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MERCHANTS AT THE EVE OF INDUSTRIALISATION: IDEALS OR INTERESTS? Monika Poettinger Bocconi University, Milan

ABSTRACT Up to the nineteenth century, merchants extended networks of subsidiaries, correspondents and investments world-wide, becoming a major trigger of innovation and economic development. To guarantee the functioning of their international merchant houses, they had to adhere to a strict moral code. The resulting “moral communities” diffused everywhere the “freedom of merchants”: work to fulfil oneself and obtain economic independence, wealth as a mean to social recognition. As the Ancien Régime neared its end, merchants were ready to economically and morally guide society into a new era. Many called into question the noblesse Commerçante, though, and philosophers and economists ridiculed merchant virtues, representing merchants as men bent only on profit and self-interest. The industrialist became, so, the bourgeoisie´s myth and merchant ethics vanished from the agenda of historians and economists alike. Industrialization thusly lost one of its main characters and economics missed a catalyst of innovation and social capital formation.

Monika Poettinger

Merchants at the eve of industrialization: ideals or interests?

Introduction 1

'By untoutch'd credit/& by honnest Trade/The upright dealer/Eminent is made.' .

In the eighteenth century the relation between trade, common good and moral virtues was debated by economists, moralists and intellectuals. Even poems treated the issue, proving how widespread its discussion had become. So Friedrich Schiller at the end of the eighteenth century in his poem “The Merchant”: Where sails the ship? – It leads the Tyrian forth For the rich amber of the liberal North. Be kind, ye seas – winds, lend your gentlest wing May in each creek, sweet wells restoring spring! To you, ye gods, belong the Merchant! – o’er The weaves, his sails the wide world’s goods explore; And, all the while, wherever waft the gales, The wide world’s good sails with him as he sails!2(Schiller 1852, p.174).

Schiller went so far as to resemble merchants with Gods, because they traded in goods and in so doing brought good all over the world. The poet used a distinctio or diaphora, a figure of speech implying the use of two different meanings of the same word in just a few lines, to underline the link between good as an earthly ware and good as a moral concept. The distinctio maintains its semantic significance not only in the original German Gut, but also in the Italian bene, and the French bien, all terms meaning the pleasure/utility derived from the possession or consumption of an item, but also a moral value referring to an idealistic or theological perfection or to a shared set of values in society. These two meanings ground in different planes, the first in a materialistic reality characterized by private property and individualism, the second in an ideal sphere of common values. Schiller, though, did not juxtapose them, but made out of the merchant someone capable of trading the first and generating the second. In so doing the poet rendered a momentous change in the social consideration of the merchant, fulfilled, apparently, during the eighteenth 1

Jug by an unknown (Liverpool?) maker; earthenware, about 1800. National Maritime Museum and Royal Observatory, Greenwich, London. 2 Wohin segelt das Schiff? Es trägt sidonische Männer, Die von dem frierenden Nord bringen den Bernstein, das Zinn. Trag’ es Gnädig, Neptun, und wiegt es schonend, ihr Winde, In berwirtender Bucht rausch’ ihm ein trinkbarer Quell. Euch, ihr Götter, gehört der Kaufmann. Güter zu suchen, Geht er, doch an sein Schiff knüpfet das Gute sich an. (Schiller 1838, p.384). 2

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Merchants at the eve of industrialization: ideals or interests?

century. At that time trade, as a profession, had acquired a positive social role after millennia of despising or condescending tolerance. Since Babylonian time the merchant had been represented in myths as someone who contributed, with long and adventurous travels, to the general equilibrium of the system by procuring necessary resources3. From the cedars of Gilgamesh to the golden fleece of Jason such economic ventures were always depicted as heroic deeds. “Hercules – wrote Immanuel Kant – is related to the Phoenician word for merchant and considering all his deeds, it would not be far from reality to identify him with a Phoenician merchant” (Kant 1801, p.226). The fact, though, that merchants were consecrated under the disguise of explorers and conquerors, clearly shows how socially unacceptable individual profit seeking was. In the Babylonian Theodicy, for example, the wealthy amassing riches would prematurely end their life at the stake (Lambert 1960, p. 71) and Greek legends regarding king Midas and Croesus only elaborated on these sources. Pindar’s Ode dedicated to Jason well resumes this conception. In a speech held to the usurper of his throne Jason warns him of the necessity to rule passions with justice to weave the web of future wealth. Flocks, herds and fields are nothing if they are not accompanied by a just rule. Jason is not worried about the usurper’s personal enrichment, what could cause newer evil is for such a person to rule (Gildersleeve 2010, p.293). The diffusion of Cicero’s De Officiis disseminated this negative judgment from Roman time up to the seventeenth century (Neurath 1905). Spreading from Babylonia to Greece, from Rome to modern time Europe, the social condemnation of merchants always rested on the same grounds. Social status in general derived from the virtues or vices entailed in one’s profession, so it was the nefarious consequences of trade on the personal moral qualities of merchants that justified the despise they were bestowed on. In particular, even if, as seen, in view of their ability to procure unavailable resources international merchants could be held as heroes, they could never aspire to rule, given their moral corruption. Private profit and common good were so irrevocably separated, individualism and justice defined as opposites. How did Schiller’s diaphora came about, then? At the time when Schiller wrote “The Merchant”, the price revolution had massively redistributed wealth and income from aristocracy towards merchants, contributing sensibly to enlarge their political influence. Merchants became essential to finance wars and even nobility’s luxury spending. Merchant values became widespread and public policies reflected them: the idea that common good could be built on goods gained momentum. The research for personal profit was no more in conflict with general welfare, on the contrary: private vices became public virtues (Mandeville 1714). The value of people wasn’t based anymore on the implications of their activity 3

See: Poettinger (2012) pp. 3

Monika Poettinger

Merchants at the eve of industrialization: ideals or interests?

on their moral character, but instead on its social consequences. Schiller could so chant the merchant both as the chrematistic hero of antiquity and the modern mercantilist. Not everyone agreed4. Giacomo Leopardi, for example, critically wrote down in his „Thoughts“: “It is as if men, in disagreement on everything else, would only agree on the estimate of money; or as if man in substance would be money and nothing else than money: an axiom apparently always held valid by humanity, particularly nowadays. A French philosopher of the past century wrote in this regard: in antiquity politicians always spoke of customs and virtues, today just of trade and money. And right they are, would some student of political economy or reader of philosophical gazettes add: because virtues and good conduct cannot subsist if they are not based on industry; industry that, providing the needs of every day’s life and making secure and comfortable the life of every order of man, will also lend ground to virtues and make them universal. Well. In the meantime, along with industry, merchant’s baseness of spirit, cold-heartedness, egoism, greed, falsehood and treachery, the most depraved and unworthy qualities and passions of civilized men reign, free to proliferate without end, while virtues are still waited for” (Leopardi 1995, p. 49).

Leopardi thusly countered Schiller’s diaphora: goods cannot generate common good, wealth is not synonymous with virtue. The recent credo that goods procured by industry could be the necessary foundation for virtuous behavior, proved to be, in his experience, completely false. No social judgment based on general welfare considerations could overthrow the negative judgment of merchants based on the unethical conduct induced by their profession. The debate, here exemplified through two of the major poets of the time, raged between intellectuals, philosophers, politicians and revolutionaries of all Europe and became essential in defining the new-born discipline of political economy. In the following of the paper I will try to show how the merchant represented the divide between Ancien Régime societies and the emerging new socio-political order and therefore became the object of a cultural war fought, as Leopardi clearly perceived, on newspapers and journals, but also in universities, parliaments and battlefields. As a consequence of the propagandistic campaign orchestrated against merchants, their ethics and their fundamental contribution to industrialization have been damned to oblivion. Today’s economics, based as it is on the reductionist homo oeconomicus, is the best proof of the distorting representation of merchants developed between the eighteenth and the nineteenth centuries.

