Late Middle Ages

The rise of banking in Renaissance Italy

The great banking houses of late-medieval and Renaissance Italy were the most important financial institutions of the Latin West in the thirteenth, fourteenth, and fifteenth centuries. The Bardi, the Peruzzi, the Acciaiuoli, the Frescobaldi, the Pazzi, the Alberti, the Salviati, the Strozzi, the Tornabuoni, the Pazzi, the Corsini, the Portinari, and (above all) the Medici, were the principal Tuscan firms; the Pisani, the Bembo, the Corner, the Contarini, the Morosini, the Gritti, the Soranzo, the Dandolo, the Cappello, the Loredan, the Priuli, and the Foscari were the principal Venetian firms; the Centurione, the Doria, the Spinola, the Grimaldi, the Fieschi, the Mari, the Lercari, the Di Negro, and the Sauli were the principal Genoese firms; the Buonsignori, the Tolomei, the Bonsignori, the Gallerani, the Saraceni, and the Carli were the principal Sienese firms; and the Acciaiuoli, the Peruzzi, the Bardi, the Frescobaldi, and the Bonaccorsi were the principal Neapolitan and Sicilian firms. The Bardi and the Peruzzi were, in the early fourteenth century, the two largest firms in Europe, and their failure in 1343–1346 was the principal event of the late-medieval financial history.

The banking houses of late-medieval Italy developed four financial instruments that became the foundations of the modern financial system: the bill of exchange (lettera di cambio), the double-entry system of bookkeeping, the public debt (the monte of the Italian communes, the consolidato of the Italian states, the funding of the Italian banks), and the early modern corporation (the societas, the compagnia, the maone, the compagnia di ventura). The first three of these were, in their mature form, the contribution of the Italian peninsula to the modern financial system; the fourth was, in its mature form, the contribution of the Italian peninsula to the modern commercial system.

The First Banking Houses

The first great banking houses of Italy emerged in the late twelfth and early thirteenth centuries, in the great commercial cities of Florence, Venice, Siena, Genoa, Lucca, and Milan. The banks of these cities were, in the cities, the first modern banks, and they developed the systems of credit and finance that would shape the European economy for centuries. The earliest documentary record of the Italian banks is in the libri di conti and the ricordanze of the Tuscan and Lombard merchants, in the catasto of 1427–1430 of Florence (now in the Archivio di Stato di Firenze), and in the Statuti of the Italian communes.

The first great banking house of Florence was the Bardi, founded in the late thirteenth century. The Bardi bank had branches in many of the major cities of Europe, including London, Paris, Bruges, Avignon, and Lyon, and it was a major lender to the kings of England (Edward I, Edward II, and Edward III) and France (Philip IV, Philip V, Charles IV, and Philip VI). The Bardi bank failed in 1343, when the kings of England defaulted on their loans, and it was followed into bankruptcy by the Peruzzi bank, which had also made large loans to the English crown. The total loss of the Bardi was perhaps 1.5 million Florentine florins — more than the total bullion reserves of the Florentine mint — and the failure of the Bardi and the Peruzzi was a major event in the history of Italian banking.

The Peruzzi bank, founded in the late thirteenth century, was, with the Bardi, one of the two largest firms in Europe. The Peruzzi had branches in London, Paris, Bruges, Avignon, Lyon, and many other cities, and it was a major lender to the kings of England and France. The Peruzzi failed in 1343, simultaneously with the Bardi, and the failure was a major event in the history of Italian banking. The total loss of the Peruzzi was perhaps 1.3 million Florentine florins, and the failure of the Peruzzi, like that of the Bardi, was a major event in the history of Italian banking.

The Acciaiuoli bank, founded in the early fourteenth century, was, with the Bardi and the Peruzzi, one of the three largest firms in Europe. The Acciaiuoli had branches in London, Paris, Bruges, Avignon, Lyon, Naples, and many other cities, and it was a major lender to the kings of England, France, and Naples. The Acciaiuoli failed in 1343, simultaneously with the Bardi and the Peruzzi, and the failure was a major event in the history of Italian banking.

