by Will Durant
III. MONEY
The commercial and industrial expansion revolutionized finance. Commerce could not advance by barter; it required a stable standard of value, a convenient medium of exchange, and ready access to investment funds.
Under Continental feudalism the great lords and prelates exercised the right of mintage, and European economy suffered from a bedlam of currencies worse than today’s. Counterfeiters and coin clippers multiplied the chaos. The kings ordered such gentry to be dismembered, or emasculated, or boiled alive;30 but they themselves repeatedly debased their currencies.* Gold became scarce after the barbarian invasions, and disappeared from the coinages of Western Europe after the Moslem conquest of the East; between the eighth and the thirteenth centuries all such coinages were in silver or baser metals. Gold and civilization wax and wane together.
In the Byzantine Empire, however, gold was coined throughout the Middle Ages. As contact between West and East grew, Byzantine gold coins, called bezants in the West, began to circulate through Europe as the most honored money in Christendom. In 1228 Frederick II, having observed the beneficent effect of a stable gold currency in the Near East, minted in Italy the first gold coins of western Europe. He called them augustales in frank emulation of Augustan coins and prestige; they deserved the name, for though imitative, they were of noble design, and reached at once the highest level of medieval numismatic art. In 1252 both Genoa and Florence issued gold coins; the Florentine florin, equaling in value a pound of silver, was the more beautiful and viable, and was accepted throughout Europe. By 1284 all the major nations of Europe except England had a trustworthy gold coinage—an achievement sacrificed in the turmoil of the twentieth century.
By the end of the thirteenth century the kings of France had bought up or confiscated nearly all seignorial rights to the coining of money. The French monetary system kept till 1789 the terms, though hardly the values, established by Charlemagne: the livre or pound of silver; the sou or twentieth part of a livre; and the denier or twelfth part of a sou. This system was brought to England by the Norman invasion; there, too, the “pound sterling” was divided into twenty parts—shillings—and each of these into twelve parts —pence. The English took the words pound, shilling, and penny from the German Pfund, Schilling, and Pfennig; but took the signs for them from the Latin: £ from libra, s. from solidus, d. from denarius. England did not arrive at a gold currency till 1343; her silver currency, however, as established by Henry II (1154–89), remained the most stable in Europe. In Germany the silver mark was coined in the tenth century, at half the value of the French or British pound.
Despite these developments, medieval currencies suffered from fluctuations of value, the unsteady ratio of silver to gold, the power of the kings and cities—sometimes of nobles and ecclesiastics—to call in all coins at any time, charge a fee for reminting, and issue new coins debased with more alloy. Through the dishonesty of the mints, through the more rapid increase of gold than of goods, through the convenience of redeeming national debts in depreciated money, an irregular deterioration affected all European currencies through medieval and modern times. In France the livre had in 1789 only 1.2 per cent of its value under Charlemagne.32 We may judge the fall of money from some typical prices: at Ravenna in 1268 a dozen eggs cost “a penny”; at London in 1328 a pig cost four shillings, an ox fifteen;33 in thirteenth-century France three francs bought a sheep, six a pig.34 History is inflationary.*
Where did the money come from that financed and expanded commerce and industry? The greatest single provider was the Church. She had an unparalleled organization for raising funds, and had always a liquid capital available for any purpose; she was the greatest financial power in Christendom. Moreover, many individuals deposited private funds for safekeeping with churches or monasteries. From her wealth the Church lent money to persons or institutions in difficulty. Loans were made chiefly to villagers seeking to improve their farms; they acted as land banks and played a beneficent role in promoting a free peasantry.36 As early as 1070 they lent money to neighboring lords in exchange for a share in the revenues of the lords’ property;37 through these mortgage loans the monasteries became the first banking corporations of the Middle Ages. The abbey of St. André in France did so flourishing a banking business that it hired Jewish moneylenders to manage its financial operations.38 The Knights Templar lent money on interest to kings and princes, lords and knights, churches and prelates; their mortgage business was probably the largest in the world in the thirteenth century.
But these loans by church bodies were usually for consumption or for political use, seldom for financing industry or trade. Commercial credit began when an individual or a family, by what Latin Christendom called commenda, commended or entrusted money to a merchant for a specific voyage or enterprise, and received a share of the profits. Such a silent or “sleeping” partnership was an ancient Roman device, probably relearned by the Christian West from the Byzantine East. So useful a way of sharing in profits without directly contravening the ecclesiastical prohibition of interest was bound to spread; and the “company” (companis, bread-sharer) or family investment became a societas, a partnership in which several persons, not necessarily kin, financed a group or series of ventures rather than one. Such financial organizations appeared in Genoa and Venice toward the end of the tenth century, reached a high development in the twelfth, and largely accounted for the rapid growth of Italian trade. These investment groups often distributed their risk by buying “parts” in several ships or ventures at a time. When, in fourteenth-century Genoa, such shares (partes) were made transferable, the joint-stock company was born.