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For the cases of Italy and particularly Lombardy, see: Levati (2009); for Russia: Heller (2004) and Hildermeier (1986); for England: Burtt (1992) pp. 150-164 and Hampden-Turner (1983) pp. 78-91; for Germany: Neurath (1907) pp. 196-206; for France: Smith (2000); for Sweden: Müller (2008). 4

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Merchants at the eve of industrialization: ideals or interests?

Illustration of the myth of Jason on a Greek vase

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Monika Poettinger

Merchants at the eve of industrialization: ideals or interests?

Merchants between the eighteenth and the nineteenth century: good and moral corruption “Business!” cried the Ghost, wringing its hands again. “Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence, were, all, my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!” (Dickens 1843, p.33)

The perceived disintegration of Ancien Régime societies had left a void were chivalry and military virtues had long time acted as the founding values of social interaction and state building. A problem openly discussed at the eve of the French revolution5. But how could the French third state (Sieyès, 1970), the English middle class (Morris, 1983), and the German Bürgertum (Kocka, 1996) offer a valid moral alternative when they still hadn’t a precise identity or didn’t even exist as a social group6? Society was rapidly changing, but recent revisionism7 has amply proven that the bourgeoisie hadn’t yet coalesced into a social class, as its varying denominations across Europe visibly prove. The social grouping that could have best substituted aristocracy as the leading elite of the new societies was more credibly that of merchants, bearer of a long and glorious past, of diffused wealth and of an autonomous code of laws. And yet, the right to lead the new social entities had to be won, more than on battlefields or markets, with a proven morality that could validly replace the perceived corruption of the aristocracy. Here the origin of the debate on trade and morals inflaming Europe between the eighteenth and the nineteenth century. Not surprisingly it was in revolutionary France and America that the novelty was mostly discussed and first champions of merchants and of their morality are to be found. In France, already in the middle of the eighteenth century, François Coyer defended the noblesse commerçante against all who considered the economic interests of merchants insurmountably antithetic in respect to patriotism and so an impediment to their political and military engagement (Coyer, 1756). America welcomed the social changes with the enthusiasm of a young nation. At the Mercantile Library of Philadelphia, George Hillard preached: “The land in which you live is young. There is nothing in the past of the Old World so magnificent as our future. It is a noble thing to feel ourselves cast, not upon the crepitude of Time, but upon his 5

The most famous example being La noblesse Commerçante by Gabriel- François Coyer (1756). Spengler is very clear about this: the third state can only be defined in negative. It hasn’t any unity in itself except for its opposition to aristocracy and the cloth: „Der dritte Stand, innerlich ohne alle Einheit, wie wir sahen, war der Nichtstand, der Protest in ständischer Form gegen das Ständewesen, und zwar nicht gegen diese oder jene, sondern gegen die sinnbildliche Form des Lebens überhaupt. Er verwirft alle Unterschiede, die von der Vernunft und durch den Nutzen nicht gerechtfertigt sind, aber trotzdem „bedeutet“ er selbst etwas, und zwar mit voller Deutlichkeit: er ist das städtische Leben als Stand dem ländlichen entgegengesetzt; er ist die Freiheit als Stand gegenüber der Verbundenheit“.(Spengler 2007, pp. 1003-04). 7 These revisionist theses are summarized by Smith (2000) pp. 342ssgg. 6

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unwrinkled youth; not rodding idly upon the shore, but borne upon the topmost crest of the dancing wave. We welcome you to this boundless and exulting future. No feudal barriers check your progress; no teasing prescriptions clog your step; no worn-out usages block your path. The world is your field, and your mansion is vaulted and walled with the covering heavens. We welcome you to a community slow alike to give and to withdraw its confidence. We welcome you to the bracing air of competition, and to the golden harvest of opportunity. We welcome you to the discipline of industry and patience, to the rewards of enterprise and skill, to the refining influences of books and society, to the sweets of domestic life, to the light of everlasting truth” (Hilliard 1850, pp. 11-12).

In England, Herbert Spencer, in his “Morals of Trade”, resumed the socio-economic changes of his times as follows: “The present condition of things appears to be, in great measure, a necessary accompaniment of our present phase of progress. Throughout the civilized world, especially in England, and above all in America, social activity is almost wholly expended in material development. To subjugate Nature and bring the powers of production and distribution to their highest perfection, is the task of our age, and probably will be the task of many future ages. And as in times when national defence and conquest were the chief desiderata, military achievement was honoured above all other things; so now when the chief desideratum is industrial growth, honour is most conspicuously given to that which generally indicates the aiding of industrial growth. The English nation at present displays what we may call the commercial diathesis; and the undue admiration for wealth appears to be its concomitant” (Spencer 1868, pp. 146-47). The yardstick had displaced the sword8. Modernization9 and change seemed inextricably tied to the moral leadership of the merchant class10. Yet between the eighteenth and the nineteenth century the same merchants who sustained the desired economic development as merchant-bankers and

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“The mercantile class, to which you belong, is exerting an important and an increasing influence upon the affairs of the world. Feudal ideas are fast dying out, and king and nobles are losing the substantial power they once enjoyed, and turning into pageants and ceremonies. It is well for us that the yardstick is displacing the sword. I rejoice in the growing importance of men of business, as an historical element, because they never favor the costly pastime of war. The pocket is always on the side of peace” (Hilliard 1850, pp.11-12). 9 For a definition of modernization see: Wilson (1995), pp. 70-71. 10 One of the first to recognize the moral role of merchants in the social changings of the end of the eighteenth century is Ferguson: „The trader, in rude ages, is short sighted, fraudulent, and mercenary; but in the progress, and advanced state of his art, his views are enlarged his maxims are established: He becomes punctual, liberal, faithful, and enterprising; and in the period of general corruption, he alone has every virtue, except the force to defend his acquisitions. He needs no aid from the state, but its protection; and is often in himself its most intelligent and respectable member“ (Ferguson 1819, pp. 259-60). 7

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Merchants at the eve of industrialization: ideals or interests?

merchant-manufacturers, irreversibly changing the economic and social structure of Europe, steadily declined in the social consideration of contemporaries (McCloskey, 1998, p.298). An inexplicable event considering that already in the Middle-Ages the merchant class had ruled Italian city-states and Hanseatic towns, leaving an historiographical precedent of just rule. History remembered the merchant prince as a philanthropist, a lover of art and science and a champion of civil virtues11. “Order and good government, - wrote Adam Smith about the Italian merchant citystates - and along with them the liberty and security of individuals, were in this manner established in cities” (Smith 1836, 39). But at the beginning of the nineteenth century, the newly emerging mythology of the bourgeois imagination would center around industrialists, inventors and scientists, banishing merchants out of the new Olympus12. As in antiquity merchants had to dress up as heroes to claim their merits, now they had to disguise themselves as self-made men, so rare in the reality of industrialization, to gain popularity13. How much of this decline should be ascribed to the perceived lack of morality of the actions, mostly economic actions, of the merchant class? A perception artfully magnified by the new scientist of the nineteenth century, the economist14, who freed the economic agent from all ethic ambition and justified, through Bentham’s utilitarianism15, every trick and every fraud with the strive for profit, the maximization of one’s utility. What could the nineteenth century merchant oppose to this distorted image of its economic and social role? 11

