In 1440 Johannes Gutenberg introduced the printing press, a revolutionary development which made it possible for knowledge to be widely distributed, rather than reserved primarily for privileged classes such as the nobility or priesthood. The development contributed substantially to the European Renaissance, during which Leonardo da Vinci modified the printing press so that it could be used to quickly mint uniform coinage using a water driven mill.
During the 14th and 15th centuries Europe was experiencing the "Great Bullion Famine," a severe shortage of gold and silver that was at its worst between 1457 and 1464. The dramatic decline in population following the Black Death substantially reduced silver production from Northern European mines, and this situation was made much worse by an ongoing trade deficit with the East. High European demand for exotic Eastern goods such as silk, cotton, and spices were not matched by Eastern demand for European goods, even at lower prices. This resulted in a steady drain of bullion from Europe into the East.
The bullion shortages caused the prices of European goods to fall, and caused interest rates to rise. These economic conditions made it profitable to hoard bullion in the form of coins, jewelry, goblets, and other objects containing precious metals. Hoarding was also a form of insurance against any attempt to debase the coinage to make up for the severe shortages. The Bullion Famine caused the widespread closure of mints throughout Europe in the 1440s. At one point the Tower of London was the only active mint in Northern Europe.
The Bullion Famine also gave a huge impetus to the European Age of Exploration. One of the first voyages began in 1450 when the Portuguese sailed to the coasts of Africa to acquire gold. The fall of Constantinople to Ottoman Turks in 1453 disrupted existing trade routes and gave European nations an even stronger incentive to make new gold-hunting voyages to undiscovered lands.
In 1487 the German Fugger family founded the Fuggers Bank in Augsburg. The family reaped huge profits as gold from the New World was brought into Europe, raising the relative value of their many silver mines. The Fuggers were shrewd and prosperous, and replaced the de'Medici family as the most powerful and influential European banking dynasty. They made large profits from mining interests, international trade in various commodities and goods, and in handling payments from the sale of Church indulgences (cancellations of punishments for various sins). The Fuggers were savvy networkers and enjoyed the benefit of many powerful connections with the Habsburgs and the papacy, among others.
Jakob Fugger II — later known as "Jakob the Rich" — was extremely shrewd in his business dealings, and became the most prominent member of the dynasty. He studied double entry bookkeeping in the Fugger family's Venetian office, and decided to become involved in the family business rather than pursue an ecclesiastical career. The Fuggers were heavily criticized for their monopolistic activities, as well as their attempts to persuade the Church to remove the ban on charging interest payments for the sale of indulgences and appointments to Church offices, but they persevered in their enteprises and their family's company remained in action until the 17th century.
In 1489, Henry VII (another monarch to whom the Fuggers had loaned large sums) issued the first gold sovereigns, after which the English pound became a coin rather than just a unit of account. By the beginning of the 16th century Henry did the same thing with shilling coins. He also reduced mint charges to increase the amount of gold and silver brought to the mints, allowing a major increase in coinage. Henry also issued a proclamation forbidding the use of groats and half-groats issued by the Holy Roman Emperor.
In 1494 an Italian friar and Renaissance man named Luca Pacioli published Summa de Arithmetica, Geometrica, Proportioni et Proportionalita. This was the first book to formally explain double entry bookkeeping, the foundation for modern bookkeeping and accounting — although the practice itself had been in use for many decades. (Some sources have even suggested that it may originally have been introduced by Giovanni de'Medici for use within the Medici Bank. )
In 1492 Columbus had discovered the Americas, from which huge quantities of gold would eventually be extracted, especially by the Spanish. Vasco de Gama reached India later that decade. The the new long-distance trade routes led to the growth of capital and foreign exchange markets, and prompted financial innovations such as risk-pooling which later gave rise to join-stock companies. Spanish and Portuguese Conquistadors plundered huge amounts of gold from the Aztecs and Incas and shipped it back to Spain. Throughout the first half of the 16th century, new supplies of gold continued to stream into Europe as new mines were built in the New World.
This history of money will continue in Part VIII, starting with the Protestant Reformation and following the ongoing conquest and colonization of the New World throughout the 16th century...