The Online Library of Liberty

A project of Liberty Fund, Inc.

• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

CHAPTER IV.

THE BANKERS OF FLORENCE.

ORIGIN OF FLORENTINE BANKING.

COMMANDATORE PERUZZI, descendant of an illustrious family of Florentine bankers, in an excellent book (unfortunately become exceedingly scarce), from which we shall borrow frequently in the following pages, alludes to the period of the thirteenth and fourteenth centuries when Florence was under a democratic form of government as the “Guelph century.” That era extended from 1266 to 1328. During those sixty-three years, the Tuscan language and literature were brought to their acme by Dante, Petrarch, and Boccaccio, and painting was advanced to high development by Cimabue and Giotto. The activities of the Republic were not confined to literature and the fine arts. This was equally the Golden Age of commerce and banking. The spinning and weaving of wool and silk, ancient Tuscan industries, engaged at that time two hundred shops, which gave work to 30,000 people. In the economy of the Republic, the trades had a very significant place. They were divided into seven “major trades,” allied to the liberal arts, and fourteen minor trades, or new professions and avocations. Each trade had its own chiefs, administration, banner, and tribunal. The trade tribunals sat in judgment with entire independence of one another. Among the major trades were those of money-changer and banker. The Florentine money-changers seem to have practised their calling at first in Rome; which, as a place of pilgrimage, received moneys of all the countries of the world. The changers bought these moneys and dealt in them. They became, later, bankers of the Holy See, had correspondents in various nations, and acquired large fortunes by gathering the Peter’s pence and transmitting them to their destination. With them originated the genuine exchange business; for it is easy to comprehend what facilities were enjoyed by the Pope’s bankers everywhere, and what opportunities they accordingly had for profitable traffic.

FLORENTINE BANKERS IN ENGLAND.

The agents of the Florentine bankers appeared in England during the reign of John (1199), where they were intrusted with the collection of money for the Pope. As they transacted their business with great probity, they were regarded with much consideration by all classes, and, to their misfortune, they attracted kingly favor. Henry II. had recourse to them when the English barons refused him the funds necessary for equipping an army to assert the rights of his son Edward to the crown of Sicily and Apulia. But the expedition was not dispatched, and it was not until 1266 that the enterprise was taken up again, under the auspices of the French and the house of Anjou. It does not appear that the Italian bankers charged interest for this loan to the King of England. They were to be recompensed out of the seignorage of the Royal Mint, and by recommendations of them to other sovereigns. In 1306, Edward I. gave to the Company Frescobaldi £10,000 sterling as compensation for the delay in repaying a sum borrowed long before, and appointed Amerigo Frescobaldi English Commissioner at Bordeaux. Edward II., in 1315, requested the favor of the Pope for two brothers of Amerigo Frescobaldi in an important trial that they had pending before the Roman tribunal. Everywhere in the history of those times are found traces of the business done by the Florentine bankers with the English monarchs. By the end of the twelfth century, sixty-nine banking houses of Florence were operating in England. These concerns did not limit their dealings to money matters, but bought for the accounts of Florence mercantile firms English wool to supply the Italian industries.

Edward I. was succeeded in 1307 by his son Edward II. The new king was much distressed by the claims of his father’s creditors and by the obligations that he himself had contracted—the whole amounting to £118,000 sterling. The most of this large indebtedness was paid back to the Florentine bankers—the Frescobaldis, Bardis, Ballandis, and others. The English people viewed with great exasperation the delivery of so much money into the hands of foreigners, and in consequence the bankers ran serious risks. Time failed to appease the popular hatred, and several years later the house of Bardi in London was pillaged and burned by the mob. This violent spirit excited decided distrust and fear among the bankers, who showed themselves far less willing to loan to Edward II. than they had been to his predecessor. Gradually the number of Italian houses doing business in England was reduced, until under Edward III. only the Bardis and the Peruzzis remained to represent the sixty-nine institutions of the reign of Edward I.

FLORENTINE BANKERS IN FRANCE.

