctuating price trends, also employed wage workers. Fruits, cane sugar, spices, and dried fish were among the products that specialized peasants ventured bringing to supra-local markets. In this way, the relationship between landowners, leaseholders, and slaves or workers was indirectly shaped by changing market relations. For all this business to take place, the assistance of traders and merchants was required, even if these dealers did not, as a rule, intervene in the organization of production.5 The capital of the merchants derived in part from the large fortunes that grew out of earlier conquests and raids: an example of the kind of violent “original accumulation” that not infrequently stood at the cradle of capitalism. Family relationships might open access to resources from land-owning elites. Business partnerships were frequent, and they were used to finance and share in the risks of major undertakings, though usually only for a limited period (e.g., one or two years) until the enterprise in question, for example a major buying and selling expedition by ship, came to an end. There were legal requirements for these ventures, including stipulations for shareholding forms that were later designated in Europe by the term “Commenda.” In part, the necessary capital came out of reinvested profits that had previously been made through trade. Finally, there was also borrowing on credit.
In these Islamic-influenced societies, the possibility of lending money at profit as a way of letting one’s capital go to work, to “make it fruitful,” was frequently used—this notion did exist there. The ban on interest anchored in the Koran—as well as in the Old Testament and the Talmud—could be skirted. On the one hand, the ban did not apply to “strangers”: For this reason, Jews and Christians were predestined for the money and credit trade in the early Islamic world (as were Jews and Arabs, later, in the Christian Occident). On the other hand, going back to the early ninth century, there was a special advice-dispensing literature publicly explaining various tricks that could be used to get around the ban on interest. In Arabia, advanced credit instruments were developed, while checks and bills of exchange came into use even before the turn of the millennium. Checks could also be transferred across great distances, even if they could not yet be properly traded. These were techniques that in Europe would not be used before the twelfth and thirteenth century.6 From the outset, Islam adopted a positive attitude toward trade. Hardly an Islamic thinker seems to have rejected the pursuit of profit as such as immoral or harmful to faith. Even the critique of wealth typical of early Christianity was missing. Influential Muslim scholars from the eleventh and twelfth century, such as the Persians Ghazali and al-Tusi, viewed the market not primarily as a site of competition or combat but as a place for cooperation and the expansion of mutual assistance via the division of labor and exchange, a little like the way Adam Smith would view these in the eighteenth century. State intervention into price setting was denied legitimacy, and in this regard the example of the Prophet was invoked. In unadorned language and without criticism, the fourteenth-century Arab historian Ibn Khaldun asserted that the business of commerce was “to make a profit by increasing capital, through buying goods at a low price and selling them at a high price, whether these goods consist of slaves, grain, animals, weapons, or clothing material.” In the eleventh century, the literature mapped out the skills possessed by different types of merchants: these included the ability to predict future price developments, knowledge of currency and price relations in other countries, and access to reliable middlemen and warehouses in order to find and anticipate favorable sales conditions. The merchant enjoyed social recognition; like Sinbad the Sailor, he even had enough of the right stuff to become the fictional hero of folklore storytellers. In the last two centuries of the first millennium, the rudiments of a merchant capitalist bourgeoisie emerged in some parts of Arabia, more clearly here than anywhere else in the world at that time. Yet the merchant capitalists had no share in the political power exercised by the traditional elites, noble landowners, and military leaders. The bourgeoisie that was emerging here in a sporadic and rudimentary fashion was not a ruling class. Arab merchants were more removed from the state than their Chinese—and European—counterparts.7
In the comparative perspective of global history, merchant capitalism developed relatively late in medieval Europe, but then differently than in Asia. With the political collapse of the Western Roman Empire in the fifth century, and in the midst of the instability of the Germanic tribes’ migration period, economic life disintegrated, and capitalistic practices that had emerged in antiquity collapsed: this was again an example of the close connection, in this case negative, between the formation of states and markets. In the parts of Europe that had been ruled and influenced by the Roman Empire (excluding the eastern Mediterranean region, which continued to be part of the Byzantine or Eastern Roman Empire), there was a retrogression of the market economy, demonetization, and reversion to agriculture. Trade relations that had once extended from the Baltic Sea to China fell apart, cities and trading centers atrophied, and highways were deserted. On the whole, the household economy and self-sufficiency predominated, even if such institutions as monasteries often produced more than they consumed, attempted to sell the surplus at a profit, accumulated capital, and advanced money without interest, though not without gainful collateral. Trade was locally restricted, by and large, although coastal sea trade was never completely broken off, and Roman traditions did survive along the Mediterranean.