The greatest single source of finance capital—i.e., funds to meet the pre-income costs of an undertaking—was the professional financier. He had begun in antiquity as a money-changer, and had long since developed into a moneylender, investing his own and other people’s money in enterprises, or in loans to churches, monasteries, nobles, or kings. The role of the Jews as moneylenders has been exaggerated; they were powerful in Spain, and for a time in Britain, weak in Germany, outdone in Italy and France by Christian financiers.39 The chief lender to the kings of England was William Cade; the chief lenders in thirteenth-century France and Flanders were the Louchard and Crespin families of Arras;40 William the Breton described Arras at that time as “glutted with usurers.”41 Another center of northern finance was the bourse (bursa, purse) or money market of Bruges. A still more powerful group of Christian moneylenders originated in Cahors, a town of southern France. Matthew Paris writes:
In these days (1235) the abominable plague of Cahorsians raged so fiercely that there was scarcely any man in all England, especially among the prelates, who was not entangled in their nets. The king was indebted to them for an incalculable account. They circumvented the indigent in their necessities, cloaking their usury under the pretense of trade.42
The papacy for a time entrusted its financial affairs in England to the Cahorsian bankers; but their ruthlessness so offended the English that one of their number was murdered at Oxford, Bishop Roger of London pronounced an anathema upon them, and Henry III banished them from England. Robert Grosseteste, Bishop of Lincoln, lamented on his deathbed the extortions of “the merchants and exchangers of our lord the Pope,” who “are harder than the Jews.”43
It was the Italians who developed banking to unprecedented heights in the thirteenth century. Great banking families rose to supply the sinews of far-reaching Italian trade: the Buonsignori and Gallerani in Siena, the Frescobaldi, Bardi, and Peruzzi in Florence, the Pisani and Tiepoli in Venice…. They extended their operations beyond the Alps, and lent great sums to the ever-needy kings of England and France, to barons, bishops, abbots, and towns. Popes and kings employed them to collect revenues, manage mints and finances, advise on policy. They bought wool, spices, jewelry, and silk wholesale, and owned ships and hotels from one end of Europe to the other.44 By the middle of the thirteenth century these “Lombards,” as the North called all
Italian bankers, were the most active and powerful financiers in the world. They were hated at home and abroad for their exactions, and were envied for their wealth; every generation borrows, and denounces those who lend. Their rise dealt a heavy blow to Jewish international banking, and they were not above recommending the banishment of these patient competitors.45 The strongest of the “Lombards” were the Florentine banking firms, of whom eighty are recorded between 1260 and 1347.46 They financed the political and military campaigns of the papacy, and reaped rich rewards; and their position as papal bankers provided a useful cover in operations that were hardly in harmony with the views of the Church on interest. They made profits worthy of modern times; the Peruzzi, for example, paid a forty per cent dividend in 1308.47 But these Italian firms almost atoned for their greed by their vitalizing services to commerce and industry. When their tide ebbed they left some of their terms—banco, credito, debito, cassa (money box, cash), conto, disconto, conto corrente, netto, bilanza, banca rotta (bank broken, bankruptcy)—in almost all European languages.48
As these words suggest, the great money firms of Venice, Florence, and Genoa, in or before the thirteenth century, developed nearly all the functions of a modern bank. They accepted deposits, and carried current accounts—between parties having an unfinished series of money transactions. As early as 1171 the Bank of Venice arranged exchanges of accounts among its clients by mere bookkeeping operations.49 They made loans, and as security they accepted jewelry, costly armor, government bonds, or the right to collect taxes or manage the public revenue. They received goods in bond for transfer to other countries. Through their international connections they were able to issue letters of credit by which a deposit made in one country would be returned to the depositor, or his appointee, in another country—a device long known to the Jews, the Moslems, and the Templars.50 Conversely, they wrote bills of exchange: a merchant, in return for goods or a loan, gave a promissory note to pay the creditor at one of the great fairs or international banks by a stated time; these notes were balanced against one another at fair or bank, and only the final balance was paid in money; hundreds of transactions could now take place without the nuisance of carrying or exchanging great sums and weights of coin. As the banking centers became clearing houses, the bankers avoided the long journey to the fairs. Merchants throughout Europe and the Levant could draw on their accounts in the banks of Italy, and have their balances settled by interbank bookkeeping.51 In effect the utility and circulation of money were increased tenfold. This “credit system”—made possible by mutual trust—was not the least important or honorable aspect of the economic revolution.
Insurance too had its beginnings in the thirteenth century. The merchant guilds gave their members insurance against fire, shipwreck, and other misfortunes or injuries, even against lawsuits incurred for crimes—whether the members were guilty or innocent.52 Many monasteries offered a life annuity: in return for a sum of money paid down, they promised to provide the donor with food and drink, sometimes also with clothes and lodging, for the rest of his life.53 As early as the twelfth century a Bruges banking house offered insurance on goods; and a chartered insurance company was apparently established there in 1310.54 The Bardi of Florence, in 1318, accepted insurance risks on overland assignments of cloth.
