Appendixes

APPENDIX 1

EXTRACT from a Report drawn up in 1530 by the merchants of Antwerp and placed before the Doctors of the University of Paris, in which the merchants ask for guidance on certain cases of conscience concerning the exchanges. The full Report is printed by J. A. Goris, Études sur les colonies marchandes méridionales à Anvers de 1488 à 1567 (1925), pp. 510-45.

A Report on the Exchanges, and the first Case about which we desire to make inquiry

THE diligence and vigilance of merchants has brought them to such great subtlety and art that they have found a way to make of money a merchandise like cloth, silk, spices, pearls, or wool, wherein there is profit and loss, risk and venture. This business is very profitable to traders, some of whom would often be unable to send their goods abroad, to dispatch their cargoes, or to meet their commitments from day to day, were it not for this new-found commerce of money, by which a man who has money gains and another who has none and who takes it from him gains likewise, since he is in a stronger position to carry on his business than if he had no such remedy. At other times, however, men take this money only to lose, like those who know themselves to be lost and who take it in order to maintain themselves from fair to fair, until at last all comes crashing to the ground and they are made bankrupt.

When the time came to baptise this business of the merchants they called it ‘exchange’, because it bears some resemblance to real exchange. The manner of dealing is as follows:

Certain merchants are rich and powerful (though some more than others, for even those who have little deal in this way) and keep their money in cash and will not lay it out on merchandise unless it be for some good and plainly profitable stroke of business which according to the common opinion and judgement of merchants is bound to succeed. Often they do not care to learn how to buy and sell, for it is a toilsome, risky thing to jeopardise their fortunes upon the seas and to guarantee the merchandise, and they fear that they will not be duly paid. Also, they are not always very skilful when they deal in goods. Lastly, they believe that their profit will be neither so great nor so certain if they deal in merchandise as it is in this other business which they call ‘exchange’, and therefore they keep their money in coin in their strong-boxes, and earn their bread with it. And they do so as follows:

There comes the time of the ‘fair’, as the merchants say, which is held at certain times of the year such as Christmas, Easter, June, and September, according to the places where the merchants are. In these fairs they pay one another what they owe, and sell their merchandise, and dispatch their cargoes to other parts. Now it so happens that at the time of the fair the merchants sometimes find themselves with a great deal of money, and sometimes with less, and then there are great rises and falls; and according to whether money is plentiful or scarce among merchants so do those who have money give it at more or less interest to those who are in need of it. This price, be it cheap or dear, is fixed by the merchants themselves according to the need which they know others feel for their money and according to the scarcity or abundance of money which they see prevails at a particular fair. This price which they set upon money they call the ‘market-rate’ [precio de la bolsa] since no one claims for himself the power of fixing the rate but it is attributed to the community of the Stock Exchange, which is the place where the merchants meet.

So much being understood, let us take the case of Anthony, a merchant who owes a thousand ducats at the current fair of mid-Lent, and who has not got the money. Anthony goes to a broker (the person who acts as go-between among the merchants) and says to him:

‘I need a thousand ducats. Let someone give them to me in cash, and I will repay them at the May fair at Medina del Campo in Spain.’

The broker replies: ‘Very well, I will undertake to procure the money.’ And he goes to one of the merchants who announces that he keeps his money in cash to earn his living with it and says:

‘Will you give me a thousand ducats, to be repaid at the May fair in Spain in six weeks’ time?’

Ferdinand replies: ‘What is the market-rate?’ which means ‘how many placas¹ must I give here to receive a ducat in Spain?’

The broker answers: ‘Sir, you must give 36 placas here and you will receive a ducat there, which is worth 37½placas.² This is the current market-rate, which is sometimes higher and sometimes lower.’

If Ferdinand is satisfied with the rate, he asks who requires the money. The broker replies: ‘Anthony, whom you well know.’ If Ferdinand thinks that Anthony is a solid, honest man who will repay the money he answers: ‘Very well, I am satisfied, and will give him one thousand ducats at the rate of 36 placas to the ducat.’ Anthony gives him a letter or bill requesting Anthony’s factor or partner in Spain to pay Ferdinand’s factor or partner there 1,000 ducats for the May fair at the rate of 37½placas to the ducat.

We desire to know whether, since Ferdinand is dealing plainly and in good faith and since this is his trade, he may in good conscience charge a commission on each ducat, which will vary according to whether money is scarce or abundant among merchants, for sometimes more and sometimes less is paid. This transfer of money, so much more being paid afterwards at the fair on each coin, is what is known as ‘exchange’.

It should be noted that Ferdinand, who gives the money to Anthony on the understanding that he shall repay it with the agreed increment to his partner or servant at the May fair at Medina del Campo in Spain, intends that the said partner or servant shall in his turn give the money to some other person who is similarly in need of it, so that at the June fair Ferdinand here in Antwerp may recover his thousand ducats together with whatever increment he may have gained on the two occasions when he and his servant have given them—the first time, Ferdinand here in Flanders, and the second, his servant at Medina del Campo.

