Francis was an enthusiastic patron of the arts, and when he arranged for Benvenuto Cellini to be released from a Roman prison to come work at the French court, he declared to Cellini, "I will choke you with gold! 1125 Cellini proceeded to produce a salt cellar so sumptuously decorated with gold and jewels that Francis cried out with astonishment when he saw it.26 Francis was a connoisseur of more than the arts: he was also famous for his many amours, and observed that "A court without women is a year without spring and a spring without roses. 9121 In 1515, Francis followed in Charlemagne's footsteps in fighting the Lombards: he conquered northern Italy and was feasted by the pope.
Francis now considered himself the most powerful monarch in Europe. Nevertheless, in order to cover himself against Charles V's increasing threats to capture Italy for the Holy Roman Empire, Francis decided to make an alliance with Henry VIII. It is worth mentioning that Charles succeeded in his goal of throwing the French out of Italy. The battle of Pavia in 1525 was a total defeat for Francis, who ended up Charles's prisoner, marking the second occasion on which a king of France became a prisoner of war. Charles was no model of chivalry, as Edward III had been when he captured jean II: Francis languished for a year in a dank cell in Madrid, where he passed the time writing songs and poems. Charles proceeded to take complete control of Italy and allowed his troops to sack Rome with a violence that was barbarous even for those times. The control of Italy included the control of the papacy, which is why Pope Clement VII found himself unable to authorize Henry's divorce from Queen Catherine of Aragon, Charles's aunt. Henry had every reason to be shocked at the pope's rejection: the pope had earlier named him "Defender of the Faith," in return for Henry's zeal in condemning Martin Luther as a mortal enemy of all good Christians.
Henry and Francis encountered each other face-to-face in 1520 at Guynes, in the neighborhood of Calais, at a summit meeting that accomplished even less than most summit meetings. Francis was unaware that Charles V had traveled to London for a secret meeting with Henry just prior to Henry's departure for France, which is one reason that the meeting at Guynes ended up as more pomp than circumstance, with the lavish overlay of ceremony and display obscuring empty confrontations on matters of substance.
Henry crossed the Channel aboard the Henri Grace-de-Dieu, the Royal Navy's largest ship, accompanied by enough smaller vessels to transport a retinue of 4500 for himself and twelve hundred for Queen Catherine, to say nothing of three thousand horses and a wide variety of associated equipment. Upon his arrival at Calais, Henry's chancellor, Cardinal Wolsey, rode on a mule with golden stirrups to the French camp to proclaim the arrival of the English.
The encounter between the two posturing monarchs has come to be known as the Meeting on the Field of Cloth of Gold. The title is apt. The ground was not literally covered with cloth of gold, but the participants lavished gold all over their costumes, and the 2800 tents that Francis supplied for the occasion were covered with so much cloth of gold shimmering in the sunshine that the observer sensed himself immersed in gold.28
Five days after Henry's arrival, at the precise moment announced by a gun firing a salute, the two kings and their elaborate entourages began to move toward each other to meet at the appointed spot at Guynes. The French archers rode with weapons sheathed in gold, followed by the marshals of France all shining in cloth of gold. Then came two hundred nobles clad in uniforms of gold and crimson. Francis himself wore a cassock of cloth of gold, while his horse was decked out with gold filigree.
The English were not to be outdone in gaudy golden display. Wolsey was accompanied in the procession by fifty giant men carrying gold maces with knobs as big as a man's head .29 Shakespeare, in his play about Henry VIII, described the sequence of events this way:
The reference to India was to the Indies, which at that time still referred to all of the New World. Shakespeare's hyperbole that every man "Show'd like a mine" suggests that the English were so covered with gold that they looked like a gold mine."' Gold was so much in every- one's consciousness that one of Henry's aides commented that the beard Henry grew for the occasion "looks like gold."31
The entire setting was marked by fluttering flags and faux palaces, and included two fountains that spouted red wine the whole time (they say that 1520 was a pretty good year). Henry even prompted a spontaneous wrestling match with Francis, a twisting tussle in which Henry ended up on the grass, purple with rage. Elaborate jousts on horseback and archery contests alternated with meals of "cygnets [swans], venison, pike, heron, pies of pears, custard and fruit ... kid, sturgeon, peacock, quails, pheasant, egrets."32 No wonder the chef was called Merryman.
