Mining can be a very capital-intensive business. Prospecting for gold by panning in a river may not be, but digging mine shafts and building any accompanying infrastructure to extract metal from deeper reserves most certainly is. So, to develop a mine, new companies with little history raise money by issuing shares to a large group of investors, many of them small investors interested in speculative investments. From the 15th century, Germany saw issuance and trading in mining shares that funded the creation of new silver mines, primarily in Saxony and the Harz mountain regions. These shares were very speculative investments.

Silver

            In early modern Europe, silver and gold from the Americas expanded the money supply but there was also growth in the production of precious metals in Europe. A few regions of Germany became important centers for silver mining. One of these was the Erzgebirge, or ‘Ore Mountains’, in Saxony. Silver mining here began with a discovery of silver ore in Freiberg in 1168. The Erzgebirge would have one hundred and forty working mines in the mid-18th century.

             Another key mining region was the area of the Harz mountains in central Germany. This became the most important silver mining region of Germany starting from the end of the Thirty Years War in 1648. In 1670, there was a large increase in the number of mines in the Harz region. The boom in new mining operations continued through 1740 here.

             However, mining was a particularly uncertain venture because the metal was found in individual pockets of varying size. Therefore, the location and amount of the metal was not easy to determine even considering information that can be gleamed from other finds nearby. Water seepage also required constant attention and a combination of labor and infrastructure to address; together these factors meant mining required steady investments of capital.

Shares

            With the permission of the territory’s prince, a mining company could be formed. Ownership in mining companies would be divided into 128 shares and these could in turn be further divided into fractional shares. These shares would be issued to raise money to develop the mine and fund losses until it was profitable, if it ever got profitable. To raise money despite the odds, some mining companies were given reassuring names. Examples included 15th century mines called ‘Hope’ (Hoffnung), ‘Certainty’ (Gewißheit), ‘Rich Mine’ (Reiche Zeche), and ‘Rich Treasure’ (Reicher Schatz).

            Shares in mining companies were called Kuxe. They could be divided, mortgaged, and sold freely. Shareholders received a share of any profits but, this being a time before widespread limited liability was common for companies, they were also personally responsible to cover the company’s losses periodically. However, it seems it was common for shareholders to be less-than-forthcoming with the money to cover losses. If an investor could not make the payment, the share was supposed to revert to the other investors in the firm who could take it on themselves or sell it to a new investor. It was probably the case that unable or unwilling investors tried to sell their shares themselves first.

            Shareholders were passive investors as management would be left in the hands of others. These were not only private managers. A state mining official representing the prince of that territory held substantial power over mines. Among carrying out other responsibilities, it was these officials who would organize the companies, giving one Kuxe to the landowner on whose land the minerals were found. Indeed, under Saxon law at least, landowners were not given full mineral rights over land they owned. Mining companies could open mines on other’s land without seeking permission from anyone other than the prince.

            On behalf of the prince, state officials supervised the mines. Though the investors would elect a committee of between two to four people who would appoint a manager, these managers would need to be approved by the state. The investors would also pick a local representative, who lived in the vicinity of the mine, to manage requests for capital from investors and distributions of any profits. Of any profits, the officials would ensure that the state would take one-tenth of the production of Saxon mines for itself. The state also had the option to buy the silver produced at a price below market value.

Trading

            Kuxe could be freely traded without requiring the consent of other investors in the same company. The exchange of shares with a sale contract would be followed by an update to the register listing the owners. Annual turnover in shares could be high. Shares in mines would trade at the trade fairs of Leipzig, held a few times each year. At the Leipzig trade fairs, trading in mining shares began in 1472. At this fair, distributions to investors were also made, so they were critical to the sort of financial structure devised for the mines. Besides Leipzig, shares also traded in Frankfurt.

            At these fairs, stockbrokers specializing in Kuxe were called Kuxkrenzler. Some also traded for their own account and insider trading and market manipulation were common. They were known for spreading misleading information about mines. Kuxkrenzler would show prospective investors ore samples from locations different than the mines being considered for investment. Discerning buyers protected themselves with clauses that required sellers to make good on capital calls to cover loses on the buyer’s behalf for a period of time after the trade. Also, some contracts allowed the buyer to back out of the trade after the fact, subject to paying a modest fee.

Investors

            Perhaps because of a secondary market for the Kuxe, investors were quite a diverse set. Records show that they included people active in the metals trade but also journeymen, clergy, nobility, and university faculty. Institutions like the town councils of Leipzig, Zwickau, and Chemnitz as well as artisan guilds also invested in mines. Some stayed away, like Martin Luther who in 1544 said ‘’I don’t want to have anything to do with mining shares! They are play money, and play money does not increase in value”.