The Pazzi bank, founded in the late thirteenth century, was, with the Bardi, the Peruzzi, the Acciaiuoli, the Frescobaldi, and the Medici, one of the principal Florentine banking houses. The Pazzi had branches in Rome, Naples, London, Paris, Bruges, and many other cities, and it was a major lender to the papacy, the kings of England, France, and Naples, and the great merchants of the period. The Pazzi were the principal rivals of the Medici in the fifteenth century, and the Congura dei Pazzi of 1478 — the Pazzi Conspiracy — was the principal event of the rivalry.

The Frescobaldi bank, founded in the late thirteenth century, was one of the principal Florentine banking houses. The Frescobaldi had branches in London, Paris, Bruges, and many other cities, and they were major lenders to the kings of England (Edward I, Edward II, and Edward III) and France. The Frescobaldi, like the Bardi and the Peruzzi, lost heavily on the default of the English crown in 1343, but they recovered and continued to operate into the fifteenth century.

The Medici Bank

The Medici bank was, arguably, the most successful of the great Italian banking houses. The bank was founded by Giovanni di Bicci de’ Medici in 1397, and it was developed by his son Cosimo de’ Medici (1389–1464) into the largest and most powerful bank in Europe. The Medici bank had branches in Rome, Venice, Milan, Naples, Bruges, London, Avignon, and Lyon, and it was a major lender to the papacy, the kings of Europe, and the great merchants of the period. By 1450, the Medici bank was, by general consent, the largest bank in Europe, and the Branch of Rome (the Rome branch) was the principal source of the bank’s profit.

The Medici bank was, in the cities and towns, a model of the modern bank. The bank developed a sophisticated system of accounting, including the double-entry system of bookkeeping, which is still the basis of modern accounting. The bank also developed a system of branches and correspondents that was the precursor of the modern banking system, and it developed a system of credit that was the foundation of the modern financial system. The Medici bank was also important in the politics of Renaissance Italy. The bank was a major lender to the papacy, and it had a significant influence on the politics of the papal states. The bank was also important in the politics of Florence, and it was a major patron of the arts and learning of the Italian Renaissance.

The Medici bank failed in 1494, when the expulsion of the Medici from Florence (the cacciata dei Medici) led to the closure of the bank’s main branch, the Branch of Florence, and the loss of the bank’s principal assets. The bank was reconstituted in the early sixteenth century, and it continued to operate until the eighteenth century, but it never recovered the prominence of its fifteenth-century heyday.

The Bill of Exchange

The bill of exchange was one of the most important financial innovations of the late Middle Ages, and it was developed by the Italian bankers who traded at the Champagne fairs. The bill of exchange was a written order by a merchant to his agent in another city to pay a specified sum of money to a third party. The bill of exchange allowed merchants to make payments in different currencies and at different times, and it was the precursor of the modern check.

The bill of exchange was developed by the Italian bankers in the thirteenth century, and it was used extensively by the merchants of the Champagne fairs and the great commercial cities of the period. The bill of exchange was one of the most important financial innovations of the Middle Ages, and it was the foundation of the modern system of international payments.

The form of the bill of exchange was, in its essentials, simple. A merchant in Florence, for example, who owed a sum in Bruges could draw a bill on his correspondent in Bruges, payable in Bruges in a specified currency, at a specified rate of exchange. The correspondent would pay the sum in Bruges; the merchant would, in Florence, pay the correspondent the equivalent sum in Florentine florins, plus a small fee (the cambio, the agio) for the service. The bill of exchange allowed the merchant to avoid the transport of bullion, allowed the correspondent to earn a small fee, and allowed the two cities to settle the balances.

The principal users of the bill of exchange were the Italian banking houses — the Bardi, the Peruzzi, the Acciaiuoli, the Frescobaldi, the Pazzi, the Medici, the Datini. The bill of exchange was, in the late thirteenth and early fourteenth centuries, the principal instrument of the Italian banking houses, and it was the principal instrument of the Italian long-distance trade.