In medieval Europe, too, capitalistic practices caught on in long-distance trade. Between the twelfth and fifteenth centuries, trade between Europe and Asia that had heretofore been rather sporadic extended, with increasing density and regularity, from the coastal cities of northern Italy, southern France, and Catalonia to Egypt, Palestine, Syria, and Byzantium, and from there further eastward.8 The Crusades of the twelfth century, which to some extent were raids, simultaneously upset and powerfully stimulated East-West trade. For a long time, this trade was managed by shipowners, merchants, and ship captains from Venice, Genoa, and somewhat later Florence, together with Pisa and Livorno, soon also points of departure for ships sent through the Straits of Gibraltar to France, Flanders, and England. Another important trade route ran through the seas in the north and linked Russia, Poland, and Scandinavia with Flanders, Brabant, and England. Yet routinely used and increasingly upgraded trade routes were also developed on land: these included the Alpine passages from Italy to southern Germany and further north, continuing along the Rhine route that led from Basle to the Netherlands, where there was an oversea connection to England; there were also links that emerged between these trade regions because of regular visits to trade fairs starting in the middle of the twelfth century (initially in the Champagne region of France).
Not only were the merchants who carried on this longdistance trade following capitalist principles, they were also developing cooperative solutions in an effort to reduce the considerable risks associated with long journeys over great distances. For the overland journey they banded together into caravans, and they sent their ships out in fleets, not infrequently numbering fifty to a hundred, well armed in order to protect themselves against raids by robbers and pirates (and sometimes also by competitors!). In a time of weak states and widespread mistrust toward foreigners, traveling merchants from the same regional or ethnic background who found themselves in the same distant destination often stayed in close contact with each other, and even lived there together on a mostly temporary basis, separated from the native population, in trading stations, lodges, overseas branch offices, or specialized urban districts, often with separate self-governing institutions and special legal jurisdictions of their own; these arrangements rested on a foundation of privileges the merchants had acquired from the relevant local authority in exchange for services rendered. As a rule these were temporary associations among highly mobile persons, yet they could also develop into long-term unions, the best-known example of which is the Hanseatic League.9
Initially a union of traveling merchants with a common background from certain (mostly northern German) cities, and simultaneously a powerful if loosely structured alliance of what was occasionally more than fifty cities, the “German Hanse” defined shipping, trade, and politics in the North and Baltic Sea region from the thirteenth to the sixteenth centuries. There was trade in luxury goods like spices and amber, but also with mass goods for daily use by a wide range of buyers, goods that included wool, cloth, pelts and hides, fish, salt and grain, wooden and metal articles. Port cities like Lübeck, Hamburg, Stettin, Danzig, Bremen, Wismar, and Rostock were the leading places, but inland cities like Cologne, Magdeburg, and Braunschweig also belonged to the League. The Hanse League, moreover, had outposts (so-called Kontoren—branch offices or counting houses—in old commercial German) in such diverse places as Novgorod, Bergen, London, and Bruges.
