Draft
Guiseppe Verdi wrote in his opera Attila “You may have the universe if I may have Italy.” Italy is often cited in regard to many influential historical moments, including the Renaissance from 1300 to 1600. The Renaissance was the rebirth of European culture after the dark ages. It introduced secularism, opinions, individualism, and art. This period of three hundred years is often divided into “early” and “late”, with other dividing factors being location, as the Renaissance moved from Italy to Northern Europe, from the Mediterranean to the Atlantic. In moving north, the Renaissance was following the money. There were booming economies in the north, such as France, U.K., and Germany, especially compared to the suffering Italian economy of the 1600s. The Economist’s Renaissance deals with the concept of following the money, and features one of the wealthiest families in history: The Medicis.
“Italy” did not exist until the middle of the 19th century, as it does today, because it was made up of nations and municipalities. Its divided internal nature led to a weak political system, which caused civil problems and competitions, making it easy to be invaded and occupied, particularly by France and Spain. This contributed towards the downfall of the economy in Italy, which came after the Economist’s Renaissance, and the Medici family, hit Florence in 1397. The patronage of wealthy people, such as Lorenzo di Medici, or “Il Magnifico” as he was called, put Florence at the center of the Renaissance. Patrons supported architects, scholars, scientists, and artists. The Medici’s are often referred to as the prime example of a capitalist family rising to social and political power; making the point of them perhaps being a political party rather than a family.
The Medici Bank, or Banco dei Medici, was, and remains today, one of the most important financial institutions. It was created by the Medici family in Italy during the 15th century to 1494 when they were exiled and pushed from power. They returned to Florence in 1512 when they defeated the republic’s armed forces and managed to dissolve the government. Niccolò Machiavelli was a direct victim of the regime change. He was put into internal exile and tortured when accused for conspiring against the Medici’s. The final chapter of “The Prince” by Machiavelli is a call for the Medici family to follow Machiavelli’s principles and free Italy from foreign domination. However, before its fall, it rose to become the most powerful family, the backbone of the Renaissance, through over a hundred years of work. In its prime, it was the largest and most respected bank in Europe. It owned art, land, and gold which makes it difficult to estimate their true wealth in today’s money. However, their monetary wealth led them to have political power in Florence and spread to wider spheres of Italy and Europe.
As an upper-class, notably wealthy family, they had always been involved in banking at a high level but Giovanni di Bicci de’Medici was the first Medici to enter banking after he became influential in the Florentine government. In 1397 Giovanni separated his bank from his nephew Averardo’s bank, which was acting as a branch in Rome. While Rome was a source of funds, Florence offered more investment opportunities. The Medici Bank moved from Rome to Florence, and in 1402 they opened a branch in Venice, which became an important outlet of investment opportunities, too. Giovanni’s son, Cosimo the Elder, took over in 1434 and Medici soon became the unofficial head of state in the Florentine Republic, even handling papal finances. Along with this, they managed most of the great fortunes of the European world, such as royalty and merchants. They derived their money from land holdings in the Mugello region, north of Florence, and became innovators in financial accounting. The Medici currency, florin, was once accepted and used throughout Europe as the preferred currency to conduct business, commerce, and trade.
The Medici’s set up a system of branch banks, any of which could be declared independent by rearranging the accounts. These arrangements protected the parent bank in Florence from bankruptcy of the individual branches that may have been caused by localized economic difficulties. The concept of having branches is thought of as a Medici innovation, along with double entry bookkeeping, letters of credit, and holding companies. These four things were innovated or developed by the Medici’s and are still in practice with today’s commercial banks. Double entry bookkeeping was an accurate way of minimizing errors due to the influx of wealth generated from traders. It meant recording both credits and debits, so calculating profit and loss, which provided an overview of the money a business had, which allowed for more informed financial decisions. The Medici Bank’s operation also included holding companies. The bank expanded to Milan, Venice, Rome, London, Geneva, Lyon, Avignon, Barcelona, and Bruges. All these branches were under a partnership under the central holding company which remained in Florence. Although the Medici’s were in constant competition with The Bardi and The Peruzzi as they had more branches and more power, this made the Medici Bank the most international. The Vatican become the Medici Bank’s greatest client, as it brought taxes that were due in Rome from other branches of the church commercial in Europe. Pope Leo X was also the son of Loreno de Medici; these papal connections gave the bank a lot of power, but even the pope had a massive overdraft, which, in turn, contributed to the ultimate downfall. Banks today also use letters of credit. A letter of credit is an agreement in which the buyer’s bank guarantees to pay the seller’s bank at the exact time the goods and services are delivered. This was developed because shipping large amounts of money over land was dangerous. Instead, traders could deposit florins in a Medici bank for a letter of credit, which allowed international trade to flourish.
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