PRIVATE MONEY AND PUBLIC CURRENCIES: The Italian Exchange Bankers

 

PRIVATE MONEY AND PUBLIC CURRENCIES: The Italian Exchange Bankers

Extracted from: Private Money and Public Currencies: The Sixteenth Century Challenge [1994]

https://www.amazon.it/Private-Money-Public-Currencies-Sixteenth/dp/0873326040

Chapter 2: The Italian Exchange Bankers and the World of Fairs

Despite some heated controversy about the origin of bills of exchange, it is now generally agreed that they derived from international trade, rather than from the manual exchange of specie, which for its part led to the deposit and clearing bank. So historically, exchange bankers started out as intra-European merchants who invented this monetary practice for their trading requirements; and merchants they indeed remained, even when dealing with bills Of exchange came to be their main activity.

The exchange bankers' Club is thus closely bound up with intra-European trade, especially with the world of traders in fairs, where it formed a limited group with the specific function of dealing in bills of exchange, or in other words, in private international money.

Grouped together within various companies and their branches, these men firmly established their de facto monopoly by codifying the practice Of dealing in bills of exchange and by organizing a network stretching across the Europe of Latin Christianity. Although largely autonomous in its mode of operation, this network became integrated into a wider commercial venture which these same companies had been developing since the thirteenth century, thus the exchange bankers as a group owed their wealth and power to the complementary relationship between activities that they largely shared with other social groups on the one hand, and their particular preserve. namely bills of exchange, on the other.

What was remarkable about these men was as much their professional organization as their participation in political and cultural life, which distinguished them from both the great traditional merchants and the other dealers in money.

They mastered a specific operation unknown until the thirteenth century and destined to become a widespread monetary practice throughout sixteenth-century Latin Christianity We shall therefore examine successively who they were' What they did, and the world of fairs to which they belonged.

The Club of Exchange Bankers

The diversity Of the exchange bankers' activities, and consequently, the numerous terms under which they appeared in the writings of contemporaries, tend to conceal the stability and cohesion of the social group to which they belonged.

However, the fact that they could deal in bills of exchange was in most cases due to their being related, either by birth or by marriage, to one of a small number of important Italian families who controlled a sizable portion of intra-European trade and banking, both of which activities were connected with bills of exchange.

As a result of this family framework, coupled with a geographic division based on their towns of origin, the exchange bankers developed into a group that was unified in its professional practices, though at the same time split into competing factions on matters of traditional monopolies and specializations.

The club emerged and rapidly closed in on itself by making its members abide by common "rules of the game," yet admitting competition between decentralized companies. Organized into de facto groups or "nations," exchange bankers introduced into the large commercial and banking centers a new way of life and new ways of thought. These were to surmount the usual inertia of the Church and the destructive rivalries of the princes, thus leading to the triumph of rationalism in Europe.

 

The Origins

The emergence and development of the exchange bankers' group went hand in hand with the rapid commercial expansion of Italian cities. A distinction has to be made, however, between those cities that, like Venice and Amalfi, specialized in maritime trade performed by merchant adventurers, an activity requiring particular forms of organization, and the inland cities (Florence, Lucca, Milan, etc.), which dominated and structured intra-European trade through the introduction of bills of exchange.

In the thirteenth century these Italian inland cities woke up to business matters. The merchant families belonging to these cities promptly launched into commercial, banking, and financial activities, which were extended almost exclusively across Christian Europe, bringing life to the fairs of Champagne and the commercial center of Bruges. Little by little, they also established themselves in the main French and Spanish ports and came to dominate the regular traffic between the major European countries. These were the first elements leading to the dominant role of the exchange merchants' group.

The legal organization of the companies or "banks" created by these families was highly specific, since it was meant to ensure the management of their wide range of activities over a long period. Company contracts and various control regulations conformed to the principle of a joint partnership in order to centralize and stabilize the initial capital over a period of three or four years. In fact, these contracts were constantly renewed within the same family to guarantee the survival of the company in the event of marriage or death. Thus the Capponi of Florence renewed their company on thirteen occasions between 1512 and 1599, and the Bonvisi of Lucca held their own from 1505 to 1629 by virtue of some twenty successive contracts. Periodically the partners shared out the profits and losses in proportion to their initial investments. Often the profits were only calculated when the company broke up, and the settlement was evidently complicated because of the diversity of the business operations concerned.