The merchants of the Hanse liked to combine in pairs and form small trading companies that would last for several years. They shared what were frequently high profits: in the fourteenth and fifteenth centuries, it was said, there could be an annual return of 15 to 20 percent, as measured according to the paid-up capital. Most of the merchants belonged to several such trading companies, if only in order to spread the high risks of maritime trade. Frequently those joining together were relatives working at different sites. The methods of bookkeeping were simple. The merchants functioned simultaneously as their own bankers and money changers. Buying and selling on credit was the rule, and the merchants made use of cashless money exchange, using bills of exchange (promissory notes and drafts). Creditworthiness was essential for mercantile success, and merchants observed each other reciprocally and controlled each other indirectly in this way, even though everyone guarded the state of his business as a secret. This form of merchant capitalism was cooperatively molded and closely tied to politics. Common institutions that, like the branch offices, looked after merchants’ business tasks collectively, and not only were important strategic decisions made by individual merchants acting on their own, but such decisions were also discussed in the council meetings and governments (political bodies not infrequently dominated by merchants) of the relevant cities and at irregularly scheduled Hanse diets. The longstanding success of the Hanse was equally based on a corporative urban policy that sought out and allocated privileges to individual merchant-entrepreneurs, and which did not shy away from military conflicts if deemed necessary or useful.
Another variant of merchant capitalism that, on the whole, had more dynamism and a more promising future was developed between the twelfth and fifteenth centuries in northern Italian cities (especially Venice, Pisa, Genoa, and Florence) as well as in southern German cities (especially Nuremberg and Augsburg), where the emphasis was also on long-distance trade. This kind of trade required methods for bridging long distances and, if at all possible, without transporting sacks of coins. These projects—perhaps sea journeys lasting several months, often between one and two years, to distant ports, with several intermediate stops and multiple transfers of goods that were new or different each time—kept getting bigger and requiring more capital. Business on the basis of advance payments and credits had already become the rule in Venice as early as the twelfth century, in part on the basis of very high interest rates (20 to 40 percent in the middle of the twelfth century, in some cases). The need for minimizing risk was immense. Several merchants and moneylenders acting as silent partners would join together to form temporary companies. Most conducted business in different lines simultaneously, with different products and functions; there was neither room nor incentive for specialization. Frequently a merchant worked with several ships, while in other cases several owners of capital operated a ship jointly. Profit was sought in order to augment the capital. A large portion of the required capital was generated in the trade itself, but large sums also flowed out of assets acquired politically, even violently, or through agriculture. Large, even huge riches were accumulated, at first (in the twelfth century) only during an individual merchant’s lifetime, but later as inherited wealth when one generation shifted to another, and later still with the aim of creating a cross-generational firm. Romano Mairano, an unusually successful shipowner, merchant, and moneylender in Venice between 1150 and 1200 donated what remained of his fortune at the end of his life to the monastery of San Zaccaria (where the papers he bequeathed also survived the centuries). The fortune of the Medici in Florence fluctuated up and down in extreme jumps with the passage of time but was passed on from generation to generation. The Fuggers in Augsburg successfully sought to establish a “house” that, unequivocally family-related, would survive for generations. The formation of enterprises with legal personalities of their own—distinct from the household of their shareholders and operators, and moreover often with a variety of changing owners—represents a development in medieval merchant capitalism from the thirteenth century onward, and especially during the fourteenth and fifteenth centuries, that can hardly be overerestimated. It was also a development apparently missing in the versions of merchant capitalism found in China and Arabia. The Great Ravensburg Trading Company, which started in textiles and did business Europe-wide, was supported by more than a hundred families and existed for 150 years (1380–1530).
