The Höchstetters and the Mercury Market

There were various towns that became significant marketplaces in Europe in the 15th and 16th centuries, places like Bruges, Antwerp, and Amsterdam. Other places became significant banking centers; the Tuscan cities are most notable here but Augsburg in Bavaria was another. One of the most notable banking firms in Augsburg was that of the Höchstetters. They were 15th century merchants who became bankers by the early-16th century. Their business collapsed when they tried to corner the market in mercury by controlling the output of Central Europe’s mercury mines. The scheme fell apart.

Quicksilver

Quicksilver, or mercury, was an important mineral in 16th century Europe because it was used in the process of extracting gold and silver from their respective ores. Coining precious metals extracted from mines in Europe or the Spanish colonies in America required mercury. In Europe, mercury was mined in Bohemia and the Austrian empire in Central Europe and in Spain in Western Europe. The Austrian mines of Idrija, in what is now Slovenia, were unique since there mercury seeped from the ground in liquid form. Otherwise, the mineral was obtained from ore, particularly cinnabar. Like other commodities, the local monarchs or princes had a strong interest in developing, monetizing, and regulating production of minerals like mercury.

However, developing mercury mines was expensive. Mining is very capital intensive, not only because of the money needed to develop the mine itself but also because a concession to operate the mine needed to be obtained from the local sovereign. In the 16th century, such a concession was often obtained by extending credit to the monarch. The business was so credit-intensive that those who could marshal large amount of credit came to control mines, including mercury mines.

Augsburg

While not in the mercury-producing regions of Europe, Augsburg in Bavaria came to be very involved in financing the extraction of mercury. Augsburg thrived when it was only lightly affected by the plague in the 14th century. A free city, it reported directly to the Holy Roman Emperor rather than a local duke or prince, but this meant it was, in practice, self-governing. Augsburg was also already a textile manufacturing town of some prominence; the local production was sold in markets across Germany and in Italy.

This textile production was traded in by local textile merchants. Some of these became bankers and Augsburg was home to a few leading German banking families at the start of the 16th century. The most well-known of these were the Fuggers. Others were the Welser and Höchstetter families. The last of these was eventually ruined by a mercury buying spree.

Höchstetter

The Höchstetter banking family originated as textile merchants in the early-15th century. They expanded into the international spice trade in the late-15th century, establishing a branch in Antwerp managed by a family member. There they traded in spices which were then imported into Europe largely at Antwerp and Lisbon.

The Höchstetter firm came to be led by Ambrosius Höchstetter with some significant role for his brothers Hans and George and his sons. The banking operations of the firm allowed it to fund its trade with deposits. Ambrosius Höchstetter paid 5% on the deposits of people of various means, rich and the rather modestly well off alike. These deposits at one point were thought to be as much as one million florins.

Ambrosius Höchstetter (board stone of plum wood and stucco, c. 1535, retrieved via: Bayerisches Nationalmuseum)

Besides these deposits, the family invested some of its own money, but their capital and that of their partners was relatively little. They relied on the money deposited with them for almost all of their funding. Because the family could make far more in trade in a year than the 5% interest it gave depositors, the profits to shareholders could be immense even if the family and its partners supplemented these funds with almost none of their own funds.

In one case, a shareholding partner with just 900 florins invested in the business initiated a lawsuit against his employer, Höchstetter, when he thought he was being short-changed on his share of six-years’ worth of the profits. The amount in dispute was 4,000 florins; he asserted he was due 30,000 florins but the bank was only paying him 26,000; either way, his return on a 900-florin investment over six years was massive.

The business seemed lucrative enough but the Höchstetter firm would not last long. Like other German banking families of this period, the Höchstetters came to be involved in mining projects. In the 1510s, the family came to control a large portion of the silver and copper output of mines in the Tyrol region of Austria but it was in mercury where things would fall apart.

Cornering the Market

Höchstetter regularly cornered the market, or came to acquire so much of a product that they could set its price, in various goods in which the firm traded, from wines to grains. Beginning in 1523-24, the Höchstetters were buying up large volumes of mercury in a similar gambit. They organized a monopoly on mercury with the Austrian Archduke and future Holy Roman Emperor, Ferdinand I. The archduke reached an agreement among mine operators to create a mercury monopoly. All of this rested on Höchstetter committing to buy the entire output of Austrian mines at a fixed price of 30 florins per hundredweight of mercury. The Höchstetters were also buying the Bohemian output of 800 hundredweight of mercury annually. The Spanish mercury production, however, remained outside their control.