Withal, Henry and Francis were at war with each other only three years later. Had all the gold flaunted at their summit blinded them from reality? Now they had to use their gold for grimmer purposes.
While all this was going on, and to some extent because all this was going on, profound economic changes were at work in Europe and, in a secondhand kind of way, in Asia as well. The behavior of prices and the demand for money in Europe changed so dramatically in the course of the 1500s that economists refer to this period as the Price Revolution of the Sixteenth Century. The Price Revolution, the ceaseless warfare, the rapid growth in international trade, and expanding economic relations with trading partners thousands of miles away in the Far East galvanized methods of doing business and transformed the character of financial transactions. Regardless of the difficulties that monarchs may have had with their finances in the sixteenth century, affairs in the private sector reached a far more sophisticated level than at any time in the past.
The Price Revolution defined the tone of the entire century. A pattern of rising prices was first visible in Italy and Germany from about 1470, the low point for the decline in prices that had set in following the Black Death in 1349. Then, like another kind of plague, inflation infected Europe in a series of steps. It took hold in England and France during the 1480s, extended to Iberia in the next decade, and appeared in eastern Europe in the early 1500s. Although prices did not rise in every single year, for agricultural prices in particular are characteristically volatile because of weather variations, the low point reached in each decline tended to be higher than the previous low, while each high point tended to set a record on the upside.33
Anyone who has lived through an inflationary period can testify that inflation is always unsettling because it clouds the future with uncertainty, but the shock of sustained inflation to the inhabitants of Europe in the sixteenth century was shattering. They had no prior experience with it, no good economic theory to explain it, and no established rules of behavior or policy with which to manage it. There had always been brief episodes of inflation in response to crop failures, but the Price Revolution of the Sixteenth Century persisted for more than one hundred years before it tapered off at long last. No other inflation in history has been so stubborn.
The price increases were most rapid in raw materials, especially food. In England, wood, livestock, and grain rose fivefold to sevenfold from 1480 to 1650; manufactured goods merely tripled.34 A 700 percent increase over 170 years compounds at only 1.2 percent a year, but, with wages rising less than half as fast as the prices of necessities, it was the tenacity and the duration of the inflationary pressures that shook people. The purchasing power of money and of labor incomes deteriorated at what appeared at the time to be an alarming rate.
What caused this deterioration? A weighty literature has accumulated to record the debates on this matter. The bottom line of the controversy is that no one cause can be held responsible for the long duration of the Price Revolution. The economic historian Glyn Davies describes it as "strange and profound. "31 Contemporary observers in the sixteenth century engaged in plenty of dispute. Just a few of the causes mentioned in the literature of the time include the decline of agriculture, ruinous taxation, depopulation, market manipulation, high labor costs, vagrancy, luxury, and the machinations of businessmen like the Genoese.36'
&nb
sp; Some modern authorities argue that the combination of rapid increases in population and a much slower rate of growth in food supplies was responsible for igniting the inflationary fires. The European population numbers had begun to recover from the Black Death and the Hundred Years' War some time early in the fifteenth century. The largest advance was from 45 million in 1400 to sixty million in 1450, but the population increased by another nine million to ten million people during each fifty-year period up to 1600. By that time, the population had doubled from the level of 1400. In 1550, the number of people in Europe finally exceeded the 73 million mark set way back in 1300, a short while before the catastrophes of the Black Death.37
Food supplies, which had been ample up to the early part of the fifteenth century, could no longer keep up with the increase in the number of mouths to feed. Agricultural output would probably have lagged population growth in any case, but two other factors contributed to the shortage of food. The first was the shift, particularly in England, from arable to pastoral farming, as the profitability of sheep farming overtook the profitability of growing food; the second was the continuing drift of labor into the cities. In 1538, a German writer commented that "There are so many people everywhere, no one can move."38 Perhaps he had paid a recent visit to Florence, where by 1561 the average size of households was 7.8 31 people, which was double what it had been 120 years earlier.