France also sustained close and friendly connections with the Florentine Republic. About the end of the eleventh century, the merchants of Florence began to participate in the fairs of the Champagne, buying raw wool and selling stuffs. Settlements were made through the bankers, who were alternately well treated and persecuted by the French kings. In 1277, Philip III., under pretext of obeying the condemnation of usury promulgated by Pope Gregory X. at the Council of Lyons, threatened to expel the Italian lenders and merchants from his dominions, but the majority of them obtained permission to remain in consideration of the payment of 120,000 gold florins. In 1291, Philip the Handsome caused all the Italian merchants to be arrested, giving as his reason that he wished to extirpate usury from his kingdom. Again a compounding arrangement restored to them the liberty of their profession. In 1337, Philip IV., requiring means to maintain the war against Edward III. of England, resorted to the same tactics, and would not release the prisoners until they had agreed to pay a huge ransom. Subsequently, in 1334, this same king granted to the famous Duke of Athens, who had been exiled from Florence, the right to visit reprisals upon the Florentines resident in France, which were to be continued until they should pay him what he claimed from the Republic. All the representations and protests made by Florence were without avail, and the Tuscans, having no right of citizenship in France, left the country, losing all they owned.

THE BANKERS OF FLORENCE.

The broad scope of relations with foreign countries naturally called into being numerous banks in Florence. They were directed by skillful and experienced men, whose ability and wealth, as a matter of course, gave them important influence upon public affairs. The bankers not only excelled in the art of providing for the needs of the Treasury, but understood how to negotiate alliances, and became, in emergencies, excellent generals. With the growing activity of commerce and industry, the revenues of Florence did not suffice for public needs, and, at the advice of the bankers, resort was had to loans. These were introduced in 1336 as a result of expensive wars, and were greatly enlarged after the terrible plague of 1348. The first loans were granted by the associated Peruzzis, Bardis, Scalis, and Acciajolis. To secure them, the Government designated certain merchants or members of the principal banking houses as collectors of the salt tax—a process that certainly minimized the risks incurred by the lenders under the previous system of forced loans. In 1348, all the old and new indebtedness of the Republic was consolidated into a general debt, with perpetual interest at five per cent. Here we have the earliest example of attempts at consolidation of the public debt. The investment served chiefly for the dowry of daughters. Careful parents bought income bonds and left them to capitalize at compound interest for fifteen years or more, so as to have resources of some magnitude when the children should be ready to marry.

After the downfall of the democratic government, Florence had to pay fifteen per cent. for money, and on condition that thrice the capital received should be paid back. The Republic, apparently, had not legislated on the rate of interest, but had held to the rules laid down by the Emperor Justinian, who fixed rates of four per cent. for persons of rank, eight per cent. for merchants, eleven per cent. for grain-dealers and sellers of provisions, and six per cent. for the people at large. The preaching friars were at pains to demonstrate that usury, so prevalent in all nations, was illicit gain, not sanctioned by the Church. They succeeded only too well, and interest, which before the tyranny of the Duke of Athens was at eight per cent., and toward 1340 had fallen to five per cent., rose in 1359 to twenty per cent. About 1495, Florence, as a means of coming to the relief of the less fortunate classes, opened a Mont de Piété, or establishment for loans on pledges, authorized by Papal decree. The Mont de Piété charged interest representing its general expenses, and sold the pledges in case of non-redemption. Operations were begun with the insignificant capital of 2891 crowns, which was augmented rapidly by charitable gifts and deposits. In 1530 it had reached 38,000 crowns. If the Mont de Piété did not stop usury, it rendered its effects less hurtful to the poor. The institution experienced numerous vicissitudes. Public authority intervened several times to regulate its capital—that is, to plunder it of a portion of its resources.

COMMERCIAL ASSOCIATIONS.

One of the most remarkable examples of Florentine genius, after the recovery of liberty, was the system of commercial associations; which, by uniting intellectual forces and by their activity, achieved grand results. They were originally recruited from the families and kin of merchants; but other citizens were not slow to perceive their advantages and join in them. The association spirit showed such progress that, according to Villani, 80 companies were in existence in 1338, and 108 some years later. The associated merchants earned vast wealth, and their prosperity enabled them to lay out money for expenses on an enormous scale to advance the national interests everywhere, and to establish relations with the most remote countries.