The first government bonds were issued by Venice in 1157. The needs of war led the republic to exact forced loans from the citizens; and a special department (Camera degli Impresidi) was set up to receive the loans, and give the subscribers interest-bearing certificates as state guarantees of repayment. After 1206 these government bonds were made negotiable and transferable; they could be bought or sold, or used as security for loans. Similar certificates of municipal indebtedness were accepted at Como in 1250 as equivalent to metal currency. Since paper money is merely a governmental promise to pay, these negotiable gold certificates marked the beginning of paper money in Europe.55
The complicated operations of the bankers, the papacy, and the monarchies required a careful system of bookkeeping. Archives and account books swelled with records of rents, taxes, receipts, expenditures, credits, and debts. The accounting methods of imperial Rome, lost in western Europe in the seventh century, continued in Constantinople, were adopted by the Arabs, and were revived in Italy during the Crusades. A fully developed system of double-entry bookkeeping appears in the communal accounts of Genoa in 1340; the loss of Genoese records for the years from 1278 to 1340 leaves open the probability that this advance was also an achievement of the thirteenth century.56
IV. INTEREST
The greatest obstacle to the development of banking was the ecclesiastical doctrine of interest. This had three sources: Aristotle’s condemnation of interest as an unnatural breeding of money by money,57 Christ’s condemnation of interest,58 and the reaction of the Fathers of the Church against commercialism and usury in Rome. Roman law had legalized interest, and “honorable men” like Brutus had charged merciless rates. Ambrose had denounced the theory that one may do what he likes with his own:
“My own,” say you? What is your own? When you came from your mother’s womb, what wealth did you bring with you? That which is taken by you, beyond what suffices you, is taken by violence. Is it that God is unjust in not distributing the means of life to us equally, so that you should have abundance while others are in want? Or is it not rather that He wished to confer upon you marks of His kindness, while He crowned your fellow man with the virtue of patience? You, then, who have received the gift of God, think you that you commit no injustice by keeping to yourself alone what would be the means of life to many? It is the bread of the hungry you cling to, it is the clothing of the naked you lock up; the money you bury is the redemption of the poor.59
Other Church Fathers had verged upon communism. “The use of all that is in the world,” said Clement of Alexandria, “ought to be common to all men. But by injustice one man has called this his own, another that; and so has come division among men.”60 Jerome held all profit unjust; Augustine considered all “business” an evil, as “turning men from seeking true rest, which is God.”61 Pope Leo I had rejected these extreme doctrines; but the mood of the Church continued unsympathetic to commerce, suspicious of all speculation and profit, hostile to all “engrossing,” “forestalling,” and “usury”—by which last term the Middle Ages meant any interest charge whatever. “Usury,” said Ambrose, “is whatever is added to the capital”;62 and Gratian embodied this blunt definition in the canon law of the Church.
The councils of Nicaea (325), Orléans (538), Mâcon (585), and Clichy (626) had forbidden the clergy to lend money for gain. The capitularies of Charlemagne for 789, and the Church councils of the ninth century, extended the prohibition to laymen. The revival of Roman law in the twelfth century emboldened Irnerius and the “glossators” of Bologna to defend interest, and they were able to quote Justinian’s Code in its behalf. But the Third Council of the Lateran (1179) renewed the prohibition, and decreed “that manifest usurers shall not be admitted to communion, nor, if they die in sin, to Christian burial; and no priest shall accept their alms.”63 Innocent III must have taken a more lenient view, for in 1206 he advised that in certain cases a dowry “should be committed to some merchant,” so that an income might be derived from it “by honest gain.”64 Gregory IX, however, returned to the conception of usury as any receipt of any profit on a loan;65 and this remained the law of the Roman Church till 1917.
The wealth of the Church was in land, not in trade; she scorned merchants as the feudal baron scorned them; land and labor (including management) seemed to her the only true creators of wealth and value. She resented the rising power and opulence of a mercantile class not too well disposed to feudal landowners or to the Church; she had for centuries thought of all moneylenders as Jews; and she felt justified in rebuking the hard terms exacted by moneylenders from needy ecclesiastical institutions. By and large, the effort of the Church to control the profit motive was an heroic assertion of Christian m
orality; it formed a wholesome contrast to the imprisonment or enslavement of debtors that had disgraced Greek, Roman, and barbarian life and law. We cannot be sure that men are happier today than they would have been had the view of the Church prevailed.
For a long time the legislation of governments supported the position of the Church; and the prohibition of interest was enforced in the secular courts.66 But commercial necessity proved stronger than fear of prison or hell. The expansion of trade and industry demanded the use of idle money by active enterprise; states at war or in other emergencies found it easier to borrow than to tax; guilds both lent and borrowed at interest; landowners extending their property, or leaving for crusades, welcomed the moneylender; churches themselves, and monasteries, survived their crises or rising costs or needs by recourse to the Lombards, the Cahorsians, or the Jews.