For a fascinating portait of the Middle-Age merchant see: Spufford (2004). “In effect the manufacturer had come to be identified in certain quarters as a democratic hero, the agent of positive social and political changes who had challenged the power of a narrow elite; and this occurred in the later eighteenth and early nineteenth centuries just when manufacturers came also to be associated with wealth and consumption. Even though manufacturers were a relatively small element in the business community and the vastly wealthy, powerful selfmade man was, with few exceptions, a myth, the writings in middle-class contemporaries show that the myth was believed” (Nenadic 1991: p. 78). 13 About the lasting importance of the merchant even in the twentieth century, see the works of Luigi Einaudi (Einaudi, 1900) and Franco Amatori (Amatori, 1986). 14 A brief but menaingful synthesis of the individualistic turn in economics and the related ethical implications is given by Frank Knight: „The argument for individualism, as its advocates from Adam Smith down, may be summarized in a sentence as follows: a freely competitive organization of society tends to place every productive resource in that position in the productive system where it can make the greatest possible addition to the total social dividend as measured in price terms, and tends to reward every participant in production by giving it the increase in the social dividend which its cooperation makes possible. In the writer´s opinion such a proposition is entirely sound; but it is not a statement of a sound ethical social ideal, the specification for a utopia. Discussion of the issue between individual freedom and socialization, however, has largely centred around the truth of the proposition as a statement of the tendencies of competition, rather than around its ethical significance if true“. (Knight 1999, p. 67). Al proposito si vedano anche: Knight (1922) e Coats (1996), pp.81-90. 15 Pocock observes: „A commercial humanism had not been unsuccessfully constructed. About 1789, a wedge was driven through this burgeoning universe, and rather suddenly, we begin to hear denunciations of commerce as founded upon soullessly rational calculation and the cold mechanical philosophy of Bacon, Hobbes, Locke, and Newton. How this reversal of strategies came about is not at present well understood. It may have had to do with a rise of an administrative ideology, in which Condorcet, Hartley and Bentham tried to erect a science of legislation on a foundation of highly reductionist assumptions“ (Pocock 1985, p.50). 12

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Spencer bitterly acknowledged: “When we have one of our leading moralists preaching, with increasing vehemence, the doctrine of sanctification by force – when we are told that while a selfishness troubled with qualms of conscience is contemptible, a selfishness intense enough to trample down everything in the unscrupulous pursuit of its ends, is worthy of all admiration – when we find that if it be sufficiently great, power, no matter of what kind or how directed, is held up for our reverence; we may fear lest the prevalent applause of mere success, together with the commercial vices which it stimulates, should be increased rather than diminished. Not at all by this hero-worship grown into bruteworship is society to be made better, but by exactly the opposite – by a stern criticism of the means through which success has been achieved, and by according honour to the higher and less selfish modes of activity” (Spencer 1868, p.147)

Spencer’s belated defence of merchant morality and his argument in favour of an ethical foundation of economic action was futile as it was courageous. In Adam Smith, not accidentally the last of the “virtue ethicists” (McCloskey 2008, pp. 43-71) and at the same tine founding father of modern economics, the evaluation of the merchant class was already negative (Haddad 1996, p.72). In the first book of his “An enquiry into the nature and causes of the wealth of nations” Smith defined merchants as: “an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it” (Smith 1835, p.147). And yet, only a few decades had passed that Nicholas Magens, London merchant of German origin16 and one of the main theoreticians of insurance practices, explicitly affirmed in his treatise: “In states where the merchants are consulted previous to the enacting commercial laws, and where the security of religion, liberty and property, is a constitutional principle, there is the greatest encouragement to pursue, and good reason to expect, a general and universal commerce” (Magens 1755, p. ii). Magens was a merchant of high prestige and authority who, contrary to the statement of Smith17, put common good above personal interest and considered a commercial law granting the repression of frauds as an essential premise for economic growth and prosperity. In Magens’ exhortations 16

On the German merchant migration to London and Nicholas Magens, see: Deutsche Kaufleute in London, (Schulte Beerbühl 2007, pp.333-34). 17 “To widen the market, and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention”. (Smith 1835, p.173). 9

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Merchants at the eve of industrialization: ideals or interests?

development and morality of economic action coexisted and were even codified in the same corpus juris18: “The principal objects to which particular attention has been, and should be given, are, •

First, To prevent, and guard against, the commission of frauds by the merchant, or mariner.



Secondly, That no condition, or restraint, prevent the increase of trade, or hinder new adventures: and



Thirdly, That the public benefit be always preferred to the interest of private persons” (Magens 1755, p. iv)

For Smith, quite the reverse, merchant customs, accepted at the end of the eighteenth century in the legislation of many European countries (Smith 1835, p. 306), had mostly generated laws that favored speculation, not common welfare (Smith 1835, p.307). The merchant world was so depicted as a “crazy house”, always on the verge of collapsing. Even the positive impact of trade, that Smith could not deny, was subordinated in its efficacy to that of agriculture and manufacture, because volatile, fleeting and subject to the revolutions of time. After describing, almost begrudgingly, the positive consequences of trade and industry in the relation between town and countryside, Smith summarized: “A revolution of the greatest importance to the public happiness, was in this manner brought about by two different orders of people, who had not the least intention to serve the public. To gratify the most childish vanity was the sole motive of the great proprietors. The merchants and artificers, much less ridiculous, acted merely from a view to their own interest, and in pursuit of their own pedlar principle of turning a penny wherever a penny was to be got. Neither of them had either knowledge or foresight of that great revolution which the folly of the one, and the industry of the other, was gradually bringing about. It was thus, that, through the greater part of Europe, the commerce and manufactures of cities, instead of being the effect, have been the cause and occasion of the improvement and cultivation of the country. This order, however, being contrary to the natural course of things, is necessarily both slow and uncertain. Compare the slow progress of those European countries of which the wealth depends very much upon their commerce and manufactures, with the rapid advances of our North American colonies, of which the wealth is founded altogether in agriculture.” (Smith 1836, p.61)

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On the codification of merchant practices into laws during the eighteenth century, see: Pocock (1985) p.49. 10

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An astonishing vehemence, if one wouldn’t take into consideration that Smith actually expressed the same fear as Leopardi, that the impending political leadership of merchants (Smith 1835, p.173) would bring about the vanishing of virtue from society. It was impossible for Smith to see in these merchants, acting only in accordance to prudence, commanding respect only through wealth, the guiding light of the society that painfully was emerging from the ruins of the Ancien Régime, impossible to reconcile this merchant class with the schillerian “good”19. The only possible solution: an “invisible hand”, capable of restoring the morality of merchant’s behavior linking its economic consequences to common welfare (Smith 1836, p. 112)20. A stratagem that from Smith to welfare economics is regularly to be found in the writing of economists, used to make public virtues out of private vices, confirmed by the leadership that industrialists assumed in the newly emerging economic bourgeoisie21. Even nowadays the causal relation between merchant virtues, the nineteenth century’s bourgeois morals, and contemporary society is largely disregarded both in economic history and economic theory. In economics, studies and research concentrated on Bentham’s utilitarian22, while economic historiography indulged on Schumpeter’s entrepreneur23 first and later on Chandler’s enterprise24. McCloskey justly protests: “Yet we lack a vocabulary for speaking of the virtues within this encompassing commercial, capitalist, bourgeois society. We insist on measuring temperance, prudence, justice, and courage against the soldier, and faith, hope and love against the saint. American businessmen speak of their ethical world in sporting terms, one step from the battlefield. Their critics speak in socialist terms, one step from the nunnery. Pagan or Christian, aristocrat or peasant, the ethics we speak suits our condition poorly. We need a discourse of the bourgeois virtues: integrity, honesty, trustworthiness, enterprise, humor, respect, modesty, consideration, responsibility, prudence, thrift, affection, self19

