Family Firms and Merchant Capitalism in Early Modern Europe

The Business, Bankruptcy and Resilience of the Höchstetters of Augsburg

Thomas Max Safley

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429647932
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This fascinating study follows the fortunes of the Höchstetter family, merchant-manufacturers and financiers of Augsburg, Germany, in the late-fifteenth and early-sixteenth centuries, and sheds light on the economic and social history of failure and resilience in early modern Europe. Carefully tracing the chronology of the family's rise, fall and transformation, it moves from the micro- to the macro-level, making comparisons with other mercantile families of the time to draw conclusions and suggest insights into such issues as social mobility, capitalist organization, business techniques, market practices and economic institutions. The result is a microhistory that offers macro-conclusions about the lived experience of early capitalism and capitalistic practices.

This book will be valuable reading for advanced students and researchers of economic, financial and business history, legal history and early modern European history.

1 Family firms considered

“Ambrosius and Hans, the Brothers Höchstetter and Associates”

On 1 January 1524, various relatives and friends of the Höchstetter family gathered in Augsburg to found a mercantile company. It was a matter of some consequence: They were successful merchant-financiers; they were members of an elite corporation, the Patrons of Society (Mehrer der Gesellschaft);¹ they had substantial financial interests at stake. Accordingly, they formalized the event and their intentions in a charter.

We, the following named Ambrosius and Hans Höchstetter, brothers, burghers of Augsburg, Hans Ungelter the Younger, Hans Frannz Bongarttner, Ambrosi Höchstetter the Younger, Joseph Höchstetter, Joachim Höchstetter, our son, son-in-law and brother-in-law, who have been by and with one another in company since the first day of January of the year [15]20 until the first day of January of the year [15]24 according to the form and content of the same agreement, which was created according to that same agreement. And having performed and closed our entire general accounting on the first day of January of the year [15]24, we the aforementioned persons have been well satisfied and content. [. . .] And in so far as we, in friendly, brotherly and fatherly affection have decided and planned to keep a brotherhood and business with one another [. . .], so have we the hereafter named persons and above all our dear Lord God for us, all our heirs and descendants together and jointly united and agreed as follows.²

The partners had been in business together since 1520. Having settled accounts, they now emphasized their kinship to one another, their affection for one another and their satisfaction with one another. Accordingly, they wished to renew their joint efforts in the form of “a brotherhood and business” (ein gepruederschafft unnd handtierung) for eight more years, until 1532.³ Thus was founded the family firm, “Ambrosius and Hans, the Brothers Höchstetter and Associates”.

But, why a “brotherhood”? The term appears seldom in the extant business charters of the age. The Höchstetter charter of 1515 makes no reference to it at all.⁴ The partners at that time claimed nothing more than satisfaction with one another. The term’s distinctiveness should not be over-emphasized, however: In medieval Venice, a common form of business organization for long-distance, overland trade was known as a fraternal compagnia.⁵ “Brotherhood” evokes that common, medieval sense of a community of “equally entitled and equally responsible” partners, a Genossenschaft, as Clemens Bauer once described it.⁶

Figure 3 Seld Plan of Augsburg, 1521

The resort to “brotherhood” in 1524 seems nonetheless an unusual departure. Applied to a family firm, it raises fundamental questions about organization, capitalization and administration. Generally speaking, family ownership and control characterize the family firm, suggesting a vertical rather than horizontal organization, with family employees privileged above outsiders. Its management is usually described as personal, even autocratic. Cooperative relations are based on identity rather than reciprocity; human and material resources are closely held and controlled. “Brotherhood” not only contradicts basic theoretical assumptions, but also obscures the real, historical structure and function of family firms.

The Höchstetters’ charters offer an opportunity to reconsider the theory and its limits. They reveal some of the structures and mechanisms by which the family and its firm rose and fell. They help to map the terrain between opportuneness and opportunism in family life. They reveal, finally, that “familial” relations, whether limited to the firm members, extended to an entire family group or broadened to include outsiders, might offer intimacy and proximity, but they did not guarantee stability or certainty. For the Höchstetters, “brotherhood” was a rhetorical device. They understood that families and their firms were not necessarily brotherly.

