In the fourteenth century this elaborate system of economic regulation was organised by civic authorities; it was to a very small extent a matter for royal or national interference. Each town formed a separate economic centre, which not only regulated its own internal affairs, but pursued its own policy in its trading relations with other places. Some cities were banded together for the sake of maintaining common interests and formed confederations like that of the- Hanse League; but on the whole they cherished economic independence. Each city had to deal with the problem of its own food supply; some towns, such as Nimes, could rely on the produce of their own lands, though others, like Bordeaux, were dependent on commerce for the sustenance of the inhabitants; while many erected large granaries, to enable them to tide over occasional periods of scarcity, which might arise from the failure of crops or the interruption of trade. The diverse circumstances in which they were placed rendered it inevitable that each should, more or less consciously, devise its own economic policy, and control the machinery which regulated industrial life; some towns had special advantages for one branch of manufacture and some for others. Florence owed her prosperity to skill in the working and dressing of cloth, Genoa excelled in the production of arms, and Venice was successful in bringing the manufacture of glass and silk to a high state of perfection. The precise status of the companies and gilds and lodges of the Middle Ages varied from place to place, and the organisation of one craft might differ considerably from that of another. But this one characteristic held good generally, that all these bodies were municipal institutions which had regard to the welfare of the public, or of the trade, in each particular town.
Civic patriotism not only affected the character of the internal regulation of industry, but it also determined the policy of each town towards outsiders. The jealousy of “foreign” artisans, i.e. of those who were not burgesses, gave rise to bitter disputes in the neighbourhood of Bruges and other Flemish towns; and “foreign” merchants were seriously hampered in attempts to trade, unless they could secure special privileges, and particular establishments of their own, with accommodation for residence and for the warehousing of their goods. The cities of Aragon, Provence, and Italy had such factories in the Mohammadan towns of Morocco, Tunis, Egypt, and Syria; the members of the Hanse League had a similar establishment in London, and their settlement at Bergen became so powerful as to dominate over the native portion of the place. In the fourteenth century commerce was intermunicipal rather than international in character: though similar usages prevailed very widely and disputes could be settled according to Law Merchant, which was recognised as generally binding. Trade was carried on to the greatest advantage at the fairs, where the merchants of many cities could meet on equal terms. In the present day free-traders take account of the economic advantage of the world as a whole, and discuss industrial and commercial affairs from a cosmopolitan standpoint, while protectionists are inclined to limit their consideration to the interests of some one particular country. In the Middle Ages, very few merchants or politicians were in a position to take account of national prosperity; they limited their views to a narrower sphere, and were content to concentrate their attention on the welfare of a particular town. With regard both to the administration of industry and to the regulation of commerce, the city was the principal economic unit, in the medieval as it had been in the ancient world.
Such were the chief contrasts between the economic life of medieval and of modern times; were we to seek a phrase which should indicate the general character of the transition from one to the other, we might say that this revolution consisted in the rise of nationalities as the bases of industrial organisation and commercial policy. Economically considered, medieval Christendom consisted of a system of city States, while modern history describes the commercial and colonial rivalries of great nations. During the fourteenth, fifteenth, and sixteenth centuries we can trace the gradual subversion of the older institutions, and we can also see the rise of the newer forms of organisation. The corresponding changes were not of course exactly synchronous in every land; indeed, those places where the older and stereotyped system had the greatest vitality were at a positive disadvantage in accepting modifications and adopting new methods. To follow the course of so widespread and complicated a revolution would be wellnigh impossible, without a clue; but fortunately we can have little doubt as to the factor primarily concerned in producing these momentous changes. Even the fourteenth and fifteenth centuries were marked by the formation of capital, and the process went on with great rapidity in the sixteenth; the whole period furnishes abundant illustrations of the power of moneyed men; and by fixing attention on them and their action, we can most easily trace the influences which were at work in building up the economic system of modern Europe.
Modern economists maintain that there are three requisites of production,—labour, capital, and land; but in the early Middle Ages agricultural and industrial work were both carried on without the intervention of capital, as we now understand the term. A capitalist may be regarded as the owner of a mass of wealth which is constantly altering its form by means of exchange. He tries to get gain by turning over his stock, and is on the look-out for opportunities of applying and replacing it frequently. This is equally true of the capital of the financier and the merchant; and till recently it held good of capital engaged in the processes of manufacture and of tillage. The age of invention has rendered it necessary to lock up large amounts of capital in expensive machinery, or to sink it in permanent improvements of the soil; but, at the beginning of the modern era, capital might be described as a mass of wealth that was constantly being put into circulation and replaced. The financier exchanged his ready money for securities, which he held till the sum was repaid; the merchant bought and exported a cargo of goods which he hoped to sell for money; manufacturers obtained the services of labour by paying wages, and bought materials which were converted into commodities for sale. Facilities for exchange were necessary at every step, before the capitalist administration of industry and agriculture could be introduced; there had been no opportunity for such an introduction, so long as society was organised on a basis of natural economy. In any department of life where payments are made in kind or in service rather than in money, no room remains for the operation of the capitalist. So long as the cultivator’ continues to live on the produce of his fields and his stock, and only occasionally offers some of his surplus for sale, he is conducting his business in a fashion quite incompatible with the aims of the enterprising capitalist, who desires to dispose of his whole crop at a profit. During the long ages when society had been organised in self-sufficing estates, the famXlia, in each being engaged in catering for household needs and not in working for a market, there was no true exchange, and therefore no occasion for a measure of value, or for the use of money, among those engaged in different avocations.
The transition from natural to money economy was a gradual process, and afforded great opportunities of gain to the men whose wealth consisted of coins and bullion. In the twelfth and thirteenth centuries many private persons had large hoards, and received a handsome income by making advances to such wealthy people as were in temporary straits for want of ready money. Much of this business arose in connexion with the revenue system; kings were glad to borrow on the security of the royal jewels, thus making it possible to anticipate the slow collection of taxes and fit out an armed expedition. The financiers also lent money to landed proprietors, to enable them to meet some sudden demand for an aid, and took as security the title-deeds of an estate so as to enjoy the certainty of being reimbursed when rents were due. The lending of the thirteenth and fourteenth centuries was almost entirely for military and other unproductive purposes; it enriched the moneyed men who obtained high interest on their loans, but it did not provide capital or invigorate the industry of the country. Even in those cases where debts were contracted in order to erect magnificent buildings, these costly edifices were not available for promoting the further increase of wealth. Medieval capital was lent for purposes of unproductive consumption. Thus applied, the money failed to bring about an increase of wealth, but remained, as Aristotle would have said, “barren.” This fact goes far to account for the long-continued prejudice against Jews and Lombards. Since no addition to the wealth of the community arose through their intervention, it seemed that any gain accruing to them in their operations must have been made at the expense of the borrowers and ought to be condemned as extortionate. Under these circumstances the traditional objection to interest of every kind was strongly maintained, and found expression in the writings of casuists and