MEDICI MONEY

Posted: May 2, 2014 in Chat
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In 2005 English writer Tim Parks, long resident in Italy, published MEDICI MONEY (Profile Books, 2005).

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It is another take on Renaissance Italy, Florence, the Medicis, and the complexities of the period. It was also very prescient – in three years’ time major Western banks would go bust, much as the Medici, and before them the Bardi and Peruzzi banks had gone bust.

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The Medicis’ added little if anything to the practice of banking. All innovations had already occurred by their time: double-entry book-keeping, bill of exchange (cheque), letter of credit, deposit account. In the Medici long-game of power-acquisition, marriage was arranged between Cosimo and the available daughter of the long-established Bardi banking family. Nothing, it would seem, was beyond them in the build-up and establishment of the family name, wealth and prestige.

But banking was always a risk business; the bank cannot predict how their customers will behave in uncertain situations. Means can be developed to ensure that customers/clients are only of repute, and liquidity. But neither kings nor cardinals were beyond unscrupulous, unwise acts and projects.

Tim Parks traces the English contribution to the cause of an earlier bank collapse. He writes: The Bardi and Peruzzi banks (… ) both collapsed in the 1340s, when Edward III of England reneged on huge debts.

In the 1470s we find the Medici bank in the same straits, through a similar source, this time King Edward IV of England. At this point in time it seems the London branch of the Medici bank was already owing huge amounts to the Rome branch. Agnolo Tani, ex-banker was brought in to clear up the mess. As he made his way from the London branch to Rome, the War of the Roses broke out in its second phase. Of course, Edward was financed by the Medici banks, and when he lost the throne, the chances of repayment also fell. He re-grouped, fought back and regained the throne.

There was also the little matter of who financed his opponents – the Medici bank, of course. They were, after all, nobles, titled men from established families.

A no-win situation, because whoever won power was at the expense of their opponents; the bank lost either way. To regroup and regain Edward needed money – once more he borrowed heavily from the bank.

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The English main produce was finished wool cloth. There was a hair-raising interlude when Florence branch general director Francesco Sassetti refused to advance monies for cloth, until, he asserted, the cloth had been sold. Merchants and bankers could not be relied on to be in synch; the whole history of banking relates the discordant harmonies of these two.

Previous to finished wool cloth the main English export had been bulk wool. The key to wool use is in the treating. This is a science in itself – how to get the course, wiry, lanolin-rich wool into usable state. The Scots Gaelic Waulking Songs all came out of this home industry. They used the livers of dogfish.

Working in bulk, though – the importers had to discover the best and easiest means of treatment. It was found to be alum.

As much as there was a fortune to be made from wool, the ownership of the source of alum became a key factor. And this is what we find in the book. At a later stage in the Medici bank history we see Lorenzo currying favour with a Cardinal by granting him an alum mine.

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One of the main sticking points in early banking was how to make a profit on what was entrusted to them.

Clearly, charging interest was out – Jesus expelling the money-lenders from the temple ruined that one. St Luke wrote: Give, without hope for gain. The Lateran Church Council of 1179 denied Christian burial to usurers; the General Church Council of Lyon, 1274, confirmed the ruling.

The way round this was intriguing. And Cardinals, even a Pope, benefitted from it. It was to use the exchange rates of different  States, countries. This meant that quantities of money in various forms, that is, acceptable to the source banks, had to be conveyed around Europe, from banking centre to banking centre. Each destination was chosen for its productive rate of exchange. This proved a workable system.

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Another interesting insight to come out of this is how unsteady the economy proves to be.
In diaries from the last thirty to forty years I notice approximately ten-yearly cycles of recession. How easily we forget once employment is the norm once again.images (1)

Consider:

Most people imagine that if they borrow from a bank, they are borrowing other people’s money.  In fact, when banks and building societies make any loan, they create new money.  Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created.” Michael Rowbotham, Grip of Death (1998)

“Where did the money come from? It came – and this is the most important single thing to know about modern banking – it came out of thin air.  Commercial banks – that is, fractional reserve banks – create money out of thin air.” Murray Rothbard, The Mystery of Banking (2008)

“… by far the largest role in creating money is played by the banking sector… When banks make loans they create additional deposits for those that have borrowed the money.” Paul Tucker

And the payoff to this, to use a phrase that shows how of deeply ingrained financial methods have become to us, consider the following:

 With respect that the above implications have with respect to our national debt, it should now be obvious that any attempt to pay off our national debt will ultimately be deleterious, as paying of debt is tantamount to extinguishing it from circulation which will  collapse the supply of money available.  This is how depressions arise due to there being a shrinkage of the money supply due to banks failing to lend.

What is the likelihood of anyone now paying off their National Debt? Western nations in their most positive and humane incarnations cancelled 3rd World Debts. That is possibly the only way the situation can be dealt with.

Do we now have to consider a life flipped where red is black, in accounting terms?
Have we perhaps been living there for longer than we imagine, going off the above quotes?

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