Inflation has always appeared during wartime, when spending leaps ahead and production of peacetime goods and services tends to fall. Tacitus wrote that "Pecunia nervus belli " (Money is the sinew of war),"' and there was not a single year of complete peace on the European continent during the one hundred years from 1551 to 1651. The fiscal problems of financing these wars were intensified by the character of the sixteenth-century tax systems, which put almost all the burden on the lower classes. As it was the lower classes who fell furthest behind in the inflationary process, government revenues lagged even as inflationcum-warfare was constantly driving government expenditures higher. Jumbo fiscal deficits and exploding government indebtedness were the inevitable consequences. Two resulting financial innovations were Spain's asientos and France's Grand Parti, both of which were forms of borrowing in the capital markets-the modern convention-which supplemented the traditional method of privately negotiated debts that piled up on the accounts of the bankers in Italy, Germany, and Holland.
There was another method of royal finance that was by now an old trick: increasing the supply of money through devaluation of the currency. In 1523, the Spanish Cortez urged Charles V to reduce the gold content of Spanish coins in order to curtail the distressing outflow of their highly valued coins to other countries. That way, they could mint a larger number of coins with the same amount of gold. Charles waited until 1537 to take the step; the magnitude of his needs is apparent from his decision to make this move even after Cortez and Pizarro had provided him with what looked at the time like a bottomless pit of gold bullion. Other rulers followed suit. Henry VIII's policy from 1542 to 1547 was so blatant that his move became known, with the uppercase letters, as The Great Debasement. Henry's debasement was a direct result of the war with France in the 1540s, when, as described by one historian, he "worked the Mint for all it was worth."41
Monarchies were not the only urgent spenders in this environment. Inflation generates its own self-sustaining urgency. As goods become more valuable to people than money, inflation encourages hoarding by consumers and especially by businessmen and farmers. More elaborately, hoarding takes the form of speculation, in which people buy in advance of their needs or try to corner the market, either to beat anticipated price increases or to resell the goods at a higher price later on. All of this intensifies the upward pressure on prices and then encourages even more hoarding and speculation.
But what about the impact of American treasure on the Price Revolution? Adam Smith had no doubt about that: "The discovery of the abundant mines of America seems to have been the sole cause.... there has never been any dispute about the fact or the cause of it."42 At first glance, it appears obvious that the flood of new money coined from the treasure of the New World must have been the driving force that supported inflation for so long. Population may have outstripped the supply of food, but babies do not normally come into the world with silver spoons in their mouths. If overpopulation were an automatic cause of inflation, countries like India and Bangladesh would have led the world in inflation while countries with slower-growing populations would have steady or declining prices. The facts fail to fit that hypothesis by a wide margin. In some instances, population growth in excess of food supplies may be a necessary cause of inflation, but it is hardly sufficient. Where does the increased population get the wherewithal to pay the higher prices?
