Jakob Fugger's family was a merchant family. Jakob’s grandfather, Hans Fugger, had gained wealth through marriage and by trading textiles. Hans started in wholesaling, buying textiles from weavers in the city and selling them for a profit at trade fairs. Jakob’s father, Jakob Fugger the Elder, built on that business foundation to become one of the wealthiest citizens of Augsburg, Germany.

The first major recorded loan from the Fuggers to a member of the nobility occurred when Jakob was young. The Holy Roman Emperor at the time, Fredrick III, was traveling through Augsburg to meet with Charles the Bold of Burgundy. Charles was a renowned clothes horse and Frederick, despite being an emperor, had an empty treasury. Other merchants refused the emperor credit but Ulrich lent him silk and wool. The Fuggers knew they would never be repaid but saw the investment as a way to establish a relationship with Frederick’s Habsburg family, which counted many lords and ladies among its number.  

That relationship paid off in 1487, when they lent to Archduke Sigismund, a cousin of the emperor. In exchange for the loan of 3,000 florins, Archduke Sigismund gave the Fuggers mining rights to his silver mines. 

As the years went by, the Fuggers lent more and more money to Sigismund. The Fuggers were wealthy, and yet even at this time in their business they were likely leveraging money from family and friends to make their loans. Banking at this time was highly relationship based. There was no FDIC insurance for deposits; all you had to go on was the person’s word of honor that they would give your money back with interest. So it’s probably no surprise, then, that individuals invested with people that they knew and trusted. For the citizens of Augsburg, the Fugger family was a known and trusted one that had the advantage of far-flung business operations.

Over time, Jakob Fugger transitioned to more of a formal banking model through the use of savings accounts. He promised to pay anyone who invested with him a 5% annual return. He targeted a 20% return for his own investments, so his spread was 15%. No bad for a leveraged return! That’s a 15% return on someone else’s money. And the investments that Fugger made to Sigismund were secured with mining rights, so it was a very safe investment.

Soon, Fugger was lending Maximilian, the holy roman emperor hundreds of thousands of florins, helping the emperor wage wars and pay for a lavish lifestyle. In return, Maximillian granted Fugger more and more rights. 

With control over the copper and silver markets, Fugger was the go-to person to invest with at the time. Wealthy families flocked to open savings accounts with him, swelling his available funds to lend. And so the rulers of the era came calling. And Fugger proved to be a genius at working with them to come up with new ways to secure loans and make him money. 

Fugger continued to build on his competitive advantages. He established the world’s first news service. Couriers in countries around Europe would send him the news of the day before anyone else, giving him the ability to trade goods and make loans before other people knew the outcome of battles, when ships bearing different goods left harbors, or when major supply and demand shocks occurred. 

Eventually, Maximillian died, and Fugger helped fund his son Charles’ bribes to the prince-electors of the holy roman empire. 

 Fugger died in 1525 at the age of 66. He had no children, and his wealth was inherited by his extended family. Fugger’s nephew Anton took over leadership of the business. Later family members who inherited the Fugger enterprises did not have the same commercial acumen as Fugger and Anton, and the wealth was dispersed. 

Music Credit: Inmenso by Charles Michel de Leon. 

List of Citations: Available on the corresponding podcast at billiondollarempires.com.