This expansion of merchant capitalism in the High and Late Middle Ages would not have been possible without the invention of new methods and the deployment of new legal forms. Double-entry bookkeeping, which juxtaposed debit and credit precisely so that both sides of the ledger were instantly retrievable, was known in northern Italian trading cities by the fourteenth century at the latest, and for a long time it was labeled the method alla Veneziana. The monitoring instrument of double-entry bookkeeping, however, was not broadly implemented until the nineteenth century. On the whole, this technique proved much less important for the rise of capitalism than scholars like Weber and Sombart assumed. In commercial practice new methods were created, and were soon also introduced as rules and regulations, for handling cashless lending, dealing in promissory notes, and futures trading. This had the effect of expanding, quite decisively, the spatial and temporal dimension within which the business of merchant capitalism could take place. Not only were Arabic-Indian numerals—including zero—adopted from the Orient (around 1200) so as to facilitate written calculations, it also happened that some methods for trading and calculating were copied from Arab competitors and partners. Different legal forms for shareholding, partnership, and capital consolidation were developed, and these rudimentary innovations facilitated capital shares with limited liability (though without an option for trading the shares). The reawakened tradition of Roman law, with its formal rationality and contract-friendly design, was helpful here, even if it did not prove decisive.10
In contrast to merchant capitalism in Arabia—and, it would appear, China as well—the southern and western European variants exhibited a striking dynamism; it extended beyond trade, on the one hand in the direction of a financial capitalism with independent institutions and a special closeness to the politically powerful, and on the other hand by penetrating in the first rudimentary way into the world of production.
From the outset, bank transactions—currency exchange, borrowing and lending, business in bills and checks that simplified payment transactions and provided opportunities for profits on their own, including trade in promissory notes starting in the fourteenth century—contained speculative elements. These transactions were settled, to the extent they arose, by the merchants. When these transactions began to increase rapidly in scope, complexity, and importance during the late Middle Ages, they were discharged only to a lesser extent by Jewish or Lombard pawnbrokers, who did exist in large numbers but were mostly engaged in extending consumer credit. They exploited the distress of ordinary people, often charged exorbitant interest, and were denounced as usurers. The majority of those who turned to this new speculative business were merchants, both experienced and aspiring, who were increasingly specializing in financial transactions, even if they did not completely forswear trading in goods. Banks emerged in Genoa starting in the twelfth century, in Venice starting in the thirteenth, and in Tuscany since the beginning of the fourteenth century. Florentine banks—already numbering eighty by 1350—were the most prominent across Europe and remained so until the end of the Middle Ages. They were mostly organized as family-based trading companies and supported by several partners who deposited the capital, participated in their management, and split the profits. In 1341 the third-largest bank in Florence, the Acciaiuoli Bank, had sixteen branches in different countries, eleven partners, thirty-two managers, and a large number of staff personnel. The Bardis, Peruzzis, and in the fifteenth century the Strozzis and Medicis also attained this stature in the ranks of major transnational companies. They not only made money in the aforementioned business with money, bills, and checks, but they also used their capital, money in accounts deposited with them, and their earnings to acquire shares in and advance credits to trading and commercial enterprises. They also conducted such enterprises on their own. In addition, they issued bonds to city governments, landed and manorial estates, and eventually also to the highest-ranking spiritual and worldly rulers, who were in constant need of money owing to the lack of routine tax revenues and who found it difficult to wage wars, fulfill their ceremonial obligations, and promote their territories’ expansion. State formation and the origins of financial capitalism were closely connected, and the nexus provided a way for prosperous urban citizens in high finance, a small elite, to establish their influence on politics while simultaneously making their entrepreneurial success dependent on powerful rulers and their shifting political fortunes.11
Through the end of the Middle Ages, capitalism was largely limited to parts of trade and finance. Yet early on, merchant capital selectively pushed out beyond the sphere of distribution. This happened both in the mining business, with its huge capital requirements and often quite extensive plant operations based on wage labor, and in cottage industry. Here and there, merchants began to exercise influence over the production of goods they intended to market by advancing raw materials to producers, placing orders, and sometimes also providing tools. Examples may be found above all in the history of the wool trade in northern Italy (here, again, especially in Florence) and in the Netherlands (Flanders, Brabant), starting in the thirteenth century at the latest. As a result, there was a change in the division of labor among producers. Their dependence on the market and its fluctuations increased tangibly. Their status became closer to that of the wage