The question suggests an answer: money supplies must increase. That reasoning supported Adam Smith's didactic conclusion that the abundant mines of America were responsible for the price inflation. Smith's view stemmed from a remarkable piece of economic research in 1568 by a French observer named jean Bodin, who went all the way back into ancient history to demonstrate how rising amounts of gold and silver were associated with higher prices. He pointed out that the prodigious inflow of precious metals from America had landed in Spain and that prices in Spain were higher than in France and Italy: "Spain is rich, haughty, indolent.... It is ... the abundance of gold and silver that causes, in part, the dearness of things."43
Bodin is the spiritual father of monetarism, an important branch of economic theory spelled out most authoritatively by Nobel Laureate Milton Friedman, who has asserted that inflation is always and everywhere a monetary phenomenon. When prices in general are rising, the buyer has to spend more money for the same basket of goods and services. That is, inflation cannot continue unless it is financed in some fashion. If buyers cannot find the extra money they need to maintain the same level of purchasing, they will have to cut back and buy fewer things, thereby limiting the ability of sellers to keep raising prices. Monetarists therefore contend that the Price Revolution of the Sixteenth Century would never have endured for such a long period of time had it not been nourished by the increased money supply produced from the New World's gold and silver bullion.
Yet fitting the facts to that monetarist theory is not as easy as Bodin made it appear. Not all the treasure remained in Europe as money. Hoarding, as always, kept some of it out of circulation. Gorgeous ornamentation in the churches took a share. And, as we shall see in the next chapter, a significant amount was shipped off to Asia, never to return.
Furthermore, although prices started rising around 1470 and were climbing throughout Europe by 1500, American gold did not arrive in Spain in any significant quantity until 1520; the Peruvian discoveries took place after 1530, and the big silver discoveries did not begin to bear fruit until about twenty years after that. The relationship continues to be confusing after 1600. The imports of gold and silver to Seville appear to have peaked about 1590, to have remained at a high level for another thirty years or so, and then to have fallen off precipitously from around 1620 to the end of the century. Yet prices kept on climbing, at rates that seemed to bear no relation to the arrivals of fresh supplies of the precious metals. In England, for example, prices doubled between 1600 and 1650.4
However, the Seville data are questionable, because an increasing supply was unloaded downstream at Cadiz or in Lisbon, and illegal diversions from official routes were also growing. Gold is too easy to smuggle for official statistics to be trustworthy. Analysis of informal kinds of information concludes that the flow of precious metals to Spain actually increased after 1600.45 The huge Brazilian gold mines began shipping to Portugal after 1700, but by that time the Price Revolution had played itself out. Even so eminent an authority on monetarism as Anna Schwartz, one of Friedman's principal colleagues, has described the experience of the Price Revolution as a "contradiction of the basic hypothesis" of monetarism. 46
Other economists take issue with monetarism's focus on ju
st one economic variable. They prefer to turn the argument upside down. The Price Revolution of the Sixteenth Century, viewed from this vantage point, was not the result of an increased supply of money in the form of the precious metals; rather, the rising price level magnified the demand for money, arousing the Spaniards to redouble their efforts to bring in gold and silver from America. Seen from this perspective, expanding money supplies are not the cause of inflation but the result of it.
Whichever and whatever was the cause of the Price Revolution, the inflow of treasure must have contributed to its persistence. A dramatic example of this phenomenon appeared in the course of the long struggle between Francis I and Charles V.
After Charles captured Francis at Pavia and imprisoned him in Madrid, he forced Francis to sign a ruinous treaty that was to be secured by Francis's two oldest sons, seven and eight years old, as hostages. Goodbye to the French claim to Lombardy! The children remained prisoners for four years, until they were ransomed by Francis's promise to pay two million gold crowns to liberate them. Payment began with 1.2 million crowns sent in a boat that crossed the river at the French-Spanish border at the precise moment as the boat carrying the princes headed in the other direction. The exchange was delayed (as mentioned in Chapter 6) until four months had been spent counting the coins.47
This enormous transfer of gold put a painful squeeze on the French nobility, clergy, and taxpayers while stimulating a wave of spending in the Spanish economy. As a result, prices in Spain were soon higher than prices in France. The resulting disparity in prices produced such a surge in French exports to Spain-everything from wheat, wine, and brandy to hammocks, candles, and canvas-that the transfusion of gold and silver was soon running in reverse as monies returned to the French side of the border. 8
The Power of Gold: The History of an Obsession Page 17