The incapacity of the merchant class to rule is clearly expressed by Smith in the following lines of the fourth book of the Wealth of Nations: “But a company of merchants are, it seems, incapable of considering themselves as sovereigns even after they have become such. Trade, or buying in order to sell again, they still consider as their principal business, and by a strange absurdity, regard the character of the sovereign, as but an appendix to that of the merchant;“ (Smith 1836, p.409). 20 A solution never quite accepted by Smith, who certainly preferred the regulating intervention of the State. So Haddad: “Although Smith retained his initial vision of the ideal commercial society, he changed his views on how to achieve it. As he became increasingly concerned about the dehumanising effects of the division of labour and the possibility of moral disintegration under an unbridled system of rent-seeking commercial activities, he gradually turned to the visible hand, to politicians and statesmen. He expected them to play a special role of moral leadership, to intervene in the economy to correct individual and market failures, and encourage the development of moral sentiments through education and other means”. (Haddad 1996, p. 72). A position reinforced after the visit to London in 1773, when Adam Smith could first-handily experience the unmoral conduct of the city’s merchants (Evenski 1989, p.12324). 21 For a definition of Wirtschaftsbürgertum see: Kocka (1996) p. 12. 22 A brief and efficacious study on utilitarianism and the centrality of the connected virtue of “prudence” is to be found in McCloskey (2008) p. 46. 23 See: Schumpeter (1934; 1993). 24 See: Chandler (1990). For a succinct treatise on the topic see the Introduction to the same volume by Amatori (1990). 11

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possession, prudence. We do not have it in our modern art or literature, or in our scholarship on economic history”.(McCloskey 1998, p.301).

The censure of economists, intellectuals and historians also concealed for a long time the essential role played by merchants in Europe’s industrialization, magnifying the industrialist and the entrepreneur, relatively secondary actors for the whole nineteenth century25. At the same time merchant’s ethics vanished from the agenda of researchers, as its centuries long evolution into codified commercial law, its complex interacting with socio-economic conditions during the eighteenth and nineteenth centuries and lastly its role as an agent of economic development were scarcely investigated. Ebeneezer Scrooge26 remained so greedy, petty and egoistical, in collective imagination as in scientific research, as if no ghost had ever appeared in his bedchamber conjuring up, through moral admonitions, the vision of a world dominated by common good.

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For the English case, see: Nenadic (1991), p. 66; for Lombardy: Poettinger (2011). Ebeneezer Scrooge is the greedy merchant of Charles Dickens’ A Christmas Carol (Dickens 1843). On the role of merchants in English literature and the case of Dickens, see: Hampden-Turner (1983) p. 157ssgg.

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Merchants at the eve of industrialization: ideals or interests?

Illustration from “A Christmas Carol” by Charles Dickens

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Merchants at the eve of industrialization: ideals or interests?

The merchant class between Ancien Régime and modernization, between trade and industry “The times demand men of enlarged, liberal, energetic souls, men who will keep up with the world as it goes; men of hearts too, who not only desire to go ahead themselves, but take pleasure in seeing others succeed; and who have public spirit enough to do something for, and rejoice in the prosperity of the people” (Freeman 1856, p.45)

The merchant class Adam Smith feared for its growing political influence, its control on financial resources and the short-sightedness in pursuing common good, was a social grouping already defined by Daniel Defoe27 in 1726: “But in England the word merchant is understood of none but such as carry on foreign correspondences, importing the goods and growth of other countries, and exporting the growth and manufacture of England to other countries; or, to use a vulgar expression, because I am speaking to and of those who use that expression, such as trade beyond sea. These in England, and these only, are called merchants, by way of honourable distinction”(Defoe 2008, p.18)

Defoe described an elite formed by wealthy merchants trading and corresponding between England and the rest of the world (Defoe 2008, p.19). In France these merchants were called nègociants, managed their trade in comptoirs, sold goods in warehouses, never in shops. They represented the big businesses of the time: bankers, wholesalers, merchant-manufacturers and brokers. At the end of the eighteenth century they formed the leading business elite of all major trading centers at regional, national and international level (Taylor 1963, p. 46). In Milan, entrepot of the trade between Italy and Northern Europe, Carlo Cattaneo defined the “negozianti” as a social grouping provided “with a certain initiation, a sort of exclusive nobility”, distrustful toward outsiders: “they don’t like to involve in their regular dealings ones who don’t pertain to their tribe”(Cattaneo 1838, p. 98). The locus of their trade was the headquarters of their firm, a buiding serving also as home of associates and of many valuable employees along with their families. The headquarters represented the firm and its prestige, was source of credit and trust and called for respect and social recognition. In 1808 the newly acquired seat in Milan of the firm of Heinrich Mylius, merchant-banker from Frankfurt, was thusly to be described28: "The ground floor hosted the offices, a fumoir with 162 paintings and a series of rooms dedicated to the administration of the firm. On the higher floors there were private apartments and reception 27

On Daniel Defoe and his apology of the new economic order and of the merchant class, see: Keith Meier T. (1987) and Novak M. E. (1976). 28 On Heinrich Mylius, see: Poettinger (2007a). 14

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rooms. On the second floor six salons and two more open spaces, nine bedchambers, dining rooms and sitting rooms and seven more administrative offices…"(Baasner 1994, p. 11).

So the headquarters of a trading firm in Hamburg, according to a moralist miscellanea for business men and merchants, edited in New York in 185629: “In the great hall, all was activity. There were two great scales, on which workmen were weighing coffee, as a clerk stood by with his memorandum book. …The merchant strode through the store, and entered the counting-room, where I followed him. What a sight! A long and rather gloomy hall presented itself, with numerous desks, behind each of which stood a person busily writing or reckoning, and of whom I counted thirty. In an adjoining room sat many more. Not far from the door sat a rather elderly man at a counter, and near him stood several iron chests…” (Freeman 1856, pp. 206-208). To become part of such a bustling hive of economic activity was not overly difficult30. The aspiring merchant, after attending school and having travelled and visited fairs with other family members or relations, began his apprenticeship around the age of fourteen as a junior clerk in one of the above described counting-rooms. For many a jump in an unknown world. Ernst Wilhelm Arnoldi31, one of the leading merchants of Gotha, in Saxony, so remembered his apprenticeship in Hamburg: “Without any knowledge of Portuguese, English or Dutch I found myself in a comptoir that was built on German soil, but corresponded only in those languages, so that I could understand what happened around me only through the conversations held in German, the current spoken language. Without knowing foreign languages I had to copy all those letters! To heighten my “comptoir desperation” I knew very little about counting and I was able to write with speed only in the bad calligraphy I was used to. I was really useless and I am indebted to my employer for not sending me away on my first day” (Erkenbrecher 1995, p.23).

The apprentice clerk worked every day, except on Sunday, till ten o’clock in the evening and the little time left had to be dedicated to study. To compensate for such efforts, apprenticeship guaranteed little monetary returns, if at all, but a precious education and the possibility to acquire 29

Per uno studio specifico sul ceto mercantile di Amburgo si veda: Reissmann (1975). Sulla formazione mercantile tra MedioEvo e diciannovesimo secolo si vedano: Cicchetti e Mordenti (1985); Harreld (2006); Hoock e Jeannin (1991; 1993); Jeannin (2002). 31 Once back in Gotha, Arnoldi founded the local mutual insurance against fire and the first German professional school for merchants. He became one of the leading representatives of the merchant class in German states: merchant, manufacturer, pedagogue and writer. A brief sketch of his life is to be found in: Erkenbrecher (1995). 30

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relational capital to be spent in the subsequent career32. By proving his honesty, his diligence, his responsibility – in short his moral qualities – the young man could win the trust of his employer and enter into the network of business relations that guaranteed access to credit and the possibility of a brilliant future. The world of merchants was de facto democratic and largely based on merit. Almost everyone could gain access to it33. In his autobiography Arnoldi called this the “freedom of merchants”, independence and respect obtained through honesty, commitment, perseverance, study, frugality and tidiness: merchant virtues he had learned from his father, merchant of colonial wares (Erkenbrecher 1995, p.20). The career possibilities of a young apprentice did not end with the

founding of his own business, but could even include political positions in local governments34. Dignity and social recognition were so extended from trade to society and the role of merchants, beyond economic exchange, became that of civil servants. In these cases the “freedom of merchants” became rule of government (Spengler 2007, p. 1000)35. Even if in his city the merchant was fully a bürger, in his comptoir he was king36 of a cosmopolitan and international firm that ignored geographical boundaries and political borders and extended networks of branches and correspondents wherever profit and entrepreneurial opportunities called for fruitful investments. Smith easily condemned this economic behavior as “speculation” 37, but the variety of activities of eighteenth and nineteenth century merchant houses usually corresponded to a 32