            A few famous Germans of the 17th and 18th centuries were investors. Johann Sebastian Bach, the composer who worked from Leipzig, owned a share in a mine in Saxony. His name was listed on a 1749 register for a silver mine called Ursula Erbstollen. He seems to have owned just one and one-eighth shares worth about sixty thaler but this single holding still made it his most valuable asset at death besides a harpsichord reckoned to be worth eighty thaler. Bach seems to have traded in and out of the share to avoid paying for the firm’s losses. In 1744, he sold the share and bought it back in 1746. His broker was a certain Johann Christoph Stiehl.

            Goethe and Leibniz were also investors in Kuxe. They were active in the mining economy in more than one way though. The writer Goethe was also a minister for mines for a small German principality and the mathematician and philosopher Leibniz was a mining engineer active in the Harz mountains. Other investors included less recognizable names today but still important local figures. Carl August von Gersdorff, who later became a commander of the Saxon army, was an investor in the same firm as Bach, as were senior government officials and aristocrats. While many shareholders came from Saxony, investors in mines often lived far from the mines they invested in.

Performance

            Share prices could be very volatile. In 1477, a share in one Schneeberg mine sold for 260 florins at a Frankfurt fair; new finds in this area had recently been made. Later that year, these were valued at just 150 florins. Share prices would rise sharply when ore was discovered and would fall when the metal was exhausted but buyers admitted to being driven by irrational exuberance along the way; so much investor activity can’t be explained by reason.

            The share prices of Schneeberg mines collapsed in 1479 when water seepage setback many mining operations. Shares in a mine known as St. Georg, which were valued at two thousand florins each in 1477 and were still being offered at that price in 1480, were purchased for just 171 florins in 1486 by the Leipzig town council.

            In 1566, high-grade silver ore was discovered in a widow’s back garden and projectors soon descended on the property to establish a mine. The mine was named ‘The poor widow’s lucky strike’ (Armer Witwe beschertes Glück) and its shares appreciated from three florins to one hundred and twenty florins within one week.

            Overall though, mines producing losses far outnumbered those with profits. The report below, from the first quarter of 1735, lists the profits per share of profitable mines in the leftmost column and the losses per share of unprofitable mines on the two rightmost columns. The ratio of profitable to unprofitable mines was about 1-to-3.6. These look like very risky investments but investing in mineral exploration companies is also very speculative today. That ratio would be similar to what is experienced by this industry now.

A Report from the First Quarter of 1735 on Harz Region Mines

             Further, looking closer at the profitable mines alone, most of the profits came from a few operations. Among the Harz mountains mines, the ‘Dorothea’ and ‘Caroline’ mines listed on the report above were by far the most profitable. Indeed, the Dorothea mine alone paid out profits of 2.1 million thaler over the years 1709 and 1744. This was about 2.7 times more profits than were realized by all Harz mines together in the much longer period from 1617 and 1676. This distribution, where few mines make most of the profits, is also common in the mining industry today.

Lesson

             Investments in mines have a very high likelihood of yielding little and are susceptible to misleading marketing. Even in much more recent days, mining investments seem to have carried much higher risks. Some things never change. However, other things are very different now. An investor in Kuxe would have to cover his company’s losses periodically and so could lose even more than his initial investment. Still, investors built in some protections into their trading activity, such as requiring sellers of shares to cover some losses in the short run and allowing a buyer to refund his purchase with some conditions, protecting them from information asymmetry to a considerable extent. So, the nature of trading reflected the risks.

More from the Tontine Coffee-House

           Read about a bubble in mining shares in the 1820s and listing of mining company shares in Canada. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts. 

Further Reading

1.      Graulau, Jeannette. The Underground Wealth of Nations: On the Capitalist Origins of Silver Mining, A.D. 1150-1450. Yale University Press, 2019.

2.      Jenks, Stuart. The First Bubble. Silver mining in the Saxon Erzgebirge, c. 1470-15400.

3.      Smaill, Peter. “Every Silver Lining has a Cloud: Bach and the Share Register of the Ursula Erbstollen Mine.” Understanding Bach, vol. 8, 2013.

4.      Wellmer, Friedrich-Wilhelm, and Wolfgang Lampe. “Speculation with Mining Shares in the 16th to 18th Century in Germany in Comparison with Metal Exploration Worldwide Today – Did the Willingness to Take Risks in Exploration Changed Significantly during the Last 500 Years?” SGA News – Society of Geology Applied to Mineral Deposits, Jan. 2015, pp. 1–15.

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