worker, since they remained formally independent but were actually receiving piecework wages, sometimes in the form of advances they were required to work off. This often turned the merchant into a “factor” (Verleger) and the craftsman into a homeworker or cottage laborer. Workshop labor and hourly rate work also took place. This led to a sharp increase in a number of tensions, between capital and direct producers, between merchants and artisans, and between entrepreneurs and workers. These tensions sometimes fed the tumults and uprisings that frequently took place in commercially developed areas during the fourteenth century (even if these disturbances also had other causes), for example the tumulto dei ciompi in Florence in 1378, which was settled by force of arms and suppressed with the aid of city authorities. Not always did the rudiments of cottage industry—which could also be found in other lines of business, as in the Nuremberg metal trade, the linen industry in Constance, and in southern Italian ship construction—lead to open conflicts. Yet it became apparent early on that the social explosiveness of capitalism increased as soon as it began to expand from the sphere of circulation to the sphere of production and to reshape the world of work directly.12
To the extent that it was catching on, then, capitalism in the European Middle Ages was sustained by merchants. They encompassed very different livelihoods: from prosperous, respected, and long-established patricians with extended families and membership in the city regiment to Jewish or Lombard moneychangers who were denounced as usurers and lived in great insecurity on the fringes of society; from deeply entrenched members of an influential guild to the occasional merchant or the freshly risen nouveau riche; from the rich merchant-banker who associated on friendly terms with highest-ranking power holders to the exhausted traveling agent who routinely visited suppliers and producers in a proletarianized milieu and served as a messenger passing on information. But an orientation toward profit, experience in handling money, and the ability to compete in markets was something they all had in common, even if they knew how to value the advantages of monopolies and aspired to privileges, that is, sought favors from the politically powerful and ways to shield themselves against the vagaries of the market. Most of the merchants in wholesale and long-distance trade were among the educated of their time, since they could read, write, and count. Their supraregional orientation, which came out of their experience in long-distance trade, lent many of them a certain cosmopolitanism. The inherently uncertain yet malleable nature of their business saw to it that entrepreneurial, ambitious, success-hungry, bold persons were strongly attracted to this field and disproportionally represented in it. Strikingly, too, these merchants—if only because demand was limited and sales, as a rule, were small—did not specialize. They traded with many and took care of a variety of business at the same time, paying attention to what was on offer or just coming on the market, and they looked for opportunities, hardly squeamish about the dangers that constituted the norm in a world where there was little in the way of any “stateness” as soon as one left the relatively guarded space of one’s walled-in city and the familiar surroundings of one’s local community. Failure was frequent. Even large and long-successful enterprises went bankrupt. There was no lack of stories about the decline of great families from positions of wealth and power. These merchants and bankers were far from being able to settle comfortably into specialized and manageable routines. In the struggle for commercial success, they had to be alert and cautious, even suspicious, and, from time to time, unscrupulous. They knew pride in individual accomplishment. They took advantage of self-interest with toughness. A certain inclination to secretiveness was also involved. They were not acting as civic matadors of an early bourgeois public realm. They strove after money, not in order to hoard it, but rather to let it work and multiply. All this fit in with capitalist principles.
But, in contrast to the more fully developed capitalism that would come later, the fixed capital tied up in trade remained limited by nature, and capital accumulation happened neither quickly nor in unlimited fashion. One reason for this, in spite of sometimes very high profit rates, was that only a portion of the profits were used to expand the typical undertaking, which in any event was planned in the main to last for only a few years and could rarely be assumed to survive the death of the originating merchant. Often, a large portion of the profits from an undertaking went into consumption, even (or especially) into luxury consumption or into the acquisition of real estate. Land at that time represented a durable foundation that could be inherited by the next generation, in contrast to the temporary character of merchant capital, which did not survive the times. Altogether, this fit in with the era’s notions of the good bourgeois life in which, with growing economic success and advanced age, one sought to replace the excitement of a trader’s business with the leisurely existence of a pensioner, and in addition to acquire a comfortable country home. One might even, as in the case of a few especially successful merchants, seek to add a noble title, an acquisition generally held in high regard, and ownership of a manor or castle. In other words, under the social and cultural conditions of the Middle Ages, capital accumulation and entrepreneurial growth were a long way from being the dominant goals they later became. Instead, profit and business success remained a means to the end of the good life.
