The Birth of Banking (I)

Shylock was far from the only moneylender to discover the inherent weakness of the creditor, especially when the creditor is a foreigner. In the early fourteenth century, finance in Italy had been dominated by the three Florentine houses of Bardi, Peruzzi and Acciaiuoli. All three were wiped out in the 1340s as a result of defaults by two of their principal clients, King Edward III of England and King Robert of Naples. But if that illustrates the potential weakness of moneylenders, the rise of the Medici illustrates the very opposite: their potential power.

Perhaps no other family left such an imprint on an age as the Medici left on the Renaissance. Two Medici became popes (Leo X and Clement VII); two became queens of France (Catherine and Marie); three became dukes (of Florence, Nemours and Tuscany). Appropriately, it was that supreme theorist of political power, Niccolô Machiavelli, who wrote their history. Their patronage of the arts and sciences ran the gamut of genius from Michelangelo to Galileo. And their dazzling architectural legacy still surrounds the modern-day visitor to Florence. Only look at the villa of Cafaggiolo, the monastery of San Marco, the basilica of San Lorenzo and the spectacular palaces occupied by Duke Cosimo de' Medici in the mid sixteenth century: the former Pitti Palace, the redecorated Palazzo Vecchio and the new city offices (Uffizi) with their courtyard running down to the River Arno.

But what were the origins of all this splendour? Where did the money come from that paid for masterpieces like Sandro Botticelli's radiant Birth of Venus? The simple answer is that the Medici were foreign exchange dealers: members of the Arte de Cambio (the Moneychangers' Guild). They came to be known as bankers (banchieri) because, like the Jews of Venice, they did their business literally seated at benches behind tables in the street. The original Medici bank (stall would be a better description) was located near the Cavalcanti palace, at the corner of the present-day via dia Porta Rossa and the Via dell' Arte della Lana, a short walk from the main Florentine wool market.

Prior to the 1390s, it might legitimately be suggested, the Medici were more gangsters than bankers: a small-time clan, notable more for low violence than for high finance. Between 1343 and 1360 no fewer than five Medici were sentenced to death for capital crimes. Then came Giovanni di Bicci de' Medici. It was his aim to make the Medici legitimate. And through hard work, sober living and careful calculation, he succeeded.

In 1385 Giovanni became manager of the Roman branch of the bank run by his relation Vieri di Cambio de' Medici, a moneylender in Florence. In Rome, Giovanni built up his reputation as a currency trader. The papacy was in many ways the ideal client, given the number of different currencies flowing in and out of the Vatican's coffers. As we have seen, this was an age of multiple systems of coinage, some gold, some silver, some base metal, so that any long-distance trade or tax payment was complicated by the need to convert from one currency to another.

But Giovanni clearly saw even greater opportunities in his native Florence, whence he returned in 1397. By the time he passed on the business to his eldest son Cosimo in 1420, he had established a branch of the bank in Venice as well as Rome; branches were later added in Geneva, Pisa, London and A vignon. Giovanni had
also acquired interests in two Florence wool factories.

to be continued...