Signor Peruzzi has found in the archives of his family various association documents of the Peruzzi Company. The oldest bears the date of 1300. It provides for the creation of the banking house of “Filippo d’Amideo Peruzzi and Associates,” composed of Giotto, Tommaso, Arnoldo, Rinieri, and Filippo, paying in 45,000 florins; Filippo d’Amideo, who for his sons Guido, Amideo, and Peruzzo, paid in 26,000 florins; Ranco Raugi, 10,000 florins; Gherardo Barancelli, 13,000 florins; Catalino di Mangia degl’Infangati, 7000 florins; Gianni di Manetto Ponci, 5000 florins; Bencivenni Folchi, 4000 florins; Cione dei Bonaccorsi, 3000 florins; Gieri Lottieri Silimanni, 3000 florins; Giovanni Villani Stoldi, 2000 florins—altogether, 124,000 florins, or about 3,500,000 francs. Of this capital 1000 florins was set aside to be used in charity. The profits were to be distributed pro rata on the basis of investment, and each partner paying in funds to the company in addition to capital was entitled to interest at eight per cent. The company was to liquidate every two years, but after each liquidation was to be reconstituted. The records show that, in 1308, it was dissolved with a loss of 40,000 florins on loans made to the Courts of France, England, and Rome, and to the Order of St. John of Jerusalem. But upon reorganization better business was done, and from 1308 to 1310, forty per cent. profit was realized.

MANAGEMENT OF THE COMPANIES.

It is probable that one or several of the associates had authority to sign jointly for all and directed the affairs of the house. The two persons mentioned as directors of the Peruzzi bank are Filippo d’Amideo (who appears to have been the chief) and Tommaso d’Arnoldo, his nephew or cousin. The concern had sixteen branches—in London, Avignon, Rhodes, Cyprus, Tunis, and different cities of Italy, most of which were managed by associates or relatives of its heads. The intercommunication of the various establishments was maintained by factors, or couriers, who were constantly traveling from one to the other. These representatives were provided by the bank with funds and recommendations, and as proof of identity each wore a bronze medal displaying the company’s coat of arms.

Owing to this branch business, the bankers of Florence had very curious and most exhaustive compilations of information respecting the usages and conditions of foreign lands. A certain Balducci Pegoletti, in a “Merchants’ Manual,” details precise rules for exchanges, and indicates particular periods of expectable rise and fall in the money standard in foreign parts. Thus, he says, money is dear in Venice from May to September, because the galleys go to the Levant then; in Florence it is cheap from September to January, because the country people pay their land rents during that time. Similar data are given concerning weights and measures. For instance, a contaro of Cyprus equals 660 Florentine pounds, and the equivalent of a Florentine pound of silver at Cyprus is one marc four ounces and three sterlins.

The costs of merchandise transportation are carefully set forth. To transport wool bought in London cost twelve pence the bale; the cargo charge to Libourne, in France, was two sous sterling, and from Libourne to Montpellier, by wagon, about two pounds fifteen sous. At Montpellier the charge for hostelry and for forwarding to Aigues-Mortes was two sous one penny per bale, or four sous one penny per load. At Aigues-Mortes the consignment and shipping charges, including duty and gratuities, were one sou four pence per bale, or two sous eight pence per load. So it was calculated that the cost of sending a cargo of wool from London to Aigues-Mortes was nine gold florins.

The courier routes were marked out in most painstaking detail. The following is the itinerary for a journey to China: “First, from Tana to Azov and Gitracan (Astrakhan) by ox-cart takes twenty-five days. On the route are found many gendarmes, and it needs some money for them. From there, it requires ten or twelve days of wagon ride with horse teams to reach Sara, or Sarai (Saraïtchikowskaïa). From Sara to Saraconco, a town on the Jaik, or Ural, River, eight days by water. From there to Urgenzi, or Urguenz, twenty days by wagon drawn by camels. This town is on the Ghien River, or Oxus of the ancients. Thence to Oltrav, thirty-eight to forty days. From Oltrav to Armalecco (probably Tashkend), forty-five days. From Armalecco to Camexu, seventy days with asses. From there to the Kara Muren (Hoang-Ho), fifty days on horseback. Leaving the Kara Muren, the traders may go to Cassai, to exchange the silver money that they have brought for paper money. From Cassai to Cambalu, or Cambalecco, which is the capital of Catoy, thirty days.”

