Medici Money by Tim Parks
Parks reads like an old, somewhat morally bankrupt professor who's seen too much of the world and is keen to pass on his jaded views. As such, he uses the history of 15th century Florence to pose many questions still valid today.
He leads with usury, which back then did not mean "lending at a high rate", rather it meant any lending whatsoever. Why was lending banned? Was it due to Aristotle's complaint that it was Against Nature because money copulated with money? Was it because the Church and Government could not easily discern the wealth generated and so collect its taxes or tithes? Or was it because the value was invisible, unlike animals breeding, houses being built, cities being sacked?
Parks puts all these explanations on the table and lets you resolve them as you see fit. With bankers under the screw today, it's worth wrapping your head around, lest your head be next.
The Bardi and Peruzzi banks of the thirteenth and fourteenth centuries amassed fortunes that the Medici would never equal. Both collapsed in the 1340s, when Edward III of England reneged on huge debts.
One sentence, two changes of regime, various executions. "Come e usanza", says Guicciadini -- "as is the custom."
Rome was a political and economic anomaly. The people of Greenland sold whalebone in Bruges and had the money sent to Rome. The people of Poland shipped furs to Bruges, sold them, and had the money sent to Rome. Or, rather, to the Curia, the pope. The Church demanded its tributes from all over Christendom. While other states collected taxes only from their own citizens and often with great difficulty, Rome was drawing in money from all over Europe. On taking up his benefice, a cardinal, bishop, or abbot was forced to pay the equivalent of the first year's income to Rome. Otherwise, he couldn't take up his lucrative appointment...
Delayed payment was punishable with excommunication. Don't pay and you go to hell.
the Medici bank came after the great plague of 1348 that wiped out a third of the population of Europe. In 1338, Florence nubered 95,000 inhabitants; in 1427, there were 40,000, whcih was still about the same as the population of London at the time....
In any event, the rapid growth in trade and population that had characterized the twelfth and thirteenth centuries was now definitely over. Would the world ever be so full and prosperous again? A long period of consolidation and recovery had begun, though often it seemed that no sooner were things returning to normal than the sickness struck once more. In 1363 it carried off Giovanni di Bicci's father when our future banker was still no more than a toddler. "The shops scarce open their doors", wrote Lapo Mazzei in the 1400, "the judges have left their bench; the seat of government is empty; no man is seen in the courts." People were dying again....
Back in 1402, Giovanni di Bicci had been one of the judges who chose which artist would design the bronzes on the doors to the Church of San Giovanni Battista, the Baptistery, the city's oldest church in one of the central piazzas, opposite the still-unfinished duomo. The bronzes wre commissioned as a votive offering to beg God to spare the city from these endless visitations of the plague. The winning design, by Lorenzo Ghiberti, showed Abraham's sacrifice of his son Isaac.
So the Medici bankers lived in the aftermath of remarkable innovations and great upheavals. "The people were tired," says Guicciardini of the years when Giovanni di Bicci was a young man, "and happy to rest."....
Hence, despite the many wars and occasional torture, the murders and corruption, the interminable vote-rigging and tax evasion that willhave to be chronicled in this book, we might nevertheless think of fifteenth-century Florence, the ninety-seven years fo the Medici bank, as a quiet parenthesis in the troubled transition from medieval to modern worlds. A time in which usury and art could flourish.
Usury alters things. With interest rates, money is no longer a simple and stable metal commodity that just happens to have been chosen as a means of exchange....
A man can borrow money, buy a loom, sell his wool at a high price, change his station in life...
Meanwhile, the usurer, the banker, grows richer and richer. We can't even know how rich, because money can moved and hidden, and gains on financial transactions are hard to trace. It's pointless to count his sheep and cattle or to measure how much land he owns. Who will make him pay his tithe? Who will make him pay his taxes? Who will persuade him to pay some attention to his soul when life has become so interesting? Things are getting out of hand.
Contro natura! thunders the Church -- against nature. Usury is unnatural and God punishes it with the plague, warns the preacher Bernardino of Feltre.
Meanwhile, Giovanni di Bicci and his two sons wore sober cloaks (whilst others flaunted sumptuary laws). They hadn't yet tackled the problem of how to make their wealth manifest. For the moment, envy was a weed best left unwatered. One of Cosimo's favorite sayings.
How much was a florin worth? A slave girl, or a mule, could be bought for 50 florins. To purchase the piccioli that would pay a maid's wages for a year might cost 10 florins. Thirty-five florins would pay a year's rent for a small townhouse with a garden, or for the Medici's banking premises on the corner of via Porta Rossa and via dell'Arte della Lana.( a maid for a year in SG = 12,000 SGD, a townhouse/shophouse for a year = 48000 SGD, 60K SGD / 45 = 1333 SGD / florin )
Returning to Florence in 1397, Giovanni di Bicci put 5,500 florins into his new bank...
Over the next twenty-three years, up to Giovanni's retirement in 1420, the bank as a whole would make total profits of 152,820 florins (6,644 p.a.). Giovanni took three-quarters...
From 1435 to 1450, when the bank was in its heyday, profits were 290,791 (19,386 p.a.). The Medici, with new partners now, took 70 percent.
So another bill of exchange is written out....
