The Fuggers, Bankers to Emperors

In the 16th century, European finance was dominated by a banking family whose wealth was far greater than their amusing name would let on. From their adopted home of Augsburg in Bavaria, they were creditors to emperors. These were not just any emperors too, but the Habsburgs, a dynasty that ruled much of Central Europe, Spain, and the Americas. Despite having their commercial origins in the textile trade, the Fuggers became bankers as historically significant as, and even wealthier than, the Medici of Florence, who predated them by only a couple generations. Despite this, they are far less well known today than the Medici. Few monuments to their wealth remain, over four centuries after state bankruptcies dissipated the family’s fortunes.

Fuggers and the Habsburgs

The history of the Fugger family’s most glorious era has its start when a weaver, Hans Fugger, settled in Augsburg in 1367. The Fuggers had previously made their money in the textile industry and they climbed the social ranks in Augsburg through marriage and by supplying the entourage of the local Habsburg emperors with fabrics. Hans Fugger’s grandson, Ulrich, provided wedding garments for the Holy Roman Emperor’s son, Maximilian I in 1473. This marked the start of a relationship with the Habsburg dynasty, by far the most important to the Fuggers’ fortunes in the century ahead.

The Habsburgs were far and away the most powerful family in Europe, ruling swaths of the continent from the Netherlands to Naples, Transylvania to Spain. Through their Spanish holdings they had control over most of the Americas too. While, the Fuggers had their start supplying clothes to the Habsburgs, the family’s fortunes would be increasingly tied to lending money than to selling cloth. They profited from leases they would obtain over mines and lands in exchange for lending to the monarchs and by using their superior credit to borrow on their rulers’ behalves.

Fugger Bank

By far the most successful financier in the Fugger family was Ulrich’s brother Jakob. Trained in Venice, a financial capital of the Mediterranean in the late-15th century, Jakob transformed the family business into a bank. Among his first clients was Archduke Sigismund of Austria; the Fuggers took a gamble by financing a war the Habsburg Austrian Archduke fought against Venice in 1487. To many, the ill-advised War of Rovereto looked like it might end in an Austrian defeat and so most avoided financing the Archduke’s war. In return for lending money in these difficult circumstances though, Jakob was given concessions to operate mines in Tyrol, the alpine regions of western Austria.

Sigismund was then succeeded as Archduke by Maximillian I, whom the Fuggers had already had a fruitful relationship with. The family continued to act as personal bankers to the monarch. In exchange for making loans, they received leases on copper and silver mines in Hungary, Silesia (in modern Poland), and elsewhere. Demanding mineral rights in return for lending helped the Fuggers maximize their return while still offering their rulers competitive borrowing costs. Along with money they raised by vouching their own creditworthiness, this mining revenue also helped them fund more loans.

Wars were not the only events requiring the borrowing of large sums of money by the Habsburg monarchs. Frederick III, Maximillian I’s father, was also Holy Roman Emperor, the first Habsburg to hold the post. As Emperor, he was the titular ruler of much of Central Europe, spanning parts of France and Italy, and all of modern Germany. However, Holy Roman Emperor was an elected, not a hereditary, title. Those responsible for electing the emperors were a handful of German princes and bishops. In 1519, the Fuggers lent to Maximilian I, then Holy Roman Emperor, so he could bribe the electors to vote his grandson, Charles V, his successor. The loan for 540,000 guilders helped Charles V beat out other candidates which included King Francis I of France and England’s King Henry VIII.

That said, although elected by bishops and princes, emperors were crowned by the pope, but the Fuggers’ influence extended even there. As steadfast Catholics during the early years of the Protestant Reformation, the Fuggers also helped finance the Church. Initially, this was done by simply selling indulgences, a fundraising scheme where money was raised by selling forgiveness for sins. Later, they financed the recruitment of Swiss mercenaries for the Pope during the Italian Wars of the early 16th century. In return for their alliance, they were given a monopoly on minting coins for the Papal States. Despite the close business ties, good relations with the papacy ended when a Medici became Pope in 1523. The rival banking families couldn’t do business together and the fifteen-year lease on the state mint granted to the Fuggers was revoked the following year.

