Accessibility to money is not something that we think twice about in the United States in this day and age. We go to the ATM to withdraw money from our account, we cash our paychecks, and take out loans for school, buying a home, or even starting a business. We trust that the cash will be accessible and available, whether it is in dollars from the bank across the street, or in euros as we traverse Italy buying soccer jerseys, leather purses, and posters of art masterpieces to take home. And this all happens without a nod to religion. However, the mingling of banking institutions and religion actually has a long history when it comes to charging interest, and this affected the inception of banking institutions as we know them today. As a result of the influence of the Catholic Church on the development of the banking industry, banking became an economic opportunity for the Jews until the Renaissance period when the Medici family took over, accommodating Church theology while satisfying growing demand for banking services.
The link between the religious sphere and the field of banking stems from a theological doctrine on usury, the practice of lending money with an added cost called interest. Usury is found in a biblical verse, Deuteronomy 28:20, which reads: “Unto a foreigner thou may lend usury; but unto thy brother thou shalt not lend usury.” The accepted interpretation of this verse by the Catholic Church is that “brother” refers to any human being, whereas the dominant Jewish interpretation identifies a “brother” as specifically a fellow Jew. Thus for the Christian, usury is prohibited, whereas the Jewish interpretation permits usury as long as the money is lent to a non-Jew. This divergence in interpretation created a fortuitous opportunity for the Jews of the thirteenth through fifteenth centuries to monopolize the banking profession.
Beginning in the twelfth century, the Church not only upheld the prohibition against usury but also designated harsh consequences for those found guilty of usury. The Third Lateran Council of 1179 ruled that usurers would be denied full burial rites. This corresponded with the strict view of theologians like Thomas Aquinas who saw usury as a form of “theft and burglary” and likened its seriousness to “perjury, adultery, and homicide.” Later, in 1311, the Church cracked down even more when, at the Council of Vienne, it was decided that any form of usury would be considered heresy and that anyone who practiced usury would be punished as a heretic. The increased intensity of the language used in regard to usury and the harsher penalty of the Council Vienne indicate the strong influence of the papacy on medieval life, both in the religious sphere as well as the business world. The strong influence of papal opinion made it inevitable that any exchange of money or loan would require careful consideration of the ban on usury.
The papal ban on usury formed out of theological need from the verse in Deuteronomy, and is not an indication that there was no demand for banking services such as money exchange or loans. On the contrary, following the Crusades the papacy had an ever-increasing need for banking services in order to transfer money throughout the Catholic lands of Europe as well as to assist the poor by making loans and aid accessible. From the void of banking services and the desire to stay faithful to Church doctrine arose the niche of economic opportunity for the Jews.
The chance to use the Jews for money services fulfilled several of the goals of the papacy. Firstly, the Jews had familiarity with trading, thus could provide adequate resources for the transfer of papal money from Rome to other Christian communities across Europe. Secondly, Jews could provide the poor with loans by means other than draining the papal budget. The ease on the papal budget made the option of using the Jews attractive for the papacy because this solution did not place a burden on the individual Christian communities.
Using the Jews for money services did not go against theology. No sin was committed by letting the Jews do usury, as Jews’ “souls were probably lost in any case” and Jewish presence could be tolerated for the benefit of extracting their taxes. Furthermore, the papacy was cognizant of the fact that Judaism did not consider it sinful to take interest. As Frederick II of Sicily noted, usury was “not illicit for them.” Therefore the Jews were able to supply labor for an industry blocked to Christians as per the influence of the Catholic Church.
The papal influence and control of the money services of Jews continued even after it was deemed permissible for Jews to undertake acts of usury. Jewish moneylending and exchange services began in Rome as least as early as the beginning of the twelfth century, with the Christian pilgrims who were in need of currency exchange. Other pilgrims sought loans so that they could offer indulgences. The papacy used the Jews for the transfer of money, in addition to some occasional loans from Jewish moneylenders—though the papacy would never openly admit to such a reliance on the Jews. The practice of employing Jewish moneylenders spread from Rome to other cities and a significant rise in the number of Jewish moneylenders occurred during the second half of the twelfth century.
Despite the fact that the Jews ran services for which there was plenty of demand, the papacy and local governments who invited Jewish moneylenders still kept tight control on the privilege, so as not to let the Jews defraud the Christians, and to keep the Jews’ earnings in check. The condotta carefully controlled the Jewish moneylenders by only licensing them for a set number of years and requiring a payment or money loan to the city’s government for the opportunity to practice moneylending and for physical protection. The most powerful tool used by the condotta over the Jews was a set interest, most often between fifteen and twenty-five percent. A lower interest rate was essential in order to control Jewish profits, but also to ensure that the poor would be able to utilize these services as intended. Small to mid-sized towns and those with strong governments were the first to invite Jews, as access to funds in smaller towns was limited and the governments often sought loans. The spread of the invitation for Jewish moneylenders started in central Italy and then extended to the north, though it should be kept in mind that a community’s decision to accept a Jewish moneylender was an often delicate and tenuous decision because the presence of Jews was not always wholly welcome. The need for funds, however, was undeniable and many cities were eager to have a resource, yet still obey Church doctrine. Eagerness for money services is reflected in the response of the town of Piacenze upon the submission of a license application from the Jewish moneylender Magier. The consensus read “for the benefit of public life of that city, let be admitted to it whoever wants to come for the more Jews there will be, the more help will the citizens and the people of the city get in their need.” By the sixteenth century, at least five hundred Jewish moneylenders are documented in Italy alone. Though rare in Jewish history, the Jews had found a way to safety and a secure livelihood, afforded by none other than the Catholic Church and its interpretation of Deuteronomy 28:20.