Double-Entry Bookkeeping

The double-entry system of bookkeeping was developed by the Italian bankers in the late Middle Ages, and it was one of the most important innovations in the history of accounting. The system, which was first described in detail by the Franciscan friar Luca Pacioli in his Summa de arithmetica, geometria, proportioni et proportionalità (1494), is based on the principle that every transaction has two sides: a debit and a credit of equal value. The system allows the merchant to keep a complete and accurate record of his financial affairs, and it is the foundation of modern accounting.

The double-entry system of bookkeeping was a major innovation, and it allowed the Italian bankers to keep track of the complex financial transactions of the period. The system was quickly adopted by the merchants of the great commercial cities, and it became the standard system of accounting in Europe. The system was, in the manorial records, the foundation of the modern accounting system.

The Datini archive at Prato, the principal documentary source for the Italian side of the late-medieval wool and cloth trade, is now available online, and the Archivio di Stato di Prato has been mined by Federica Fusi, by Brenda M. S. Campbell, and by John Munro. The archive is the largest surviving collection of late-medieval merchants’ letters, and it includes the carteggio of the Prato merchant Francesco Datini (1335–1410), with c. 140,000 letters and 500 ledgers, and the ricordanze and the libre di conti of the great Tuscan companies. The archive is, in many respects, the principal documentary source for the late-medieval Italian banking and long-distance trade, and the work of Federigo Melis (and the Centro di studi di storia dell’impresa e delle istituzioni economiche of Prato, and the Fondazione Datini of Prato) has transformed the older, more juridical, more institutional account of the Italian banks.

Reading the Italian Banks

The historiography of the Italian banking houses has been, in many respects, the historiography of the late-medieval European financial system. The work of Armando Sapori, of Federigo Melis, of Raymond de Roover, of Edwin S. Hunt, of John H. Munro, of Robert Sabatino Lopez, of Harry Miskimin, of David Abulafia, of John Day, of Wendy Davies, of Erik Aerts, of Peter Stabel, of the late Jean-Pierre Molénat, of the late Robert Fossier, of the late Marc Venard, of the late Jean-Pierre Bénoit, of the late Robert Stallo is the principal monument. The new commercial history of the Italian banking houses has been transformed by the systematic work on the Archivio di Stato di Firenze (the Catasto of 1427–1430, the Libre di conti of the great Tuscan companies), on the Archivio di Stato di Prato (the Datini archive of c. 140,000 letters and 500 ledgers), on the Archivio di Stato di Venezia (the Senato Mar and the Cinque Savi alla Mercanzia), on the Archivio di Stato di Genova (the Banco di San Giorgio and the Casa di San Giorgio), and on the Archivio di Stato di Lucca (the Carte del Debito Pubblico). The recent work of the late Federigo Melis, of Brenda M. S. Campbell, of John Munro, of the late Jean-Pierre Molénat, of the late Robert Stallo has transformed the older, more juridical, more institutional account of the Italian banks.

References and Further Reading

  • Armando Sapori, Le marchand italien au Moyen Âge (1952) and The Italian Merchant in the Middle Ages (English edn. 1970), and his editions of the Libre di conti of the Prato merchant companies.
  • Federigo Melis, Aspetti della vita economica medievale (1962) and his Documenti per la storia economica dei secoli XIII–XVI (1972).
  • Raymond de Roover, The Rise and Decline of the Medici Bank, 1397–1494 (1963).
  • Edwin S. Hunt, The Medieval Super-Companies: A Study of the Peruzzi Company of Florence (1994).
  • John H. Munro, “The Medieval Origins of the ‘Financial Revolution’: The Usury Prohibition and the Commercial Revolution,” in The Usury Debate (2003).
  • Robert Sabatino Lopez, The Commercial Revolution of the Middle Ages, 950–1350 (1971) and The Three Ages of the Italian Renaissance (1970).
  • Harry A. Miskimin, The Economy of Later Renaissance Europe: A Case Study in the 14th and 15th Centuries (1969) and Cash, Credit and Crisis in the Middle Ages (1989).