Thus, just as Anthony here in Antwerp came in need of 1,000 ducats and returned them to Ferdinand by paying him 37½placas in Spain for the 36 which he received here, so in Medina does one Fabricius come to Ferdinand’s servant because he is there in need, and asks him for 1,200 ducats in the form described above at the market-rate of 37½placas to the ducat. Ferdinand’s servant gives him the 1,200 ducats to be repaid at the rate of 40 to the ducat, the market-rate, and Ferdinand recovers his 1,000 ducats with a double profit, the first when the money leaves Spain and the second when it returns.

But it sometimes (though rarely) happens that when the money is sent back from Medina money is very plentiful among the merchants, and no one will take it except at the market-rate, which is so low that when Ferdinand recovers his money in Antwerp he has been without it for three or four months and has gained nothing. Indeed, he may even have lost. For although he sent the money to Spain with the intention of gaining the same increment on the rechange back to Antwerp, it may happen that money is so abundant in the place to which it was sent that he loses on the return transaction, and this loss may be greater than the profit made on the first occasion. This is one of the strongest reasons why merchants regard such commerce as lawful; for they hold that the risk of loss which it entails removes the savour of usury. The form of exchange just described is the first and commonest.

The universal reasons why the merchants believe the exchanges to be lawful are the following:

Firstly, because this is a pure contract made between the party who gives and the party who takes, and is in no way a loan.

Secondly, it is a contract which is most necessary to the Christian republic, in that it supplies the diverse countries with merchandise. For the merchants often keep their fortunes laid out in such a manner that they could not dispatch new cargoes, send goods to countries where great need and shortage might be felt, meet their daily commitments or maintain their credit, were it not for this instrument of exchange.

Thirdly, because both he who gives and he who takes in exchange have every intention of making use of each other, and both understand the business equally, and freely agree upon the rate, and both are gainers and thereby serve the republic.

Fourthly, because the party who gives the money is not certain of making a profit: he may sometimes gain and sometimes lose.

Fifthly, because money is the merchant’s tool by which he earns his bread, and if he deprives himself of its use for the benefit of his neighbour it is just that the latter should reward him.

Sixthly, because the merchant who gives money in exchange must maintain factors and servants to help him in the business, and must defray other expenses incurred in giving and recovering his money. It is reasonable that these costs should be paid by the person to whom the money is given, since they are incurred for his sake.

All these things considered, together with any others which you, Reverend Masters, may please to investigate concerning this case, we beg you to inform us, as learned men in whose hands we place our consciences, whether this business is or is not lawful.

Reply of the Doctors of Paris to the Merchants of Antwerp

We, the Doctors undersigned, after diligently examining all the circumstances of this case, conclude that the above contract is unlawful. To the arguments advanced we reply briefly:

Firstly, that even if it be not a loan but a contract, the transaction is none the less usurious.

Secondly, that public usury may be necessary but does not thereby become lawful. No one is obliged to supply the community with more than he rightly may, and if a man trades beyond his means he is not absolved from sin when he takes money in exchange for the purpose, any more than the lender is absolved from usury, since both serve the community. It is never lawful to do evil, even though good may follow.

Thirdly, we reply that public usurers and those who borrow from them also understand the business, and freely agree together, and are both gainers, but this is no reason why it should be lawful to commit usury.

Fourthly, we say that money is as much the tool of the public usurer as of the merchant, but this is no reason why it should be thus used, for man has to use his tools in a lawful manner.

We admit the sixth argument, which we hold to be good. Nevertheless it is inapplicable to these exchanges, because the market-rate rises and falls according to whether money is scarce or abundant, not according to the amount of labour and costs expended by the person who gives the money: in which case the rate would not vary, because labour and costs do not alter except in war-time or other special circumstances.

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¹Placa: (a) Silver money of Charles VII of France (1422-61) coined in Tournai, which circulated in the Low Countries. (b) Generically, silver coin.

² The legal tale of the coins did not always correspond to their tale in commercial practice, which was customarily stipulated in the contract.

APPENDIX 2

Extract from a royal pragmatic of 1598 condemning dry exchange

… And we likewise condemn as dry exchange subject to the said penalties all transactions in which the party who takes the money in exchange has no money, credit, or correspondent of his own in the markets and places outside our realm for which he takes the money, and in which it is agreed at the time of the contract that the money may be retained for the period of several fairs ahead to the prejudice of the party who takes it, and that the interest falling due at the first fair be added to the principal so as to yield more interest at the second fair, and from the second to the third, and so on. And we hereby command that the simple word or oath of persons who have given money in exchange shall not be accepted as proof that bills drawn on places abroad have been duly remitted to the said markets and places, and have been duly accepted and met, or that bills remitted from places abroad are true and genuine, or that the rates were actually those contained and declared in the said bills, or that any other requisite of a true and genuine Bill of Exchange has been complied with, and we order that all this must be proved by public and authentic documents, or by witnesses or other sufficient evidence approved by law: otherwise the contract shall be deemed null and void.

Note: A Papal Bull of 1566 condemns dry exchange in similar terms.