Tag Archives: Republic of Venice

Venetian Money Stuff

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).

Weird Republicanism

In 1229, there was a fierce rivalry between two powerful Venetian families, both of whom were vying for the office of the Doge, the chief officer in the Venetian state.  The 40-man committee that was supposed to elect the Doge was split down the middle.  This factionalism caused problems, and a big fear was that one family would monopolize the Dogeship.  As Italian cities like Florence, Pisa, etc., turned to monarchy, the Venetians were worried that they might be next.  To ensure that didn’t happen, they made this system:

  1. The Great Council, with several hundred members, would cast lots that would choose 30 men from among them.
  2. Those 30 would be reduced by casting lots to 9.
  3. Those 9, as a unanimous group, would name 40 men.
  4. Those 40 would be reduced by lot to 12 men.
  5. Those 12 would name another 25 men.
  6. Those 25 would be reduced to 9 men.
  7. Those 9 would name 45 men.
  8. Those 45 would be reduced by lot to 11.
  9. Those 11 would choose 41 men.
  10. Then, those 41 would elect the next head of state.

This was not some strange system that some eccentric political scientist devised.  That in itself would be fascinating.  This was the way that the biggest Republic in the world at that time, and the longest lived, chose their head of state for centuries.

I wonder what would happen if we used this system today in electing our president.  I wonder if it would improve the quality of our leaders and the character our national dialogue.

History is fascinating.

The Unique City

I thought David Rakoff’s book, Don’t Get Too Comfortable: The Indignities of Coach Class, the Torments of Low Thread Count, the Never-Ending Quest for Artisanal live Oil, and Other First World Problems, was going to make fun of these sorts of problems and provide insight.  Instead, he was serious about these meaningless difficulties.  It was a major disappointment for such a sweet title.

So, for entertainment and diversion, in the midst of this crazy adrenaline-filled week, I turned to a 14-lecture course on the History of Venice by Dr. Thomas Madden at Saint Louis University.  I enjoyed it greatly.  Kagan’s History of Ancient Greece is much better (you can find it on itunesU), but I think it is only because Venetian history is just so absurdly long, over 1,000 years.  It’s hard to create the magic of narrative when the story is so long and has so many players.

Venice is a unique city.  It did not exist during Roman times.  Nobody lived out on these tiny little low-lying sandy and marshy islands at the very northern tip of the Adriatic.  People started fleeing to them for safety as mainland Italy became less and less stable and it became a collection point for refugees from the Roman Empire.  As such, it kept a very close relationship to the Byzantines for hundreds of years, and it always associated itself, and rightly so, with the Roman legacy.

Venice’s location also set it apart from the mainland (more than literally).  While Europe adopted the land-based feudal system, Venice’s income was entirely based on the sea trade.  Ok.  They did make salt, and a few other things, but they were traders and not farmers.  In fact, their merchant-based economy did much to pave the way for modern finance (maybe I’ll discuss that in a different post).  Like Athens of ancient times, they enjoyed a unique combination of dominance at sea and relative weakness on land (if only Athens had enjoyed Venice’s supremely defensible marine location maybe the Pellopenesian War would have gone differently).

Unlike the other mostly monarchical governments of Europe, Venice’s government was originally a democracy in which the people voluntarily gave up their claims to a group of wise old men who in turn created an oligarchical republic.  Newly wealthy families could join the oligarchy, and this flexibility made it unlikely that the newly rich would agitate the populous in an attempt to gain political power.  The result was an incredibly stable republic in which everyone was subject to the rule of law, and this was good for business.

For centuries Venice enjoyed great privilege in trading with the Byzantines, and their seafaring abilities–they all grew up on the water–made them exceptional sailors for business and war.  However, with the opening up of the Atlantic passes to India by going around Africa and the discovery of America, Venetian trade became less important.  They were also slow to put cannons on ships, lose their rowers, and they never really got the hang of it.  They were incredible ship-builders during the Middle Ages.  In fact, they were the ones to really invent the assembly line, the factory (their “Arsenal” it was called), and interchangeable parts.  They would float hulls of boats down the docks to different stations.  At times, one third of the city worked at the boatyard and they could pump out a ship a day.  In 1450 they had about 3,000 ships on the water.  But eventually they couldn’t keep up with the French, English, or Germans.

Ironically, Napoleon, the product of the French Revolution, who thought himself the great liberator of Europe, the spreader of liberal ideas like equality under the law and republicanism, was actually the one to destroy the oldest republic in Europe, one which had always prosecuted those high-born and low-born.  In a sad series of events, Venice tried to placate Napoleon, but ultimately, Napoleon just wanted Venice.  He arrayed his cannons along the shore and was about to bombard the city.  Finally, technology had made obsolete Venice’s defense: the sea.  So, in an emotional meeting of the Great Council on May 12, 1797, after 1100 years of fairly even-handed and non-partisan self-rule, the last holdouts of the Roman Empire voted to voluntarily give up their republic and hand themselves over to French rule.

History makes me cry.