And three months later, if all goes according to plan, we collect 40,000/36 = 1,111 florins. In six months we, the original lending bank, have made 11 percent, which is to say, an annual interest rate of 22 percent.
The Medici made hundreds of these deals.
Each branch (of the Medici bank) was to be a separate company. the shareholders were: the branch director, to the tune of something betweeen 10 and 40 percent, and then teh Medici bank for the reset. Not the Medici family personally, and not the Florence branch, which had the same status as the other branches, but rather a separate holding company located in a separate office in Florence. In this way, a large number of capital-bearing partners could be brought in -- one or two in each branch and one or two more important figures in the holding -- without the Medicis themselves every losing control of either the parts or the whole....( over-weening micro-management; it should've been: lend money only when you can compel repayment )
In return, (a branch director) was obliged under contract to live in his branch's city and to observe the rules enforced by the holding company:
Don't lend more than 300 florins to cardinals;
to courtiers no more than 200;
don't give credit to any Roman merchant, unreliable;
nor to feudal barons, not even if they give you security (barons are a law unto themselves);
and never, never lend money to Germans, since their courts won't respect your claim if, or rather when, things go wrong.
(of the internecine wars) Even where a large city is captured, it is rarely integrated into the conqueror's territory. The Pisans, for example, conquered in 1406, do not enjoy the benefits of Florentine citizenship. Pisa is a subject town, a cow to milk, an outlet to the sea. Hence the Pisans are determined to rebel the moment circumstances are favorable. Gobbled up, the fruit is never properly swallowed. The game can start again, and always does.
The last thing a state with a fragile government needs is some home-bred, charismatic military leader.
In the early fifteenth century, the Florentine branch of the Medici bank became a major dealer in debt bonds (state debt), which by 1426 were trading at only 20 to 35 percent of face value.
As with many democracies today, the constitutional mechanism is only half, perhaps less than half of the story when it comes to appointing the executive. Profound shifts of power occur outside the legal framework.
How could an international merchant bank function when most European trade was going only one way -- from the Mediterranean northward -- a situation exacerbated by the fact that Rome was drawing huge sums toward itself in Church tributes without even giving anything in return?....
Much of the territorial expansion of the Medici bank was undertaken to deal with this chronic imbalance. The upheavals that led to the bank's eventual collapse stemmed in large part from the growing desperation of the measures used.
"I know the Florentines," Cosimo told his bookseller and later biographer, Vespasiano da Bisticci. "Before fifty years are up we'll be expelled, but my buildings will remain." Most of those buildings were religious. You lavished money on the sacred, to gain earthly fame. And a place in heaven. Apparently you could have your cake and eat it too. Or have your wife drunk and the wine keg full, as the Italians say.
If this (outright dictatorship) was a success for the regime, it was certainly a defeat for Cosimo, who had much preferred the pleasant facade, the collusion of grateful clients, the satisfaction of having persuaded people to do something that he had never openly requested. But the tools of persuasion that make such things possible today -- our modern media, mass production, and mass consumption -- were not available to the Medici. Nor had anybody thought of the trick of allowing two apparently opposing but secretly complicitous factions to rotate in power at the whim of a complacently "enfranchised" population.
Perhaps the first generation is happy to have acquired material wealth, but the second yearns for a distinction that is not based on money, a distinction that in the past only birth could give. In the end, the individual, even the richest, resists the idea that his worth is to be quantified in money terms, especially if it wasn't he who earned the cash. So we come back to Achille's conviction that human uniqueness has no price, and we arrive at the roots of every snobbery: I wish to be distinguished, but how?...( more failed management )
Cosimo decided to educate his three sons for different and separate careers. Piero, the eldest, would be groomed for government; Giovanni, the favorite, for the bank; Carlo, the illegitimate boy with the foreign features, could go to the Church.
And the irony is that the more worldly the Church became, the less attractive it was for bankers like Tornabuoni -- as a customer, that is. The cost of the papal bureaucracy was soaring (500 employees had become 2,000), the price of nepotism likewise.
Meanwhile, other Florentine banks were going under altogether. In the mid-1420s, there had been seventy-two; in 1470, there were only thirty-three, with a half-dozen failures in the mid-1460s around the time Piero was calling in loans. The main reasons for these failures, no doubt, was falling trade -- a decline for which historians have yet to provide a complete explanation -- and the bad debts of extravagant princes.
Which brings us to the chief drawback of these exciting ideas: They had little to say about moneymaking and the price of things. The underlying contradiction here is quite different from Cosimo's dilemma: How do I get my soul to heaven whild amassing a fortune wiht supposedly sinful banking practices. The problem now is that while wealth is actually more important than ever -- for how else can you get the best artists, the best teachers, a decent translation of Plato, not to mention the wherewithal to throw a lavish party for a dead philosopher's birthday? -- nevertheless the actual process of moneymaking is passed over as something base, something on the lowest level of the Platonic hierarchy, something the nobler soul would gladly leave behind in its struggle to be free from mere matter.
Twenty-five years later (after Lorenzo dies and Savonarola reigns), Giovanni de' Medici's frank enjoyment of the papacy would be challenged by the revolt of Martin Luther. Banking would be profoundly affected. Protestant England was the first to legalize usury. Catholic Italy, under the Counter-Reformation, reimposed the old laws that bred the old subterfuges.