Though the Jews filled the demand for moneylending services, the partnership between Jews and Christians was not a long-term solution. The acceptance and trust of Jews only went so far. The Christians envied the livelihood provided by money lending, provoking continued tension. An even greater problem, Jews’ specialization consisted of short term, smaller loans, as the majority of their business came from the lower social strata, and thus could not satisfy the demand for a larger banking system. This need heightened at the conclusion of the Black Plague when there was a papal need for money. The Lombards, non-Jewish banking families from the north who held bigger clientele banking services, folded as a result of defaulted loans from the massive death toll in Europe. Following the Black Plague, Europe was in need of an economic revival and the papal budget as well as individual families felt this strain.
During the fifteenth century, the Medici family emerged as a banking powerhouse. As they spread their services across Europe, they utilized keen business practices while staying in line with the Church’s ban on usury. Giovanni di Bicci de Medici, the founding father of the business in 1397, moved to Florence, which offered more opportunities for investment, a rare phenomenon at the time. The presence of the florin, an internationally respected coin, made Florence conducive to becoming a center for international finance and the headquarters of the Medici bank.
At the crux of the success of the Medici bank was the system of bills of exchange used to exchange different types of currency. The process of a bill of exchange involved the exchange of money between different branches of the Medici bank, over the course of several months. The change in rates of exchange in the different places over the length of time it took to travel with the money allowed the Medici bank to make a profit without charging interest. It was through this process of bills of exchange that the Medici bank flourished.
Unlike today, where bills are discounted and the future value is predicted, the Medici bank relied on the shift of the exchange rate and so profit was incidental, not imposed, and the amount of profit could not be predicted. The sending of the initial bill and the return of the bill to its original branch were considered two separate transactions. The distinction of the bills’ redemption at a different geographic location and at a different time—which occurred naturally because of the length of travel—was also crucial for ensuring that no usury was conducted.
Bills of exchange provided the answer for which Christians had been looking. Though it was not the most efficient way of transacting business, it was legal according to the majority of theologians. As opposed to the Jews, who were simply exempt from Church doctrine on usury, the Medici family found a new, successful way of doing banking and international, large-scale banking reached new heights.
Besides the system of bills of exchange, the Medici banks thrived because of the employment of new strong business practices. Giovanni di Bicci kept careful records using the newly developed double entry accounting system, allowing him to keep track of debits and credits and to calculate discrepancies. Cosimo, di Bicci’s son who took over and oversaw the bank for more than forty years, was also known for keeping meticulous records and placing a priority on reports from the branch managers.
During the bank’s height, strong leadership and sharp record keeping allowed the Medicis to expand to several more cities while still making safe, profitable investments. Under Giovanni di Bicci, locations in Florence, Rome, Venice, and Naples opened, while during Cosimo's reign the number of bank locations expanded beyond Italy to more than six other European cities. When a branch opened, the Medicis appointed a manager who invested capital alongside the Medicis and who became responsible for the investment choices at his particular branch. A specific code of guidelines on investments steered the manager’s investments and contained rules. For example, they decided that the bank should only work with trusted merchants with a stable credit history and managers should not give loans to friends nor accept bribes over a given value. The Medicis also kept their payroll small, often less than six clerks per branch and in many cases, only two clerks. The careful recordkeeping, clear investment guidelines, and emphasis on manager partnership led to the success of the Medici expansion and, ultimately, the success of the bank, which thrived on its access to all of the major cities of Europe. The combination of business insight and acknowledgement of religious constraints gained recognition for the Medici bank as heralding the start of the modern banking system.
The rise of the Medicis as Christian bankers provoked changes for Jewish banking as Jews could no longer monopolize the role of supplier of banking services. While the Medici bank focused on currency exchange and large loans to governments and the wealthy class, the fifteenth century also brought a new outlet of banking services to the poorer classes. As urged by the Franciscans who wanted to diminish Christian reliance on Jews for loans, local governments began setting up public funds for the poor, known as a monti di pieta during the late 1400’s. These funds were initially stocked by wealthy citizens and leaders, such as the Medicis and since the fund was earmarked specifically for helping the poor by providing short term loans, any interest charged fell in the category of charity and could be considered “honorable and benevolent.” The monti di pieta also forced the Jewish moneylenders to give interest-free loans—thus ruining their profits—and essentially forcing the transfer of the business of money lending to the Christian public.
During the time of the Renaissance, not only did the Medicis figure out how to overcome the Church’s ban on usury to build up the banking industry, but with the establishment of the monti di pieta, the public leaders also balanced the need for loans with religious doctrine. Whereas formerly Christians had no choice because of religion but to take a hands-off approach to banking and rely on the Jews, the expansionism of the Renaissance propelled the combination of religion and secular business to produce modern banking. Undoubtedly Church doctrine on usury strongly influenced the development of banking, but, looking back, perhaps it can be considered a prime example of the fusion of religion and professional success. Religion is a powerful force in everyday life. The establishment of the banking industry during Renaissance times proved that a secular business demand need not be held back by the tug of religious influence.Works Cited
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