The instructions to travelers specify with minuteness the kinds and quantities of provisions that should be taken, the expenses that would have to be paid, the charges for hiring boats, horses, donkeys, and camels, the values of moneys, and the dangers of the routes. The manual reads like a modern travelers’ guide. Their exact knowledge of foreign countries gave the Italian merchants and bankers an indisputable superiority over those of other nations. Even at the present day, few houses are equipped to furnish their agents with such complete and exact information.

DOWNFALL OF THE FLORENTINE BANKERS.

The good fortune of the bankers of Florence came to an end by 1340. In 1330, Edward III. ascended the throne of England. He manifested a favorable disposition toward the foreign merchants. The two Italian houses of Bardi and Peruzzi, with branches in London, became bankers to Edward III., succeeding the Frescobaldis, who had performed the same offices for Edward II. They filled the royal coffers with generous hands, and although repayments did not take place with perfect regularity, the noble character of the English sovereign reassured the lenders against all anxiety.

England was then waging a war with France, which absorbed all the resources of the State, and left nothing for its creditors. King Edward, on May 6, 1339, issued an edict suspending all settlements of indebtedness, including that owing to his well-beloved Bardis and Peruzzis. It can readily be conceived what a terrible consequence this action had in a commercial city, and in a mercantile republic. The two companies stricken were the wealthiest of Florence, and were known as the mercantile pillars of Christendom. Villani states that the King of England owed them 900,000 florins, and that the King of Sicily was indebted to each in the amount of 100,000 florins. This money was worth a kingdom. The Peruzzi archives say that in 1339 Bonifazio di Tommaso Peruzzi went to London on the company’s business, but could obtain no satisfaction, and that he died (probably from grief) in October, 1340. The entire mercantile community of the city suffered from the disaster, and the decadence of the Republic began.

After the English naval victory of Ecluse the spirits of the Florentine bankers revived. They hoped that in the joy of triumph Edward III. would remember that he owed his successes to the financial assistance which had been given him. The King was willing to repay the loans, but Parliament resisted. The bankers attempted to struggle against ill fortune, but in the existing position of their affairs were unable to support commerce and industry on the former scale. Usury reappeared. The democratic government was naturally blamed by the populace for the public calamities, and, moreover, it had lost all energy. Accordingly, in 1342, Gauthier de Brienne, Duke of Athens, who had conducted himself well as lieutenant to the Duke of Calabria in 1326, was called to the head of the State. This was the immediate outcome of the commercial crisis, and it precipitated incalculable ills. All classes had reposed great expectations in the new government. The aristocracy relied on it to sustain them against the people, the bankers hoped that it would aid in renewing their prosperity, the masses welcomed it as the long-awaited instrumentality for shaking off the yokes of the rich bourgeois that weighed heavily upon them. These pleasing expectations were mere illusions. A crushing and pitiless despotism affected Florence, and when, by a vigorous impulse, she reconquered her liberty, it was only to become a prey to civil discord and a victim of catastrophes of every kind.

The Florentine Republic had fallen from the summit of affluence to the depths of distress. During the administration of the Duke of Athens bankruptcies had multiplied. In the month of January, 1345, the Bardis and Peruzzis, who had stood their ground until then, stopped payments, dragging down in their ruin their fellow-citizens and the foreigners who had trusted them with the money wherewith the loans to the English and Sicilian kings were made. The failures also wrought destruction to numerous other companies and individual merchants. Among the more important concerns whose extinction history records were the houses of Acciajoli, Bonaccorsi, Cocchi, Antellesi, Corsini, Uzzano, and Perendoli. This period is one of the darkest in the annals of Florence. The Bardis paid seventy per cent. to their creditors, the Peruzzis much less. The bankrupts were treated with severity. All their property was taken away and turned over to the creditors, but in 1347 the Bardis and Peruzzis obtained a settlement. This cataclysm did not, however, exterminate all the bankers of Florence. A banker was destined to erect the monarchy in Tuscany a century later.