On the practice of apprenticeship in merchant houses during the nineteenth century, see: Luskey (2010) pp.21-33. The employer of Arnoldi in Hamburg, for example, was of low birth. A fact Arnoldi quoted in his memoirs with great admiration (Erkenbrecher 1995, p.23). 34 This held true for all independent merchant cities as Hamburg and Frankfurt. It became possible in all Continental Europe after Napoleonic reforms that institutionalized the political representation of merchants through Chambers of Commerce, Counsels of Commerce and the like. For the different case of London, see: Schulte Baerbühl (2007), pp. 140-150. 35 The link between merchant interests and humanistic ideology is sustained in historiography by Hans Baron (Baron, 1970), while the opposite view is championed by Pocock (1975). Recently Mark Jurdjevic has proposed again the originary interpretation of Baron. Jurdjevic declares: „Florentine republicanism of the fifteenth and early sixteenth centuries was the ideology of an ascendant merchant elite. It provided a political language that integrated republican virtue with the habits, values, and mentality of the merchant. We should not therefore be surprised to see republicanism flourishing in commercial societies” (Jurdjevic 2001, p. 728). 36 In a moralistic description of the nineteenth century: “Mr. Mohrfeld had now arrived at his desk, which was secluded from the main hall by a rail. He pointed me to a chair, and began to examine some letters that had waited his coming. A deep silence now pervaded the room, which was broken only by the monotonous scratching of many quills. No loud word was spoken, and seldom a suppressed whisper was heard. No notice was taken of me; not a word was addressed to me, nor was a curious glance directed towards me. The merchant read through his letters, and called several young men to him, giving directions, but receiving no answers.” (Freeman 1856, p. 209). 37 “Sudden fortunes, indeed, are sometimes made in such places, by what is called the trade of speculation. The speculative merchant exercises no one regular, established, or well-known branch of business. He is a corn merchant this year, and a wine merchant the next, and a sugar, tobacco, or tea merchant the year after. He enters into every trade, when he foresees that it is likely to lie more than commonly profitable, and he quits it when he foresees that its profits are likely to return to the level of other trades. His profits and losses, therefore, can bear no regular proportion to those of any one established and well-known branch of business. A bold adventurer may sometimes acquire a considerable fortune by two or three successful speculations, but is just as likely to lose one by two or three unsuccessful ones. This trade can be carried on nowhere but in great towns. It is only in places of the most extensive commerce and correspondence that the intelligence requisite for it can be had” (Smith 1801, p.115). 33

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precise and risk averting strategy. To specialize in the trade or manufacture of one single good, or concentrate on a single market could have catastrophic consequences in a world characterized by continuously changing political conditions and uninterrupted technical advancement. In such a volatile environment, merchant houses became highly adaptable, investing money wherever it generated highest profits: trading in colonial wares and slaves in the second half of the eighteenth century, later coordinating the “rag trade” and the verlag of cotton pieces, financing troops and smuggling during the Napoleonic wars, resorting to silk production, banking and insurances after Restoration, lastly becoming shareholders of the first joint stock companies as in the railway sector. Never far away from manufacture. An activity always held dear, even if considered, most of the times, much too risky to became exclusive. Given state incentives, privatives or other protection, though, merchants readily founded new manufacturing activities, even financing innovation and the schooling of local workers. The localization of manufacturing activities became part of the global strategy of merchant houses, capable not only of trading goods, but also of moving their production wherever local conditions became more favorable and comparative advantages granted higher returns (Poettinger 2006, pp. 51-54). Such international coordination was possible firstly because the fixed investments needed for most manufacturing facilities was still relatively low, across sectors and in all the period considered, secondly thanks to the netlike structure of merchant houses. The extensive networks commanded by each firm consisted of trust relations based on kin, religion citizenship, nationality or even crossinvestments38. Such networks transferred information, otherwise scarce and mostly unreliable till the end of the nineteenth century39, but also capital, be it financial, human or entrepreneurial, from one knot to the other, enhancing the general efficiency of the economic system. Acting as entrepreneurial networks40 merchant houses were so the main vehicle of transmission for the industrial revolution. A role of which merchants were perfectly aware. Arnoldi defined the “spirit of the true merchant” as “the creation of new desires, the discovery of new countries, the foundation of new industrial sectors”, in synthesis: “an incentive to every enterprise”, “the moving principle of humanity” (Erkenbrecher 1995, p.21). On the other side of the Ocean, in a speech at the Mercantile Library Company of Philadelphia in

38

See: Casson (1997). On merchant net as an instrument for the transmission of information in the case of the Rothschild family, see: Liedtke (2006) p.3. 40 For a definition o entrepreneurial nets, see: Poettinger (2007b). 39

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1841, Channing proclaimed: “Commerce is a noble calling. It mediates between distant nations, and makes men’s wants, not, as formerly, stimulants to war, but bonds of peace. The intellectual activity of which I have spoken is due, in no small degree, to commerce, which spreads the thoughts, inventions, and writings of great men over the earth, and gathers scientific and literary men everywhere into an intellectual republic” (Freeman 1857, p. 34).

Cosmopolitan merchants, champions of economic, social and scientific progress in the known world? Smith could not conceal his disapproval: “A merchant, it has been said very properly, is not necessarily the citizen of any particular country. It is in a great measure indifferent to him from what place he carries on his trade; and a very trifling disgust will make him remove his capital, and, together with it, all the industry which it supports, from one country to another. No part of it can be said to belong to any particular country, till it has been spread, as it were, over the face of that country, either in buildings, or in the lasting improvement of lands” (Smith 1836, p. 67).

And yet it was exactly the mobility of merchants, their capacity to become citizens, bürger, even far away from home, rebuilding an “intellectual republic” in the city of election, to make out of them the engine of growth praised by Arnoldi. A role recognized, in the course of the nineteenth century, by those economists who attentively observed the diffusion of technological innovation and studied its causes and consequences. John Rae, dwelling in the rapidly developing Canada, wrote: “Hence we observe, that, in countries where many arts flourish, there are most general principles, least servile imitations, and very often, a continual onward progress. Barren apart, they show generative virtues when brought together. I take it, that it is chiefly from this circumstance, that the seats of commerce have been so generally the points, from whence improvements in the arts have emanated. Thus, also, countries where various different races, or nations, have mingled together, are to be noted, as coming eminently forward in the career of industry. Great Britain is a remarkable instance of this; so are the United States of America. When individuals meet from different countries, they reciprocally communicate and receive the arts of each, adopt such as are suited to their new circumstances, and probably improve several” (Rae 1834, p.237).

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Friedrich List, on his part, observed: “The law of the division of labor and the association of productive power, brings manufacturers together with an irresistible influence. The collision of minds emits sparks of intelligence as the smitten flints emits fire. There is no intellectual friction but where men are brought together; where the intercourse of business and studies – those of society and political life – are frequent; where there is a great exchange of goods and ideas” (List 1856, p.288)

While Adam Smith circumscribed the positive effects of the extension of markets to division of labor, scale economies and vent for surplus, Rae and List reported intellectual intercourse, the mingling of different cultures, the cosmopolitan life of cities and the association of productive forces, all necessary ingredients of progress and innovation. The gifts of trade envisioned by Rae and List, though, could not flourish in a Benthamian society of selfish individuals41. The spreading of the industrial revolution could not rely uniquely on economic calculus as described by Smith42. To transplant entire productions from one location to the other, a violent operation even for Smith (Smith 1836, p. 43), merchants had to move capital, knowledge in the form of specialized workers, organizational capabilities in the form of young and talented entrepreneurs, grant markets negotiating with local governments aids and protection, control local labourers’ opposition and many more tasks43.