In the end though, the fall of the Fuggers came not from Rome but from Spain. The family’s involvement there began as a consequence of their dealings with Maximilian I. In exchange for lending him money to have his son elected Emperor, the family received leases on silver mines in Spain, which the Habsburgs also ruled. By this point, the family had controlled mines in the Austrian Tyrol, Spain, Hungary, and Silesia. On his death in 1525, Jakob left his children a wealth equal to eleven tons of gold or eight tones (over two million guilders) net of his liabilities. Though the family’s net worth peaked at this time, the geographic extent of the fortune grew further. Jakob’s nephew Anton extended the family business to trade, helping Portugal supplant Venice as the capital of Europe’s spice trade.

Their relationship with the papacy along with their Catholicism made the banking family from Augsburg early foes of Protestant religious and political leaders. The Fuggers themselves were no friends of the reformers and once the Reformation got underway, they lent money to finance the Habsburg dynasty’s wars against the Protestant Schmalkaldic League. Emperor Charles V, who was also King of Spain, had credit so poor that much of this borrowing, even though it was secured by assets in Spain, carried interest rates as high as 12-14%. Some of this money was raised by the Fuggers in their native Bavaria where their credit was good and where they could borrow at under 10% interest. In addition to obtaining leases to Spanish mines, the family doubled down on Spain, purchasing land there and lending to the Spanish treasury over five million guilders.

Decline

As often happens in even the most cordial relationships between debtors and creditors, the rapport suffers when times get tough. Relations between the Fuggers and their royal clients deteriorated as the Imperial debt was slow to be repaid. Jakob Fugger used to send sternly written collection letters even to emperors but the family’s luck soon ran out, despite, and perhaps because of, past assertiveness. The Fuggers leases of mines in Spain were cancelled and cargoes of silver in transport were even confiscated. Spain, the very country so much of the family’s wealth was staked on, was on the brink of financial ruin.

Under King Phillip II, quarterly interest payments on the Spanish debt were suspended in 1557. Three years later, interest on outstanding claims were unilaterally reduced to 5%. For the Fuggers, who by this point were funding their lending by their borrowings elsewhere, this was a disaster. The defaults amounted to losses of almost 1 million Spanish ducats (1.3 million guilders). Those would not even be the last of Spain’s sovereign defaults, they were followed by more in 1575, 1596, and 1607. Given just how heavily exposed to the Spanish state the German banking family was, the Fuggers’ net worth had fallen to perhaps 200,000 guilders by Anton’s death in 1560.

Foundation

While the Fuggers’ riches are not common knowledge outside history books, some testaments to their past fortunes exist to this day, however minor. Indeed, the bankers were philanthropists too, building churches and funding religious projects in their native city of Augsburg. However, the largest monument to their wealth still standing is the Fuggerei, a complex of subsidized housing built in Augsburg in 1516. The Fuggerei stands to this very day, though rebuilt after destruction during the Second World War. Today, about 150 needy residents live in 67 houses, paying only about 1€ a year in rent, courtesy of the city’s bankers five centuries ago.

To fund their charitable institutions, the Fuggers established a trust to throw off sufficient funds in perpetuity. The foundation, which started with a 10,000 florin (13,000 guilder) bequeath invested mostly in land and forestry assets. Indeed, it today owns 3,200 hectares (7,900 acres) of forests, five hundred years later. The foundation’s returns have helped pay for three Augsburg institutions: the Fuggerei, a chapel, and a theological post at Augsburg’s St. Moritz Church.

Lesson

The Fuggers became a fantastically wealthy family in the 16th century. Sure, the financial savviness of their patriarchs counted for something, but a lot of this success was achieved by tying their fortunes to Europe’s most powerful family. That said, tying their wealth to the Habsburgs had mixed blessings. Though they were one of the continent’s longest lasting ruling families, not all of them were known for financial prudence. The most famous Habsburg kings and emperors, like Charles V and Phillip II, were also among the most profligate. The result is that little remains as a testament to the Fuggers’ wealth outside their native city of Augsburg, despite how expansive their riches once were.

More from the Tontine Coffee-House

There are plenty more early banking families to read about, including those of Britain and Italy’s Medici Bank.