* * *

The emphasis on partnership as a form of “brotherhood” reaches back to the early history of the merchant house of Höchstetter. When the founder, Ulrich II, died in 1497, his sons Georg I and Ambrosius I assumed control of the family firm. On 1 April 1514, “Georg and Ambrosius, the Brothers Höchstetter” ceased operations.⁷ Though this firm’s charter no longer exists, the common business practices of that age permit a reconstruction of what probably transpired at that point. Having concluded business together, the partners completed a final accounting and distributed profits or losses according to the proportion of their investments.⁸ This permitted them to establish the degree to which their partnership had succeeded. It also permitted them to recruit new partners – and new capital – without a complicated redistribution of shares. It required, however, that the agreement among all parties that the accounting was correct.

In this case, however, Bartholomäus III Rem, who was both stakeholder and bookkeeper in the firm, challenged the final account, the claims made in the 1515 charter to being “completely and fully satisfied” notwithstanding. The legal difficulties that followed exposed the firm’s business practices and drained its operating capital. They forced the named partners to reconsider their relations among themselves and the structure of their firm.

The contemporary Augsburg chronicler and Benedictine monk, Clemens Sender, again provides a lively account.⁹ According to his 1520 entry, Rem had invested 900 fl “at profit and loss” (zu gewinn und verlust) in the company. Separate documents allege that the Höchstetters owed Rem not only invested capital of 500 fl and earned profits of 130 fl, but also a share of 149,770 marks (roughly 150 tons) of silver, “schwarzer Brand”, and 52,915 hundredweight (roughly 120 tons) of copper.¹⁰ According to Rem himself, as reported by Sender, this amounted to an extraordinary 33,000 fl. Ambrosius responded that Rem’s capital had earned no more than 26,000 fl and offered him a payment of 2,000 fl for living expenses.

Rem refused this settlement and lodged a legal complaint against his former employer with the Imperial authorities. He found considerable support among the nobility, because he “showed them what extraordinary profits the merchants earned in so short a time, whereupon they rejoiced and said the merchants’ profits exceed the Jews’ usury sevenfold”.¹¹ Rem also sued Höchstetter before the bailiff (Stadtvogt) of Augsburg, winning judgments that Sender attributed to “a clever, silver-tongued lawyer from Leipzig, who pled his case ably”.¹² Meanwhile, the City Council appointed mediators, by whose judgment all parties agreed to abide. They decided that Höchstetter must pay Rem 28,000 fl in addition to 2,000 fl for the expense of his housekeeping, a total judgment of 30,000 fl. Höchstetter accepted the settlement, but Rem refused it. To prevent the City Council imprisoning him for violation of his oath, he sought and received sanctuary in the Benedictine Abbey of Sts. Ulrich and Afra, where he remained for 12 days. Sender admits: “There I often heard from him how it had gone, how the Höchstetters became so rich in such a short time”.¹³

Rather than risk prison in Augsburg, Rem fled to Spain and took refuge at the court of Emperor Charles V, whom he accompanied to his coronation in Aachen and further to the Reichstag at Worms in 1521. While there, Rem organized an armed attack on the Höchstetters, attempting to seize two wagon-loads of their commercial wares. Because Rem had violated his oath in Augsburg and acted lawlessly while under Imperial protection, the Imperial fiscal ordered his arrest. Rem was imprisoned for more than a year in Worms and later transferred to Augsburg, where he died in 1525, still insisting on payment of 33,000 fl instead of 30,000 fl.¹⁴

The conflict was finally settled while Rem lay in prison.¹⁵ An Imperial commission, headed by Jacob II (“the Rich”) Fugger, one of the Höchstetters’ chief business competitors, reached a decision on 21 March 1522 that the Höchstetters would pay Rem 24,500 Goldgulden. Ambrosius I and Hans Rem signed and sealed the agreement, but that was by no means the end. The conflict and settlement had an enduring impact on the Höchstetters’ companies, if not their fortunes. They suffered a massive loss of capital, and their reputation was likewise damaged. Sender’s chronicle demonstrates that the details of the settlement quickly became common knowledge. His narrative of the conflict, using information about their business practices probably divulged by Rem, combined with his discussion of the bankruptcy set them among the most notorious monopolists of their day and blackened their name over centuries. Their charters of 1515 and 1524 can be read as attempts to limit such conflicts in the future.