It needs to be made clear that even this moderate variant of capitalist practice could only catch on at a certain remove from deeply rooted moral ideas. Not only did the doctrine of the Christian Church prohibit moneylending, extending credit for interest being regarded as “usury,” at least if it was lending to “thy brother” (i.e. member of one’s own tribe, group, or religion), as said in Deuteronomy (23:20, KJV). Interest-bearing lending from Christians to other Christians was, to this extent, prohibited, which largely explains the strong representation of Jews in such transactions. The Christian doctrine, which had originated in an agricultural-artisanal milieu, where solidarity was esteemed as a form of fraternity, undoubtedly gave expression to widespread anticapitalist attitudes. These attitudes rejected profit as a lifetime goal, and they evoked mistrust of the merchant’s livelihood. With time, these attitudes did soften, or they were interpreted in such a way that they could be reconciled with economic reality as it unfolded. There were, moreover, many methods of getting around the prohibition on interest and on making credit transactions accessible to Christians, too. The church’s moral doctrine also developed countervailing arguments that interpreted exchange, profit, and prosperity as legitimate compensation for the financial insecurities and difficulties merchants faced, and as useful for the public welfare.
But it is still remarkable that capitalism was able to catch on in a Christian-influenced medieval Europe only against the obstacles of widespread mistrust, moral rejection, and intellectual criticism. Merchants accommodated such attitudes, to some extent, by adopting a lifestyle and imagery compatible with religion, by donating heavily to charity, and often also by making a “final penance” in old age through large transfers of wealth to monasteries and churches. Anxiety about the torments of hell is also certain to have shaped the spiritual attitude of many medieval merchants, most of whom, in spite of all their worldliness, were devoted Christians. Yet the dynamism of merchant capitalism was hardly dampened by the anti-capitalism of Christian-influenced public morality, just as the ever-present ideological critique of capitalism in centuries to come only rarely interfered with the spread of capitalism as a practical matter.13
In the millennium between 500 and 1500, merchant capitalism was a global and not a specifically European phenomenon. Beyond the cases of China, Arabia, and Europe depicted here, it also existed in other regions of the world, for example in India and Southeast Asia.14 It evidently developed under very different social, cultural, and religious conditions. In the comparative perspective of global history, Europe was a latecomer that remained backward for a long time as far as the formation of the institutions of capitalism and its behaviors is concerned.
The many types of capitalism in the world regions discussed here, in China, Arabia, and Europe, did not exist in isolation from each other. Rather, they were aware of and influenced each other, even as early as the period regarded in the West as the High Middle Ages. As far as the history of these types of capitalism is concerned, it was Europe that learned and adopted more from the others than the other way around. But the linkages were not intensive enough so that one could speak of a “world system” as early as the era around 1200 or 1300.15 Even if capitalist development in Europe lagged behind that of China and Arabia, it did soon appear to be the most dynamic of the three. This is most clearly demonstrated by the way Europe seized on a kind of capitalism that was initially characterized above all by longdistance trade but slowly expanded into other areas: into an emerging financial system that included the financing of political powers as well as into the sphere of production, above all in cottage industry. Why? Explanations from the history of religion can be ruled out. For the moral teachings of Christianity impeded the way to capitalism’s beginnings in medieval Europe more decisively and with greater inhibition than was done by Islam since the seventh century in Arabia and by the East Asian religions since the tenth century in China. Nor can the exploitation of non-European resources by Europe be invoked as an explanatory factor for the period prior to 1500. Undoubtedly, different factors played a role. Yet what proved decisive was the relationship between the economy and the state, between market processes and political power, at least in a Sino-European comparison. And indeed, this distinctive relationship between economics and politics was already characteristic of the early phase that preceded European expansion into other parts of the world.
