M. King Hubbert accurately described our money system as 'a system of medieval folkways.' Walking around the medieval cities of Northern Italy, that statement has more meaning than ever.
There’s a pretty unromantic reason why the Renaissance sprouted up in Florence – it’s the place where modern banking was born.Florence, Italy: the bankers who built a city (Telegraph)
We like to think of art as a spiritual, sensitive calling, far removed from the ruthless desire for filthy lucre. But Botticelli, Michelangelo and Leonardo da Vinci needed money as much as the rest of us – as a new exhibition in the Palazzo Strozzi reveals. If you are planning an autumn break here, it’s a good way to get a grip on Florence and its history.
During the Renaissance, the city was literally the golden source of money. The florin – the little gold coin that takes its name from Florence, minted there from 1252 – was the most trusted currency in Europe. On the back of the florin, banker dynasties flourished in the city for three centuries.
The city you stroll through today was largely built by those bankers. Santa Maria Novella, constructed to a revolutionary classical design in 1461 by the architect Leon Battista Alberti, was paid for by the Rucellai banking family.
Palazzo Strozzi itself was commissioned in 1489 by the banker Filippo Strozzi (ancestor of Prince Girolamo Strozzi, who was always so hospitable to the Blairs on their summer holidays). The Strozzi is the city’s grandest Renaissance palace, with hulking cornices, fortress-like rusticated walls and its own internal piazza. It now has its own café, too, as well as a modern art gallery, the Strozzina, in the old wine cellars.
Florence became one of medieval and Renaissance Europe's great industrial cities. Its principal resource was the river, the fast-flowing Arno, which provided power and water for industry and access to the sea for imports and exports. But an even greater source of strength was the enterprise and ingenuity of its merchants, who set about transforming a healthy local wool industry into an international business by importing large quantities of better-quality wool, from England and later Spain, to manufacture the fine, light worsted woollen cloth that was in demand all over Europe.Renaissance Florence: Cradle of Capitalism (Economist)
By the 1340s the economy was sufficiently robust to survive the bankruptcy of its leading bankers, the Bardi and the Peruzzi—“the Rothschilds of the Middle Ages”—and the Black Death, which reduced the population of the city by two-thirds. (The bankruptcies were not, apparently, all due to the default of the English king, Edward III, who has usually been blamed.)
Mr Goldthwaite, professor emeritus of history at Johns Hopkins University in Baltimore, Maryland, is an uncompromising researcher. For example, he has a revisionist view of the Medici, stubbornly refusing to eulogise Cosimo or Lorenzo de' Medici, the conventional heroes of popular histories of Renaissance Florence. “One could write the history of Florentine banking in the 15th century without so much as mentioning the Medici,” he writes. He does so, partly to record that the decline and eventual collapse of the Medici bank had little impact on the banking system as a whole.
Banking developed in Florence because of the ingenious development of bills of exchange, first as a way of paying debts without having to transport cash, then as a means of evading the church's usury laws, and finally as a means of extending credit. “When the merchant extended his traffic in the exchange market to enter the credit market, he became a banker”—and a capitalist.
Bankers became immensely rich, although they had only a minor role in channelling direct investments into manufacturing businesses. Manufacturing industry was financed by partnerships; the textile trade put out work to individual weavers and did not require capital to establish factories, though a silk workshop next to Sandro Botticelli's studio made so much noise that the painter was forced to flee.
The Florentine businessmen were unfinished capitalists. Mr Goldthwaite subtly suggests that they lacked a strong competitive capitalist instinct: “Their behaviour at home and abroad often reveals an underlying spirit of corporatism.”
(Is southern Europe also the grave?)
With the Bible explicitly condemning usury, the lending of money was relegated to Jews, one of the few professions they were allowed to practice. Yet in Florence, merchants turned the city into a laboratory and invented the financial instruments of international trade.In Italy, Art As A Window Into Modern Banking (NPR)
The exhibition starts with a small gold coin — the florin, named after the city. It was first minted in 1252, and a half-century later it was being used throughout Europe. In the audio guide to the show, one of the curators of the exhibition, British writer Tim Parks, says the imagery on the gold coin is important: "On one side, the lily of Florence, on the other St. John the Baptist — civic identity and religious belief fused in cash."
As illustrated in the exhibition, Florentines also invented the letter of exchange, whereby a banker would give a client, say, 1,000 florins in one city with a pledge that the loan would be paid back in another within three months in the local currency. The banker made a profit on the exchange rate. The trader, meanwhile, did not have to carry heavy metal coins on his trip and risk being robbed.
Many current financial terms derive from 14th-century Florence. Rischio — or risk — was the Tuscan word used to denote the costs incurred on, or contingencies of, a loan. It was simply a euphemism for interest, a taboo for the Catholic Church. The word "bank" comes from banco, the bench on which itinerant merchants traded. An insolvent merchant would have his banco broken — hence, bankruptcy.
One of the objects on display is an account book that illustrates the dangers of sovereign default. When the English King Edward III reneged on war loans he had received from Florentine bankers, it contributed to financial problems in the city in the mid-14th century. Parks, one of the curators, describes how this new way of doing business soon pervaded every sphere of life.
"Suddenly everything has a unit value, and everything can be compared in numbers. A priest has a fee for a wedding and a funeral — is that more or less than the cost of a flask of wine, or a prostitute?" Parks says.
