196. Money and Banking We have seen that business in the Middle Ages was chiefly of a retail character and was conducted in markets and fairs. The artisan who manufactured the goods he sold Small scale and the peddler who carried his goods about from of business place to place were the leading types of medieval enterprise traders. Little wholesale business existed, and the merchant prince who owned warehouses and large stocks of goods was an exceptional figure. One reason for the small scale of business enterprise is found in the inadequate supply of money. From the beginning of the Christian era to the twelfth century there seems Lack of to have been a steady decrease in the amount of money specie in circulation, partly because so much moved to the Orient in payment for luxuries, and partly because the few mines in western Europe went out of use during the period of the invasions. The scarcity of money, as has been shown,1 helped directly to build up the feudal system, since salaries, wages, and rents could be paid only in personal services or in produce. The money supply increased during the latter part of the Middle Ages, but it did not become sufficient for the needs of business till the discovery of the New World enabled the Spaniards to tap the wealth of the silver mines in Mexico and Peru.2 Faults of currency Medieval currency was not only small in amount but also faulty in character. Many great nobles enjoyed the privilege of keeping a mint and issuing coins. Since this feudal money passed at its full value only in the medieval locality where it was minted, a merchant had to be constantly changing his money, as he went from one fief to another, and always at a loss. Kings and nobles for their own profit would often debase the currency by putting silver into the gold coins and copper into the silver coins. Every debasement, as it left the coins with less pure metal, lowered their purchasing power and so raised prices unexpectedly. Even See page 640. 1 See page 417. in countries like England, where debasement was exceptional, much counterfeit money circulated, to the constant impediment of trade. laws The prejudice against "usury," as any lending of money at interest was called, made another hindrance to business enter"Usury" prise. It seemed wrong for a person to receive interest, since he lost nothing by the loan of his money. Numerous Church laws condemned the receipt of interest as unchristian. If, however, the lender could show that he had suffered any loss, or had been prevented from making any gain, through not having his money, he might charge something for its use. In time people began to distinguish between interest moderate in amount and an excessive charge for the use of money. The latter alone was henceforth prohibited as usurious. Most modern states still have usury laws which fix the legal rate of interest. The Jews as money lenders The business of money lending, denied to Christians, fell into the hands of the Jews. In nearly all European countries popular prejudice forbade the Jews to engage in agriculture, while the guild regulations barred them from industry. They turned to trade and finance for a livelihood and became the chief capitalists of medieval times. But the law gave the Jews no protection, and kings and nobles constantly extorted large sums from them. The persecutions of the Jews date from the era of the crusades, when it was as easy to excite fanatical hatred against them as against the Moslems. Edward I drove the Jews from England and Ferdinand and Isabella expelled them from Spain. They are still excluded from the Spanish peninsula, and in Russia and Austria they are not granted all the privileges which Christians enjoy. The Jews were least persecuted in the commercial cities of northern Italy. Florence, Genoa, and Venice in the thirteenth Italian banking century were the money centers of Europe. The banking companies in these cities received deposits and then loaned the money to foreign governments and great nobles. It was the Florentine bankers, for instance, who provided the English king, Edward III, with the funds to carry on his wars against France. The Italian banking houses had branches in the principal cities of Europe.1 It became possible, therefore, to introduce the use of bills of exchange as a means of balancing debts between countries, without the necessity of sending the actual money. This system of international credit was doubly important at a time when so many risks attended the transportation of the precious metals. Another Florentine invention was bookkeeping by double-entry.2 197. Italian Cities The cities of northern Italy owed their prosperity, as we have learned, to the commerce with the Orient. It was this which gave them the means and the strength to keep up the city a long struggle for freedom against the German republics emperors. The end of the struggle, at the middle of the thirteenth century, saw all North Italy divided into the dominions of various independent cities. Among them were Milan, Pisa, Florence, Genoa, and Venice. Milan, a city of Roman origin, lay in the fertile valley of the Po, at a point where the trade routes through several Alpine passes converged. Milan early rose to importance, Milan and it still remains the commercial metropolis of Italy. Manufacturing also flourished there. Milanese armor was once celebrated throughout Europe. The city is rich in works of art, the best known being the cathedral, which, after St. Peter's at Rome and the cathedral of Seville, is the largest church in Europe. Though the Milanese were able to throw off the imperial authority, their government fell into the hands of the local nobles, who ruled as despots. Almost all the Italian cities, except Venice, lost their freedom in this manner. 1 Lombard Street in London, the financial center of England, received its name from the Italian bankers who established themselves in this part of the city. 2 Among the Italian words having to do with commerce and banking which have come into general use are conto, disconto, risico, netto, deposito, folio, and bilanza. See page 460. |