[Dave Birch] I read in The Telegraph that John Paulson, who runs some kind of gambling syndicate called a “hedge fund”, earned an entirely justified $3.7 billion last year, primarily by betting against sub-prime mortgages. Now we know where some of UBS’ missing $37 billion went: not into a black hole after all, but into the pockets of people cleverer than them. Not that it’s the subject of this post, but I don’t begrudge them their money: they put it on the right horse. But because I’m fascinated by the history of money, I did begin to wonder just how a salary of nearly TWO BILLION POUNDS sits in the sweep of things. After all, Bill Gates and Warren Buffet have more money than that. But what’s the measuring stick to assess across time and space? The gold standard must be the proportion of the wealth of the richest nation in the world that is under the control of an individual. If we exclude monarchs of old, where the wealth of the state and the wealth of the individual were inseperable, I think I’m right in saying that the title still belongs to Nathan Rothschild. As is often pointed out, he died in 1836 of blood poisoning — or was poisoned by the Illuminati (our motto: someone you trust is one of us) depending on who you listen to — that would be trivial to cure today. If it happened to him now, he would have been cured by a few pence worth of antibiotics (except in a U.K. hospital, where he would likely have died from MRSA).

The crucial difference between money then and money now is that the richest individuals today have only a tiny fraction the money of society as a whole and the state. How different it was in the days of Jacob Fugger of Augsburg (Jakob II “The Rich”, 1459-1525). Now, he did have some chips to play with…

Fugger provided Charles V with the money needed to bribe the seven electors to make him Holy Roman Emperor in 1519. Charles ennobled the family and granted them sovereign rights over their lands, including that of coining their own money. Jacob also secured the right to sell papal indulgences, which increased his already vast fortune tenfold.

[From Jacob Fugger – Wikipedia, the free encyclopedia]

Now that’s money: Fugger was rich enough to see people out of purgatory, to create a Holy Roman Emporer (of something that, as Voltaire famously said, was neither holy, nor roman, nor an empire) and, best of all, to coin his own money. You’ve got to have goals, haven’t you!

What a Fugger

Jakob II lived at a time when it finally became possible for someone to accumulate money without the threat of force. He got this rich because the Fuggers established what was, essentially, the prototype for modern business and the first public company. Jakob had studied accountancy and the new-fangled double-entry books, an innovation that made the modern extended enterprise viable. According to Britannica (“Fugger Family.” Encyclopaedia Britannica 2008 Ultimate Reference Suite. Chicago: Encyclopædia Britannica, 2008), in 1441 his father Jakob I had married the daughter of a mint master who went bankrupt (don’t worry, even with pennies costing 1.7 cents to make this won’t happen today) and therefore proceeded carefully in his business; yet by perseverance and industry he succeeded in substantially increasing his profits. This gave Jakob II some significant capital to play with. With penetrating insight into the future, his favourite saying was “the king reigns but the bank rules”.

There’s no need to recount all of this activities, except to note that on his death his firm was the most powerful financial force in the world and he bequeathed a fortune of two million guilders in cash to his nephew Anton. That is considerably more than, say, the Medicis, although In modern terms it seems quite modest: perhaps $100 million or so, not even as much as a Madonna or David Beckham. According to my copy of The Rich and How They Got That Way, by Cynthia Crossen of the Wall Street Journal, he left another legacy: the first purpose built cottages for workers (known as the fuggerei, they still stand).

Why am I talking about the Fuggers? Because I’m writing some notes for my short talk on the paleo-future of money for tomorrow’s Digital Money Forum in London and I’ve got completely sidetracked.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

2 comments

  1. There is apparently a debate in accounting circles about the new fangled double-entry books and the causality with the arisal of the prototypical modern business. What you suggest then is that DEB came first, and this enabled the rise of the corp.
    I agree, and it is from observation of digital cash. Originally, early builders put in single-entry systems hacked up in a weekend (Digicash did this, and so did we). However, we kept losing money, of the literal kind. When we learnt that lesson we all switched over to DEBs and stopped losing money (although the cost of a good DEB system is slightly higher, around a month of coding time).
    So I’m pretty convinced that double entry enabled the corp to expand, through sheer efficiency gain of not having to suffer loss through errors. It also has the spectacular advantage of clearly separating loss from fraud, which helps to lop off the right heads. We weren’t able to manage more than 10 accounts with single entry, and with double entry, we never saw a limit.
    Enjoy the conference! Wish I was there!

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