Rem’s vehement contention that he had been cheated of his fair share may well have put before the other partners the potential advantages of family firms. He may have been a distant relation by marriage to Georg I and Ambrosius, whose sister Ursula was the wife of one Gilg Rem,¹⁶ but his clash with Ambrosius demonstrated the real costs that could arise when familial solidarity did not exist. Family firms could, as Lutz recognized, expand human and financial capital by combining the resources of the members, reduce principal-agent problems by resort to patriarchal authority and familial loyalty and lower transaction costs by combining or over-layering kinship and business relations.¹⁷ By appealing to the notion of a brotherhood, the Höchstetter partners not only set an ideal for their business relations, a moral constaint to open conflict, but they also underwrote it with an explicit reference to family relationships.

* * *

Historical studies overwhelmingly express the conviction that the family was a unit, bound together by a common purpose, and that the household and its enterprise, whether a farm, a workshop or a firm, were substantially identical and usually stable.¹⁸ By extension, the family firm is assumed to draw advantage from this solidarity. In his study of the organization of South German mercantile companies, for example, Elmar Lutz noted, “[t]he three principal considerations in founding a company were [. . .] the unification or concentration on the basis of work, the merger of capital and the solidarity of the family”.¹⁹ As these companies were founded to overcome the barriers to impersonal exchange, that is, trade in distant markets with unknown parties, they required trustworthy employees, large amounts of start-up capital and loyalty or obedience to the partners.²⁰ In these uncertain matters – personnel, capital, constancy – trust is thought to have provided the essential basis of any cooperation. And, as Lutz romantically concluded, “It is almost unnecessary to mention that this basis in trust was most easily achieved from within the family circle”.²¹ A spatial, personal, financial, legal and moral identity supposedly existed between household and business that was seldom exposed to change before the modern age.²²

Among the economic conditions thought to have transformed the monolith of family and firm, historians point to the resort to wage labor outside the household as having had the greatest impact, opening possibilities for gainful employment that worked a sea-change on familial relationships and household structures.²³ Supposedly, it signaled for many families the beginning of the end of their existence as cohesive economic units, because members were able to earn independent livings. Supposedly, it signaled also the gradual displacement of the family firm, in which a single family provides the majority of working capital and family members control governance and management, by the managerial firm, which draws capital from a broader base and places management in the hands of outside professionals, because the increasing complexity of business in a rapidly expanding and intensifying economic environment made professional management essential.²⁴ Until that point in time, however, the family remained a unit, led by a single authority and joined in a shared enterprise.

Such stage theories do not apply universally, however. The close identification of family and firm, household and enterprise demands rethinking. Certainly, family members could work together in a common enterprise, contributing their capital and labor as well as submitting to direction. But that work was not always cooperative. Leaving the historical evidence aside, a broader familiarity with classic literary treatments of family life would lead to the conclusion that families are as much susceptible to conflict as to cooperation.²⁵

The 1515 dispute that rent and nearly wrecked the Höchstetter firm suggests as much. In fact, conflicts ...

Table of contents

• Cover
• Half Title
• Series Title
• Title
• Copyright
• Contents
• List of figures
• List of maps
• Note on money
• Note on translations
• Acknowledgements
• Introduction
• 1 Family firms considered: "Ambrosius and Hans, the Brothers Höchstetter and Associates"
• 2 Capitalistic practices: the Höchstetter brassworks at Pflach
• 3 Crisis and insolvency: information management by and about the Höchstetters
• 4 Bankruptcy: local institutions and their consequences
• 5 Bankruptcy: financial markets and credit networks
• 6 Ruin and recovery: the question of resilience and the Höchstetter "family firm"
• Conclusion
• Appendix 1: Rising Höchstetter Fortunes
• Appendix 2: Höchstetter Creditors
• Bibliography
• Index