THE MEDICI.

Giovanno di Bicci dei Medici had made large profits in banking transactions, principally during the Council of Constance. His bank was in the service of the Pope, on which score he enjoyed immense business credit throughout the world. His alacrity in aiding with his purse those who needed relief, his caressing ways with the people, and his moderate bearing in times of partisan excitement, won for him general esteem, and his reputation grew apace. When the people revolted on account of oppressive taxation, his intervention brought about a lessening of the burdens. The rich and the citizens conferred upon him the dignity of Gonfaloniére, and he discharged the duties of this station in the most honorable manner. Both his credit and his authority were inherited by his two sons, Cosmo and Lorenzo. Cosmo interested himself in public affairs with ardor, and obtained a numerous following. He was very popular with the exiles, to whom he sent, through bills of exchange, the succor that they required for their families and friends; and also with the condottiéri (leaders of mercenaries), who deposited their savings with him or asked him for advances.

His great influence aroused the jealousy of the Albizzi family, who had him condemned to banishment, but he was recalled a year afterward, and, in turn, the Albizzis were exiled. From that time Cosmo became the real master of Florence, although he did not abandon his commercial and financial business. He was the proprietor of all the alum mines of Italy; he prosecuted trade with India by way of Alexandria; and there was no city in which he did not have a banking office. He loaned important sums to the King of England and the Duke of Burgundy, and died after having exercised for thirty years an enlightened dictatorship over his country that contributed to its greatness. His son, Pietro de Medici, succeeded him, receiving the cordial support of the great families of Florence, which were under obligations to the father. But as his fortune was cut in two by bad management, excessive expenses, and his inability to attend personally to his business, he called in his moneys from borrowers, designing to invest them in lands. An acute crisis ensued, and the failures attending it were laid at the door of Pietro de Medici. He was deprived of the title of Gonfaloniére, which was bestowed upon Nicolas Soderini. The fortunes of the Medicis were not, however, at an end. Pietro’s sons, Lorenzo and Guiliano, seized the reigns of power. A conspiracy was plotted by the Pozzis, bankers of the Holy See, and related to the Medicis by blood, and Guiliano was assassinated. Lorenzo de Medici thereupon became sole ruler of Florence. He gave up all his commercial and banking interests, and with him terminates the financial history of the family. On the other hand, the Medicis did not at all lose their business shrewdness, and they still knew quite well how to lay out their money remuneratively. Fernando de Medici, Grand Duke of Tuscany, in 1596 loaned 300,000 crowns to Henry IV. of France, in exchange for the privilege of collecting certain taxes. Sully repaid the 300,000 crowns and annulled the lease. From the facts given, the general character of Florentine banking will be pretty well understood.

Thanks to the offices that they operated in most of the large cities, the bankers had a monopoly of exchange transactions, which were rather mysterious and hardly comprehensible to persons not versed in trade economy. Money exchange is but a phase of business in coinage. They opened credits for merchants and manufacturers, and despite the ecclesiastical disapprobation, they took exorbitant interest. They received funds on deposit and made them thrive. Keeping this end in view, they were not afraid to lend the deposits to sovereigns. But in that epoch public debt and negotiable securities were almost unknown, so that depositors in the banks were not aware how their funds were employed. They kept watch only on the bank that had received their savings, and were not creditors of the borrowing State. In these circumstances of what may be termed confidential responsibility we must look for the causes of the downfall of the powerful Bardi and Peruzzi houses. The mistakes made in the fourteenth century, with the excuse of ignorance, have been reproduced in our time, and even at a quite recent date. The collapse of the Crédit Agricole in France, and that of the house of Baring Brothers in England, were superinduced by a cause absolutely analogous to that which ruined the Florentine bankers—the insolvency of the States to which loans were given.