41

“As the prevalence of the benevolent and social affections, and the strength of the intellectual powers, are the great springs from which the increase of the wealth and prosperity of communities arise, so it might be expected, as I believe it will be found, that the diminution of that wealth is chiefly occasioned by the spread of contrary principles, by the ascendancy of the purely selfish, and debasement of the intellectual and moral parts of our nature” (Rae 1834, p. 265). 42 “The establishment of any new manufacture, of any new branch of commerce, or of any new practice in agriculture, is always a speculation from which the projector promises himself extraordinary profits. These profits sometimes are very great, and sometimes, more frequently, perhaps, they are quite otherwise; but, in general, they bear no regular proportion to those of other old trades in the neighbourhood. If the project succeeds, they are commonly at first very high. When the trade or practice becomes thoroughly established and well known, the competition reduces them to the level of other trades” (Smith 1801, p. 116). 43 “Very few individuals have a thorough knowledge of every different part of any complicated manufacture. In examining any large and successful manufacturing establishment, we commonly find that the various parts of it depend, for the perfection with which they are conducted, on the efforts of different individuals, who devote their whole attention to their own departments, and are not at all qualified to change places with each other; while the director of the whole has only such a general knowledge of each as enables him to say when it is properly conducted, not himself to point out the exact mode of best conducting it. It is his business to preserve the economy of the whole, and to search out the individuals best fitted for carrying on every part. Hence the undertaker of any such work, in a country where it has not been practised, has not only to engage one, but generally many individuals, in order that the different processes of the manufacture may be properly conducted. The difficulty of finding persons of sufficient intelligence and integrity for the purpose, who will remove to a distant country, without an extravagant reward, is very great, and the risk of being imposed on by engaging persons of insufficient skill, and consequently suffering considerable loss, is not small. The difficulty of transporting, or of constructing there, the necessary machinery, is often still greater; and when these are procured, workmen having the requisite skill and dexterity for performing the mere manual part are still wanting. These, if brought from a foreign country, as most often necessary, can only be induced to expatriate themselves by the receipt of exorbitant wages; and, even if the natives of the country where the new manufacture is to be established can be 19

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What moved merchants, then, to become “harbingers of civilization” (Freeman 1857, p.34) 44, to “improve the arts of civilized life and diffuse a knowledge of them over the earth” (Rae 1834, p.48)? John Rae underlined the essential role of political shocks in stimulating entrepreneurial migrations and the diffusion of innovations45. During the eighteenth and nineteenth centuries, from the protestant diaspora to the American Revolution, from the French Revolution to the Continental System the “freedom of merchants” had helped many an entrepreneur to find a new home and many a city to be enriched by innovating manufactures and trades. In all of Europe and its colonies, undertakers, used to geographical and social mobility, counting only on personal knowledge and innovative capacity to gain independence and social recognition, multiplied46, widening and enriching merchant networks and granting the diffusion of industrialization47. Both components were essential to socio-economic modernization: the infrastructure of merchant networks and the knowledge brought along by migrating entrepreneurs. It is in Friedrich List, again, that one of the best images of the results of this cooperation is to be found: “Consider a large city, where manufacturers are numerous, independent, patriotic, well educated, and rich, where merchants have the same interests and the same advantages, where proprietors are under the necessity of conciliating public esteem, where official personages are under the control of public opinion, where men of learning and artists devote their time and talents to please the public at large, and are dependent upon that public for the means of subsistence; consider the mass of intellectual and material resources accumulated within such narrow space; observe the intimate union existing between that mass of forces under the law of the division of labor and the association of productive powers; notice the quickness of every amelioration, of every degree of progress in public institutions, and in the economical and social condition of the people; how quickly, also, every retrograde step, every blow at the general interest is felt throughout the whole community; reflect how easy it is for a population residing in the same vicinity to act in concert for common trained from the first to execute the necessary manual operations, besides the loss arising from their deficient dexterity, they will demand higher wages than those engaged in established employments” (Rae 1834, p.47). 44 “Gentlemen, allow me to express an earnest desire and hope, that the merchants of this country will carry on their calling with these general views. Let them not pursue it for themselves alone. Let them rejoice to spread improvements far and wide, and to unite men in more friendly ties. Let them adopt maxims of trade which will establish general confidence. Especially in the intercourse with less cultivated tribes, let them feel themselves bound to be harbingers of civilization.” (Freeman 1857, p.34). 45 “It is to the wars springing out of the French revolution, and the interruption to European commerce that they occasioned, that the first rise of many manufactures in different parts of the old and new world, which are now in a very prosperous condition, is to be traced” (Rae 1834, p.50). 46 Entrepreneurial mobility was just one aspect of a more general social mobility, affecting all of Europe in the eighteenth century. See: Blackbourn 2008, p. 70. 47 On the relevance of entrepreneurial migration in the process of industrialization of first, second and late comer countries, see: Inkster 1990 pp. 415-423. 20

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purposes and by common measures, and how many resources they can instantly command; see what close relations a community so powerful, so intelligent, so attached to its liberty, sustains with other similar communities of the same country (…)”(List 1856, p.291).

The ideal city of List shows all the far reaching consequences of the operating of the “freedom of merchants”. Here merchants are not simply linked to common good by the accumulation of material resources, but through the accumulation of intellectual resources, the stimulating association of productive powers, the strenuous defence of liberty. At the same time, though, the city of List is already dominated by the mythicization of the industrialists who, offering work to the lower class, extended the “freedom of merchants” to everyone, granting, at the same time, common welfare and the moralization of masses. The merchant, blurring in the background, is ready to exit the scene, having gifted the nineteenth century with innovation and social responsibility, and leaving as his legacy the virtues canonized in the Italian trading cities48. “Commerce and manufactures – wrote Adam Smith about those cities of the past - gradually introduced order and good government, and with them the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours, and of servile dependency upon their superiors. This, though it has been the least observed, is by far the most important of all their effects” (Smith 1836, p.50). Positive effects, though, that Smith denied to the merchants of his time as, till recently, have done both economic science and economic history.

48

About the relation of ethics and the merchant class in medieval times, see: Wood (2002) p. 119 and following. 21

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The debate over merchant ethics: the political condemnation of a cosmopolitan community „It is unfair to judge a fool the man bent on accumulating goods, because activity is happiness and for the man capable of feeling the joy of continuous effort, earned wealth is without significance. I’m desperate in absence of work, sick without travelling and driven away from decision making I will die”49 (Goethe 1817, p.269)

