Today, money is super easy to use in part because the money itself has no value. It’s just paper and copper or nickel. For most of human history, including Venetian history, money had intrinsic value and this made transactions very annoying. Merchants had to be experts in weighing and measuring gold and silver, they had to understand alloys, and they had to carry around apparatus for doing these tests, and they had to perform them at every transaction. In fact, assessing the value and worth of money was such an art that a whole industry cropped around this area of expertise: they were the moneychangers. They would take a look at what you got and let you know what you could get with it. They could also change what you had into something that might be locally more acceptable. In Venice, many merchants were also moneychangers as a side business.
Most cities had moneychangers, but the Venetians took it further. They started to leave their money with the moneychanger and only come back and get some when they needed it, thus inventing deposit banking (they beat Florence to it). The Venetians did not know it at the time, but deposit banking, when you do not need returned the exact same gold and silver you put in, is very important, and continues being important, for economic progress as it keeps capital working in the economy. Instead of thousands of dollars sitting under your mattress doing nothing, it is funding an expedition or something.
Then the Venetians found it much more convenient to settle transactions by what I am calling the mediaeval debit card, that is simply walking up the moneychanger with your business associate and say, “take 94 duckets out of my account and give it to him.” In fact, since many of them knew each other so well, they started just to write out their agreements on slips of paper and giving them to each other (checks). In these two ways they invented moneyless transactions where nothing changed hands. Instead, a moneychanger scribbled something in his ledger and that was that. By the way, the main bench on which the Venice’s moneychangers sat was called the “Banka,” which of course gave us the word “bank.”
Being part of the mediaeval Catholic world, Venetians were not allowed to charge each other interest on loans. This is a problem for merchants, as they need large loans with which to start buying low. Therefore, merchants would look for investors who would front the money. In other parts of the world, investors expected 20% interest on their loans regardless of profit. In Venice, investors expected a large portion of profits only, usually 75%. Of course, it’s not smart to put all your money into one basket, so these investors started diversifying by putting some money in a bunch of different trading expeditions. In other words, they bought and sold shares. Stocks and the stock market started with Venetian merchant shipping. One wealthy merchant died in the 15th century with shares in 132 different voyages.
The Venetians made many other important advancements in finance, including how to regulate banks by requiring them to keep a certain percentage of their money in reserve. They also invented double entry bookkeeping, wherein they record all expenditures and revenue, requiring books to be constantly balanced. You can see how this would make business more fraud resistant. Without this type of bookkeeping, modern finance would be impossible. Complex businesses would not work. Double entry bookkeeping also works best with arabic numerals, and the Venetians were one of the first Europeans to import them. Finally, they started selling liability insurance for merchants, a first since ancient times.
I was very much suprised to find Venice’s ongoing legacy in the world of finance. The history of the city has been fascinating to study. But I’m moving on now. I am currently reading a book about Ayn Rand called Ayn Rand and the World She Made by Anne C. Heller. Heller’s approach is very even, both praising and criticizing. I tried to read Atlas Shrugged a few months ago and found it yawn inducing. This is better. It’s history, biography, and I get all the ideas without having to wade through her fiction (or non-fiction for that matter).
Jer's Intellectual Adventures 
April 27th, 2011 at 11:27 AM
Have you read Quicksilver by Neal Stephenson? It’s fiction, but it chronicles some of the things you talked about, as well as many others. Neal Stephenson’s prose makes it worth the read.
April 27th, 2011 at 1:10 PM
I just requested from the library. I love libraries! Hey, Jon, I’m really happy you subscribed. I’m looking forward to staying in touch.
April 26th, 2011 at 11:49 AM
Thanks for this post. Venice is kind of a current hot topic. A really interesting book on their mint that looks both at the technical aspects (somewhat boring to me) as well as the social/political (much more engaging) is Alan Stahl (2000) *Zecca* (one decent summary here: http://ebookee.org/Zecca-Mint-of-Venice-in-Middle-Ages-Published-in-Association-With-the-American-Numismatic-Society-_654282.html). Michael McCormick (2001) *Origins Europe Economy* also showed exactly how linked up and thus essential Venice was in the post-Roman system of Mediterranean exchange (and yes, rapacious is the word from the get-go; the main “commodity” exchanged was north european slaves).
Re: your point on interest: hot new topic as this is now getting somewhat deconstructed. Scholars are starting to see how in the 14th centuries (perhaps earlier, but we have less evidence) traders got around negative associations with usury (e.g. re: Luke 6:35, “lend, expecting nothing in return”) with the idea that the borrower should, in charity, provide the lender with some compensation for his not having access to his capital for a long period of time (called “interesse” – you can see where that word goes!). It seems like this is coming out because scholars are focusing more on cities like Genoa and Venice, who were involved in long-duration, high-stakes international trade and *needed* to come up with an explanation/justification for practices that they simply had to do, instead of the old focus on Florence, which did not have nearly the stake in practices of capital investment in risky ventures and so lagged behind. Necessity, the mother of invention … or something.
April 27th, 2011 at 1:23 PM
Jesse, you are a fellow nerd, and it makes me happy. And holy cow, this is totally your field. I wanted to write more about how I had no clue how involved Venice was in the 4th crusade. The relationship between venice and Constantinople fascinates me.
Weren’t Jews lending money at interest all through the middle ages? The prohibition was for lenders not borrowers, correct? Looking at the context, I feel like Luke 6:35 is talking about lending money at interest is not charity like some people at the time thought it was. Wow, this verse is so interesting: “If you those who love you what credit is it to you?…If you do good to those who do good to you what credit is it to you?…If you lend to those from whom you hope to receive, what credit is that to you? But love your enemies, doo good, and lend, expecting nothing in return.” So interest is fine, as long as you don’t think your lending someone money is something nice that you are doing. There is a big difference between lending money to a friend who has fallen on hard times, vs. lending money to an already wealthy merchant so he can conduct some sort of large business venture.
I know your comment was not about biblical interpretation, but I got carried away.
April 28th, 2011 at 10:16 AM
Yes, the Jews, but not just the Jews by any means: one e.g. on my mind right now -after Philip the Fair expelled all the Jews, he next then seized all the property of the Knights of the Temple who were the actual royal bankers. That is, both had huge capital from working in money; it required a bit more of intellectual gymnastics for Christians to get involved; but intellectual gymnastics doesn’t stop wallstreet now …
Check out the distinctions and ambiguities in this excerpt from Thomas Aquinas (I love Paul Halsall’s site):
http://www.fordham.edu/halsall/source/aquinas-usury.html
What was the key distinction (not just for the Dumb Ox), and which you brought out as existing in the context of the actual passage, comes out in the 3rd or 4th paragraph: yes, ok, the borrower *should* get something, but don’t *expect* to; is borrower allowed to *require* that and put it in the contract? No, that seems over the line.
April 28th, 2011 at 10:21 AM
PS – there is an 20 yr old but still really great book on Venice and CP —
http://www.amazon.com/Byzantium-Venice-Diplomatic-Cultural-Relations/dp/0521428947
Though I would not recommend this as the most engaging read; but it’s become the standard starting place on the topic.
May 2nd, 2011 at 10:21 PM
poop. My library doesn’t have it.
April 24th, 2011 at 1:16 PM
I think they probably were towards anyone whom they could : )
April 24th, 2011 at 5:56 AM
Very Interesting, Jer. Thanks for the summary. I had had the impression that Venetians were a rapacious group in those days, and maybe they were, but just pretty organized about it, and maybe just to outsiders.