The Richest Man Who Ever Lived
Well, maybe. The other day I read that Mansa Musa, who ruled West Africa’s Malian Empire in the Middle Ages, was the richest person in history, with a personal net worth of $400 billion at the time of his death. Greg Steinmetz’s The Richest Man Who Ever Lived (Simon & Schuster, 2015) isn’t about Mansa Musa, however, but about Jacob/Jakob Fugger (1459-1525), the groundbreaking banker and mining magnate from Augsburg, Germany.
In support of his “richest man” claim, Steinmetz used a metric that he admits is flawed: comparing a person’s net worth with the size of the economy in which he operated. An alternative method, measuring Fugger by his worth in gold, “a method that has the virtue of adjusting for inflation, chops him down to a mere $50 million, making him no wealthier than, say, a successful real estate developer or a multilocation car dealer. That’s not right either.” (p. 202)
Earlier this month, value investor Mohnish Pabrai took part in a Q&A session with William & Mary College students. Q3 2021 hedge fund letters, conferences and more Throughout the discussion, the hedge fund manager covered a range of topics, talking about his thoughts on valuation models, the key lessons every investor should know, and how Read More
Fortunately, for the merit of Steinmetz’s book, The Richest Man Who Ever Lived , –which is quite a good read, especially for anyone interested in economic history–Fugger’s rank among the richest really doesn’t matter. Fugger was important not only because he was so rich but because he helped make lending a mainstream capitalist tool and because he was influential in shaping European politics.
Steinmetz summarizes Fugger’s business career:
Fugger had a remarkable talent for investing. He knew better than the rest how to size up an opportunity and where to park his money for the best return at the least risk. He knew how to run a business and make it grow and how to get the most out of his people. He knew how to exploit weakness and negotiate for favorable terms. But perhaps his greatest talent was an ability to borrow the money he needed to invest. (p. 66)
He borrowed by offering savings accounts to big depositors. It was a potentially treacherous course to follow because a single withdrawal could ruin Fugger if he didn’t have the available cash on hand. But the risk/reward ratio was favorable. He paid his investors 5% a year and targeted a 20% annual return for himself, a handsome 15 percentage-point spread.
The church, however, banned usury—charging interest, any interest not just exorbitant interest, on loaned money. In its ban Rome appealed to Luke 6:35: “Lend and expect nothing in return.” In fact, the usury debate went back at least as far as Aristotle, who said that “it was fair to charge someone for a cow because a cow produced milk. But money was sterile. It produced nothing. Therefore it was unfair to charge someone for money.” (p. 88)
Moneylending was a highly profitable undertaking, and yet Christians who engaged in it were going against the dictates of the church. Which, of course, didn’t mean that they refrained from lending money, just that they did their best to disguise it. Fugger, however, wanted lending (and banking) to be a theologically acceptable practice. He signed an agreement with depositors, the Augsburg Contract, that promised them an annual return of 5%. And he then went to great lengths to have Pope Leo declare the contract legitimate.
Finally, Leo signed a papal bull that said: “Usury means nothing else than gain or profit drawn from such a thing that is by its nature sterile, a profit that is acquired without labor, cost or risk.” (p. 93) With the stroke of a pen Leo made lending money lawful in the eyes of the church since every loan involved either labor, cost, or risk, sometimes all three. “As long as a loan passed that easy test, the lender was off the hook. Fugger’s lobbying had paid off in spectacular fashion. He and others were now free to charge borrowers and pay depositors interest with the full blessing of the church. Leo’s decree, issued in conjunction with the Fifth Lateran Council, was a breakthrough for capitalism. Debt financing accelerated. The modern economy was under way.” (p. 93)