Ernst Wilhelm Arnoldi, beside his entrepreneurial activities, also founded in Gotha the first German professional school for merchants. In his pedagogical effort, Arnoldi wrote down an ethical codex that was gifted to all students of the school (Poettinger 2009, pp.494-497). In the first lines of his “Sittentafeln”, he identified faith and justice as the founding values of the modern merchant. Contrary to the opinion of Polanyi, no clear distinction between economic activity and religion was still to be found here (Polanyi 2001, pp.106-107): the merchant depicted by Arnoldi was the direct descendant of the merchant of Italian tradition. The virtues described in the “Sittentafeln”, perseverance, deference, knowledge of human nature, probity, thrift, honesty, loyalty and determination, were not only the same Benjamin Franklin and Daniel Defoe could have listed, but also equivalent to those enumerated in the writings of Renaissance merchants like Benedetto Cotrugli (Cotrugli, 1990), Brunetto Latini (Latini, 1823), Giovanni Rucellai (Rucellai, 1772) Fazio degli Uberti (Uberti, 1826) and Leon Battista Alberti (Alberti, 1843) 50. Was all this boasting of one’s virtue affectation on part of the merchant class? Karl Marx, another economist, in his drafted critique to List’s “National System of Political economy”, ridiculed List’s ideal city, precisely betraying beneath the ethics of the bourgeoisie the pettiness of a shopkeeper disguised by Christian pietism: “A great inconvenience affecting the German bourgeois in his striving for industrial wealth is his idealism professed hitherto. How is it that this nation of the “spirit” suddenly comes to find the supreme blessings of mankind in calico, knitting yarn, the self-acting mule, in a mass of factory slaves, in the materialism of machinery, in the full money-bags of Messrs. The factory owners? The empty, shallow, sentimental idealism of the German bourgeois, beneath which lies hidden the pettiest, dirtiest and most cowardly shopkeeper´s spirit, has arrived at the epoch when this bourgeois is inevitably compelled to divulge his secret. But again he divulges it in a truly German, high-flown manner. He divulges it with an idealistic-Christian sense of shame. He disavows wealth 49

In the German original: “Mit Unrecht hält man die Menschen für Toren, welche in rastloser Tätigkeit Güter auf Güter zu häufen suchen; denn die Tätigkeit ist das Glück, und für den, der die Freuden eines ununterbrochenes Bestrebens empfinden kann, ist der erworbene Reichtum ohne Bedeutung. Aus Mangel an Beschäftigung werde ich elend, aus Mangel an Bewegung krank, und wenn ich keinen anderen Entschluß fasse, so bin ich in kurzer Zeit dem Tode nahe.“ 50 Werner Sombart, too, tracing the history of the spirit of capitalism, does not see any qualitative difference between the moral teaching in the nineteenth century in respect to the Italian one of the fifteenth century. The main difference, not yet sufficiently studied was, in the opinion of Sombart, quantitative, in relation to the diffusion of such ethical preaching through books, pamphlets, schools and the like.(Sombart 1994, p. 88). 22

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while striving for it. He clothes spiritless materialism in an idealistic disguise and only then ventures to pursue it” (Marx 1977, p. 265). How to answer Marx’s criticism? “The just goodness – wrote Arnoldi to the young merchants to be – is blessed. Love for the truth is love for virtue. But virtue, along skill and knowledge, is the capital that brings in itself the guarantee of its value, calls for respect and gains trust, granting, in this and the next world, the highest return” (Poettinger 2009, p.495). Virtue was an essential part of the any merchant’s personal capital, in nineteenth century Gotha as it had been in fifteenth century Italy. Merchant networks were still operating internationally, outside the reach of national law codifications and needed trust to correctly function; inside these networks capital was distributed according to personal qualities and virtuous behavior, before financial solidity was even taken into account; lastly, business relations often became kinship relations, built around trust and building trust. In such a world personal credit was more worth than money, a trustworthy name would open every door. Virtuous behavior was the only base on which the needed reputation could be built. Virtue was necessary to the functioning of the international merchant networks that guided Europe’s industrialization: affectation simply would not do. Ironically the international business community born out of Italy in the fifteenth century, enriched by the price revolution of the seventeenth century, engrossed by the innumerable undertakers fleeing from religious persecution and erratic political rule during the eighteenth and the nineteenth century, formed exactly the moral community described by Smith in his “Theory of Moral Sentiments”: “Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices” (Smith 1853, p.124).

John Rae exactly described the intimate functioning of such a community, where neither an “invisible hand” nor laws were needed to reconcile private interest and common good: “It is in more moral communities alone, where the real springs of action are not selfish, and where a desire for the good of others is one of the chief movers, animating the exertions, and giving a tone to the feelings and actions of the whole body, that the virtuous and liberal mind, sympathizes with, and approves the conduct of the man, who gives his days to labor, and his nights to engrossing care, for the purpose of increasing his gains. There, such a life is not deemed selfish, sordid, or unhappy, 23

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because there, it is known generally to proceed from a totally opposite spirit, and to have for its sustaining principle, the welfare of others, rather than of the individual; and there, it is esteemed praiseworthy, because there, its general tendency is good, not evil. There, too, ambition alone may, no doubt, lead those who want other motives into the paths of sober industry and frugality, because the desire of excelling in whatever is attempted, must impel individuals actuated by it, to every pursuit that other men gain credit by. It is not perhaps the object gained, so much as the gaining of it, which gives it value in their eyes. But, it is only where such conduct procures consideration, and respect, that we can expect it will be steadily pursued by such persons. Where patient and assiduous industry, and undeviating integrity, procure the highest name, and fame, they will be followed by many who value them not in themselves” (Rae 1834, p.127).

The merchant class was aware of the symbiotic relation between its economic activity and the practice of virtue: Gotha’s students learned at heart Arnoldi’s “Sittentafeln”; in Boston51 and New York businessmen read moralistic miscellanea; in Philadelphia52 merchants attended the lectures of the Mercantile Library53; in Milan Heinrich Mylius bought books of the English pietistic tradition54; in London Dickens wrote his “Christmas Carol”55. Trade, admonished Arnoldi, “above all else constrains to moral action and to great virtue, resulting from long habit and study of oneself. To be urged on this path and gain these qualities you receive an instruction” (Poettinger 2009, p.495). At the end of the century Gustav Schmoller could state: “In my report on the Division of Labor (1889), I maintained that commerce is the organizer and arbiter of modern economics. I repeat this to-day, adding that it can only remain such if it succeds in getting rid of its excrescences, if it is determined to hold fast to morality and decency, remorselessly cutting off its undesirable members. All those nations which have attained eminence in trade succeded by insisting upon greater honesty than their rivals, and they came to ruin as soon as corruption and greed gained a footing amongst them. Law and order and morality, and all the powers in the mercantile world must combine to keep down evil practices, and to make ever higher demands on all their individual members”. (Bunzel 1905, p. 340)

51

For the case of Boston, see: Goodman (1966). About the merchant class in Philadelphia, see: Doerflinger (1986) p. 9 and following. 53 About the Mercantile Library of Philadelphia, see: Historical Sketch of the Mercantile Library Company, in AAVV (1850), pp. iii-v. 54 See: Liermann (1999) p. 21. 55 Dickens (1843). 52

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The merchant class, as in Schmoller’s words, arbiter and organizer of the modern economy for the whole nineteenth century, had an ethics of its own and could not do without it56. The vehement denial of every ethical motivation of merchants’ actions, on part of Smith and many other economists and intellectuals, did not spring out of an historically proved amorality of the merchant class. The reason of the moral condemnation of merchants in the eighteenth and nineteenth centuries grounded in the emergence of nationality as the founding principle of the modern state. Not by chance did Adam Smith write about the “wealth of nations” and precisely in the setting of a national economy did he condemn the cosmopolitan attitude of merchants and their international investments. Individualism and private interest could not be reconciled with a common good no more defined by a moral community but instead by a national entity. From here stemmed the necessity of an “invisible hand” and of a state to transform private interest into public interest by law. Leopardi described this momentous change with poetical clarity: “…given that exactitude, definitions, circumscriptions, clear and precise formulations do not exist in nature, but were created and made necessary by the corruption of men, men that nowadays need to constrain and be constrained through laws, pacts, and by distinct, detailed, numerous, mathematical, etc. (moral or material) obligations, so that malice be deprived of every subterfuge, misunderstanding, escape, liberty and of every undetermined space left free” (Leopardi 1994, pp. 79-80). In the eyes of Leopardi, the loss of the state of nature, the emergence of science, the diffusion of enlightenment and the development of individualism had irrevocably undermined the natural unity between absolute rule and common good, a unity that per se was “state”. This corruption accounted for the loss of every illusion and the end of patriotism (Leopardi 1994, pp. 72-95). The problem of merchant ethics emerges therefore as an eminently political problem, precisely as the science born with Adam Smith was “political economy”. The end of the Ancien Régime had opened the doors to a modernization that could have very different results according to the elite that would guide it, an elite of jurists and philosophers or of industrialists and scientists (Saint- Simon 1821, pp. ix-xiii). The first ones, in revolutionary France, had created a state based on political participation, national identity and patriotism. The second ones could have founded the ideal city of List, ruled by the “freedom of merchants”, grounded on religious tolerance, cosmopolitism and federalism. The two alternatives were evidently irreconcilable. The European cosmopolitan merchant didn’t appreciate the erection of national boundaries as national states viewed with suspect his international activities and his economic power. No nation could be homeland to