The concept of national debt comes from a time when kings literally were the state, and personal loans to them (usually to fight a war), were circulated as currency. Well, we got rid of the kings but kept the idea of a "national debt" that somehow we are all held accountable for. Supposedly we all "owe" a portion of the "national debt" because "we" borrowed to much and lived "beyond our means." The quote salad is necessary to point out the absurdity of all this. I don't remember taking out a loan or living beyond my means, do you? As David Graeber points out:
“In fact this is precisely the logic on which the Bank of England—the first successful modern central bank—was originally founded. In 1694, a consortium of English bankers made a loan of £1,200,000 to the king. In return they received a royal monopoly on the issuance of banknotes. What this meant in practice was they had the right to advance IOUs for a portion of the money the king now owed them to any inhabitant of the kingdom willing to borrow from them, or willing to deposit their own money in the bank—in effect, to circulate or "monetize" the newly created royal debt. This was a great deal for the bankers (they got to charge the king 8 percent annual interest for the original loan and simultaneously charge interest on the same money to the clients who borrowed it) , but it only worked as long as the original loan remained outstanding. To this day, this loan has never been paid back. It cannot be. If it ever were, the entire monetary system of Great Britain would cease to exist.”And the double-entry bookkeeping system, where every debit must be a credit, and every credit a debit, hamstrings governments with the artificial "debt" just by virtue of issuing currency. This means, by definition, that the way we have structured our economic system, governments must necessarily go into a debt in a downturn since tax revenue declines as government spending rises due to things like "automatic stabilizers." Do you think this is as ridiculous as I do?
While it may make sense to speak of debt for individuals and corporations, it is ridiculous to extend this to the level of whole nations. Countries are not individuals or corporations, they cannot be ended or dissolved (except in symbolic fashion).
If we didn't have this artificial concept of a "national debt," would there be any calls for austerity? Would we be talking about throttling back food stamps or disability without it? Would we be laying off government workers and closing schools in conditions of mass unemployment? I wish people would get that this system is designed to fail, and that the "national debt" is just a tool used by the rich and powerful against us.
So our money and banking systems, even at the national level are based on ideas from the 1400's and now these outmoded ideas are literally causing entire societies to collapse around the globe. Can you understand why Hubbert used the term medieval folkways now?
Isn't it time we got rid of this archaic system that's tearing the world apart?
That's what I would tell the Italians, anyway.
BONUS: Before banking, you need numbers:
What Leonardo did was every bit as revolutionary as the personal computer pioneers who in the 1980s took computing from a small group of “computer types” and made computers available to, and usable by, anyone. Like them, most of the credit for inventing and developing the methods Leonardo described in Liber abbaci goes to others, in particular Indian and Arabic scholars over many centuries. Leonardo’s role was to “package” and “sell” the new methods to the world.The Man of Numbers: Fibonacci's Arithmetic Revolution (Scientific American)
The appearance of Leonardo’s book not only prepared the stage for the development of modern (symbolic) algebra, and hence modern mathematics, it also marked the beginning of the modern financial system and the way of doing business that depends on sophisticated banking methods. For instance, Professor William N. Goetzmann of the Yale School of Management, an expert on economics and finance, credits Leonardo as the first to develop an early form of present-value analysis, a method for comparing the relative economic value of differing payment streams, taking into account the time-value of money. Mathematically reducing all cash flow streams to a single point in time allows the investor to decide which is the best, and the modern version of the present-value criterion, developed by the economist Irving Fisher in 1930, is now used by virtually all large companies in the capital budgeting process.
What Leonardo brought to the mathematics he learned in Bugia and elsewhere in his subsequent travels around North Africa were systematic organization of the material, comprehensive coverage of all the know methods, and great expository skill in presenting the material in a fashion that made it accessible (and attractive) to the commercial people for whom he clearly wrote Liber abbaci. He was, of course, a highly competent mathematician — in fact, one of the most distinguished mathematicians of medieval antiquity — but only in his writings subsequent to the first edition of Liber abbaci in 1202 did he clearly demonstrate his own mathematical capacity.
Following the appearance of Liber abbaci, the teaching of arithmetic became hugely popular throughout Italy, with perhaps a thousand or more hand-written arithmetic texts being produced over the following three centuries. Moreover, the book’s publication, and that of a number of his other works, brought Leonardo fame throughout Italy as well as an audience with the Holy Roman Emperor, Frederick II. Since the Pisan’s writings were still circulating in Florence throughout the fourteenth century, as were commentaries on his works, we know that his legacy lived on long after his death. But then Leonardo’s name seemed to be suddenly forgotten. The reason was the invention of movable-type printing in the fifteenth century.
Given the Italian business world’s quick adoption of the new arithmetic, not surpisingly the first mathematics text printed in Italy was a 52-page textbook on commercial arithmetic: an untitled, anonymous work known today as the Aritmetica di Treviso (“Treviso Arithmetic”), after the small town near Venice where it was published on December 10, 1478. Soon afterwards, Piero Borghi brought out a longer and more complete edition, printed in Venice in 1484, that became a true bestseller, with fifteen reprints, two in the 1400s and the last one in 1564. Filippo Calandri wrote a third textbook, Pitagora aritmetice introductor, printed in Florence in 1491, and a manuscript written by Leonardo Da Vinci’s teacher Benedetto da Firenze in 1463, Trattato d’abacho, was printed soon afterwards. These early printed arithmetic texts were soon followed by many others.