Portrait of Emperor Ferdinand I by Hans Bocksberger the Elder (retrieved via: Wikimedia Commons)

Still, to buy up the supplies they could, they sunk 200,000 florins in this large trade. Compare this to a total equity capital of perhaps around 212,000 florins for the family firm in 1527, of which a slight majority was invested by foreigners and the rest largely from the Höchstetter family, a large part of it likely from reinvested profits. The former was invested by those who probably had little insight into what the family was doing with the money, so much of it staked on this one venture.

The Höchstetters had considerable resources tied up in this mercury trade and it came at a time when the firm’s other investments were in the form of mine projects too. While the Höchstetter firm was particularly engaged in mercury, this was not altogether unusual of Augsburg bankers. When Ferdinand I inquired with Augsburg bankers about a loan in 1526, they declared that all of their money was tied up in mines in the Austrian Tyrol. Yet, in 1528, Ambrosius Höchstetter did try to buy control of the mercury mines in Spain, the last substantial source in Europe outside their control, but a group of Spanish and Genoese investors outbid them.

Demise

The Höchstetter firm disintegrated over the course of 1528. The English merchant Richard Gresham, father of the famous Sir Thomas Gresham for whom ‘Gresham’s Law’ is named, allegedly contributed to the Höchstetters’ demise by spreading rumors of the family’s troubles. When the time came to settle certain debts in Lyon in March 1528, the Höchstetters found that no one was willing to let them roll over their debts by accepting payment in bills due at a future date. The family firm needed others to guarantee its bills and desperately sold inventories of mercury, cinnabar and copper, which happened to be in Lyon, to see themselves through those days.

Later in 1528, the Höchstetters agreed to lend the Habsburg administration in Brussels 200,000 florins but the loan was not made in money, of which they were in short supply, but in just over 400,000 pounds of mercury and cinnabar which was then marketed for sale by the Habsburgs. The loan turned out expensive for the government because the market price of those products came to far less than 200,000 florins and buyers needed time to pay for their purchases anyway. This may have furthered the Höchstetters disrepute which was nonetheless already setting in.

In any case, it seems that the Höchstetters sold this claim on the Habsburg government to other bankers, including the Fuggers, allowing them to raise money. Regardless, the bank was also experiencing a run in its hometown of Augsburg. The bank reportedly experienced 400,000 florins in withdrawals. The Höchstetters had to sell mercury and cinnabar at prices below the 30 florins per hundredweight that they had paid to acquire the mineral.

In 1529, the Höchstetter bank closed for withdrawals and the Fuggers agreed to lead a bailout of the family. Ambrosius Höchstetter agreed to allow representatives of these lenders to see the details of his business. Later, a subsequent need for 100,000 florins was denied by the rescuers who now foreclosed on the Höchstetter bank. By this point, the liabilities of the bank were 400,000 florins against assets that were estimated to be worth just 180,000 florins, far less than the 661,000 florins value claimed by the bank.

Various assets, whether financial assets, real estate, or commodities, were taken by the bank’s creditors. Ambrosius Höchstetter was condemned by his city for damaging its reputation and that of its merchant community and imprisoned; he died in prison. Augsburg fell on hard times; between 1529 and 1580, there were sixty-three bankruptcies in Augsburg, including two among members of the most prominent banking family there, the Fuggers. Nevertheless, one of Ambrosius’s sons, Joachim Höchstetter, settled in England where he and his descendants continued as merchants. A nephew, Sigmund Höchstetter went on to own major glassworks in Tyrol.

Lesson

While banking was taking root in early modern Europe, prudent banking practices were still out of sight. The Hochstetter bank was able to accept deposits with relatively little equity capital backing up those deposits, was not obligated to disclose much to its outside shareholders let alone its depositors, and concentrated its investments in illiquid mine investments or large inventories of a single commodity. When the bank experienced a liquidity crunch, it was forced to liquidate holdings at prices well below what they had paid for them. Thus, the bank went from being on the verge of successfully cornering the market in mercury to failing within a year.

More from the Tontine Coffee-House

Read about the Fugger banking family, also of Augsburg, and the shares (called ‘Kuxe’) issued by German mining companies. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.