56

“Commerce is a teacher of ethics” says McCloskey (McCloskey 1998, p.310). 25

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merchants57. Smith as Leopardi considered the interest of merchants the denial of every patriotic spirit, of every public interest58. List would see the problem with so much clarity to distinguish between a “cosmopolitan economy”, a merchant utopia without national boundaries or differences in geographical endowments and economic development grade, ruled by liberalism and devoted to peace; and a “national economy”, a political science perfectly fitted to the contemporary situation characterized by the emergence of states ruled by a national interest having precedence over personal interest. (List, 1936)59. The prevailing, in the course of the nineteenth century, of the modern state and its “national economy” over the utopia of merchants had as a consequence that merchants were denied not only a homeland but also virtue and were substituted in political favor by industrialists, well tied to the national ground by enormous amounts of fixed investments and the granting of state commissions. The denial, begun with Adam Smith, of the merchant ideal, born in Italy in the fifteenth century and thriven till Arnoldi’s “Sittentafeln” in the nineteenth century, would culminate in that “Händler und Helden”, published by Sombart in 1915, where the first World War was depicted as a “war between the hero and the merchant, between the merchant ideal and the heroic ideal and the respective cultures” (Sombart 1915, p. 4). The merchant, described one last time as an egoist devoid of every ideal and even as a coward, discovered here his real adversary, the heroic spirit glorifying in personal sacrifice to an interest never personal but always ideally patriotic. The national state, after having laid claim on the economic sphere in view of its national interests, condemning List’s cosmopolitism to remain utopia, with Sombart even devoured individualism, in name of Kant’s categorical imperative of duty (Sombart 1915, pp. 53-81)60. The nation had by then acquired its own spirit, with no relation to the inclination of the individuals composing it, a Geist that found expression in a typical culture, state organization, politics, 57

“Quando tutto il mondo fu cittadino Romano, – wrote Leopardi – Roma non ebbe più cittadini; e quando cittadino Romano fu lo stesso che Cosmopolita, non si amò né Roma né il mondo: l´amor patrio di Roma divenuto cosmopolita, divenne indifferente, inattivo e nullo: e quando Roma fu lo stesso che il mondo, non fu più patria di nessuno, e i cittadini Romani, avendo per patria il mondo, non ebbero nessuna patria, e lo mostrarono col fatto” (Leopardi 1992, p.69). 58 „Ma l´egoismo – wrote Leopardi – non é capace di sacrifizi. Dunque la detta sommissione spontanea non era più da sperare; la comunione degli interessi d´ogni individuo coll´interesse pubblico era impossibile. Nato dunque l´egoismo, né il popolo poteva ubbidir più se non era servo, né il principe comandare senza esser tiranno“ (Leopardi 1992, 85). 59 See: Das Wesen und der Werth einer nationalen Gewerbsproduktivität, written by List in 1836 (List 1850, pp. 10149). 60 “I principi – wrote Leopardi - non possono essere amati per altra passione che per quella che consiste nell´amor di parte. L´ambizione, l´avarizia ec. cadono sotto la categoria dell´interesse, consistono nel freddo calcolo dell´egoismo, e perciò spettano alla ragione, tutto l´opposto del fervido, irriflessivo e cieco impeto della passione. E chi sacrifica se stesso al principe per ambizione, avarizia, o altre mire di propria utilità, non si sacrifica veramente al principe ma a se stesso, e tanto quanto lo crede utile a se stesso, e in caso diverso, abbandona la sua causa. Ma l´amor di parte conduce a sacrificarsi furiosamente, e senza riserva né condizione né ritegno né calcolo veruno, all´oggetto di questo amore, e così la passione primieramente è più forte della ragione e dell´interesse , e conduce ad affrontare molto maggiori ostacoli e pericoli; in secondo luogo non è soggetta a cambiar di strada secondo le circostanze, come l´interesse che da una causa porta a difenderne un´altra, secondo che meglio torna” (Leopardi 1992, p. 58). 26

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philosophy, customs and habits. This spirit could even be that of a merchant, as Sombart defined the English one (Sombart 1915, pp. 9-40), but always a national spirit it was, in which the cosmopolitan merchant and his “moral community” had no part. The Weltbürgertum dominating the nineteenth century (Meinecke 1911, pp. 16-18), having brought economic development and the “freedom of merchants” wherever navigation routes reached, had so to vanish along with its modernizing capacity, its religious tolerance, its intellectual republic, its morality. Sombart substituted, with excessive ease – a sign of the times –, Arnoldi’s “spirit of the real merchant” with the heroic ideal of war, quoting a choir of Schiller’s “Bride of Messina” (Sombart 1915, p. 94): “But also war has its honor Mover of men’s destiny; I like a lively life, With a continuous spinning, rolling and swaying On the rising and falling wave of fate. Because man decays in peace, Quiet stillness is the grave of courage. Law is friend to the weak, Everything it wants equalized The globe it would like to flatten; But war lets strength arise, All it raises to exceptionality Gifts bravery even to the coward” 61 (Schiller 1925, p. 275)

61

In the original German: “Aber der Krieg auch hat seine Ehre,//Der Beweger des Menschengeschicks;//Mir gefaellt ein lebendiges Leben,//Mir ein ewiges Schwanken und Schwingen und Schweben//Auf der steigenden, fallenden Welle des Gluecks. Denn der Mensch verkuemmert im Frieden,//Muessige Ruh' ist das Grab des Muths.//Das Gesetz ist der Freund des Schwachen,//Alles will es nur eben machen,//Moechte gerne die Welt verflachen;//Aber der Krieg laesst die Kraft erscheinen,//Alles erhebt er zum Ungemeinen,//Selber dem Feigen erzeugt er den Muth“. 27

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Illustration from “The Bride of Messina” by Friedrich Schiller

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Conclusions

The paper focuses on the debate over the morality of merchants inflaming Europe in the eighteenth and nineteenth centuries. Its origin is enucleated in the role of the merchant class as possible substitute, as ruling elite, of the aristocracy of the dying Ancien Régime. Mercantilism had gifted merchants with a growing political influence and economic primacy, but their social recognition, starting with the eighteenth century, increasingly became negative. Philosophers, intellectuals and the emerging economists, reduced the merchant to an egoist utilitarian, bent only on profit. On the contrary the role of merchants during industrialisation was much more complex. The netlike organizational structure of merchant houses was mainly based on trust and required moral qualities and an ethical conduct to correctly function. Why, then, the moral condemnation of merchants during the nineteenth century? The real adversary of the cosmopolitan and internationally acting merchant class was the newly born national state, advocating to itself both the right to intervene in economic life and to substitute public to private interest. Such a national state was incompatible with the merchant utopia of moral communities regulated by ethics more than laws, bent on peaceful business more than on heroic wars. Merchants exited the cultural battlefield having lost not only the possibility to realize their utopia but also the dignity of an historiographical truthful representation. Their significant role in industrialization as trigger of innovation and growth remains mostly undervalued and their strive for ethical economic action ridiculed by the reductionism of homo oeconomicus.

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