Neither in China nor in Europe nor anywhere else did merchant capitalism develop at a clear remove from those who exercised political power, and nowhere in all those centuries did a clear differentiation between the economy and the state emerge. Both in China and in Europe (and to some extent in Arabia) there were close interconnections between the economic power of the merchants and the political power of the authorities. State formation and market formation were jumbled together everywhere. But in Europe the political system was intrinsically diverse and positively fragmented, while in China there was a centralized empire. The hard, frequently warlike competition between city-states, principalities, territorial states, and other political units was a central part of the European, but not of the Chinese, configuration. At the same time, European cities had a great deal of civic political autonomy that was lacking in Chinese cities. It followed logically from the European configuration that those exercising political rule competed with each other to promote economic potential in the territories they governed, while this motive did not animate China’s civil service governments as much and receded even further into the background during the fifteenth century. The merchants who supported capitalism in Europe, or at least their leading representatives, exercised direct influence on politics—in part via a symbiosis with rulers in the city-states and free cities that had civic rule, in part through close ties to those exercising political power and in need of financial support, in part through formal self-organization (guilds). By contrast, merchants in China, as well as in Arabia and India, were confined to the antechamber of power and were much less engaged in financing state formation than was the case in Europe. This explains how, in the final analysis and in spite of many countervailing trends, politics in Europe was decisive for promoting mercantile dynamism and a capitalistic kind of accumulation. By contrast, Chinese politics, although it initially allowed and supported commercial dynamism and major developments in accumulating large amounts of capital to inch forward a bit, then became strong enough and mistrustful enough to restrain both of these trends so that finally, when both domestic and foreign policy changed, these economic forces were ultimately thwarted.16
So far, the development of capitalism in trade, and especially in long-distance trade, has essentially been depicted in a way that showed how merchants and their undertakings played the decisive role. While it has proven impossible to pinpoint clear starting dates, the tenth through fourteenth century in China, seventh through eleventh century in Arabia, and the twelfth through fifteenth century in Europe have turned out to be reliable dates bookmarking phases of accelerated expansion. Those in the Marxist tradition who will only speak of capitalism when capitalist principles are guiding production and shaping the way work is organized there tend to categorize the phenomena just discussed as precapitalist.17 I do not share this point of view. These early merchants’ intense relationship to the market and their strong profit orientation, the relative independence enjoyed by commercial actions and institutions, the significance of investment and accumulation that used credit and were profit oriented, the formation of enterprise (at least in Europe), and finally the dynamic way that capitalist developments radiated beyond long-distance trade (at least in Europe), even into the rudiments of production—all this justifies and compels categorizing these phenomena as capitalist in the meaning of the definition established at the outset of this book. There were also causal relationships. The merchant capitalism (or commercial capitalism) of those earlier centuries generated capital, techniques, and connections that took effect in those later variants of capitalism that did incorporate the sphere of production more thoroughly.
Yet it is clear that, in many respects, we are dealing only with the rudiments of capitalism and not with capitalism in the full meaning of the definition established at the outset of this book. As a rule, a thoroughly capitalistic organization of production did not take place, either in agriculture or in trade and manufacture. The frequently attested reluctance of important actors to engage in capital investment and accumulation posed an additional limitation, no matter how interesting and meaningful it may be, particularly in light of current problems, to reconstruct how this reluctance came about. It did, after all, signify how capitalism was socially embedded and politically regulated. Finally, there is something that cannot be emphasized strongly enough even though it could not be made sufficiently clear in the preceding account: that the manifestations of capitalism depicted in that account were minority phenomena, all taking place while the economy and society functioned by and large according to noncapitalist principles. Overall, subsistence and domestic economies prevailed in many medieval societies, a large part of economic interactions took place without reference to markets, noneconomic forms of dependence and domination were paramount, and inequality was largely determined by politics and social status. This chapter was mostly about islands of capitalism in a predominantly noncapitalist environment. These islands could crumble away again, as in the Chinese case; teleological ways of thinking about this are not apposite. Yet on the whole these islands grew, and the effects that emanated from them expanded.