Usually, one family would establish itself within several companies in Europe in order to gain control over certain areas and have the advantage of direct information, especially regarding exchange rates in different countries. To begin with, such families had "factors" or agents who traveled from one fair to another with the authority to commit their firms in any field they chose, or else they would send out delegates entrusted only with a specific mission. Later on, relatives or partners would create an allied company which became a correspondent of the parent company. From a legal point of view, the system of subsidiaries was not widespread, and what emerged instead was a network of independent companies tightly held together by the solidarity of family ties and linked by numerous messengers who at the time (that is, before the public postal service) played a role of primordial importance. Only a few major houses specializing in bills of exchange or finance, such as the Bonvisi or Fuggers, relied on a more centralized system because of the management requirements connected with these activities. In such cases, the branch offices held accounts with the parent company, which treated them as clients, but because of the varied units of account, there was no overall bookkeeping.

Nonetheless, the presence of Italian families in all the great trading and financial centers (Bruges, Antwerp, Lyons, Rouen, Geneva, Lisbon, etc.) cannot be explained by professional necessities alone. The interminable political conflicts that shook the Italian cities also played their role by driving the losers of the day to seek exile in the country that had backed or fomented their abortive uprising.

Thus the mid-thirteenth century in Genoa marked the beginning of a long series of struggles between the newly rich merchants and the nobility over the government of the city. They were supported either by France or by Spain, which determined reversals of the Genoese exchange bankers' position in these two countries. Similarly in Florence the Spanish occupation produced a great number of exiles (the Salviati, the Strozzi, etc.) who fled mainly to France.

Thus the Europe of Latin Christianity was gradually covered by a highly organized network of correspondents settled in the major centers and responsible for carrying out transactions for their private clients in each of these centers. The service thus rendered to other merchants would have been sufficient in itself to ensure the prosperity of the network. The profit gained by this service, called "provision" or "commission," was usually set at around 2 percent for merchandise and 0.5 percent for banking.

The network's true purpose and source of prosperity resided, however, in its dealing with bills of exchange, for which it soon captured exclusive rights. On the basis of this operation, a whole set of new rules (and related operations) were gradually added into the margins of the Roman law. It was not until much later (1462 in France) that this practice was officially codified. Unified monetary practices developed despite deeply entrenched local customs, and the companies adopted a specific system of bookkeeping, marking the henceforth irreversible preeminence of economic calculation in business relations.

The Organization into "Nations"

Scattered all over Europe, the exchange bankers living abroad began to form close-knit groups—"nations"—to preserve a sense of their origins and to assert themselves in public life. Contriving to make the most of both integration and segregation, they managed to obtain privileges connected with their nationality as well as more or less secret powers in the life of the city. In France and Spain, their interventions often included intrigues or financial blackmail in connection with the enormous loans raised by princes. The election to the imperial throne of Charles V at the expense of François I in 1519 was the result of multiple transactions by Genoese exchange bankers such as the Gualterotti and the Fornari, who, thanks to their bills of exchange, enabled the Fuggers and Welsers to dispose of funds in numerous places and at very short notice.

This tendency to involve themselves in the financial circuit of princes became quite frequent from the second half of the sixteenth century on. But although this reconversion yielded temporary advantages, it usually proved fatal for these companies. All the same, independence continued to be the rule, and the nation as a legal and administrative recourse was the necessary intermediary between the exchange banker and his family on the one hand and the administration of the foreign country in which they lived on the other.

In the major centers, the Italian nations played a leading role in trading, banking, and exchange. The less obtrusive German nation stayed on the sidelines in all but public finances. As for the English, they did not take part in the transactions of bills of exchange at continental fairs.

Four nations – The Florentines, the Lucchese, the Genoese, and to a lesser extent the Milanese – made up the predominant group in the world of great European merchants. Through their numbers, and also through their solid organization, they simultaneously controlled merchandise trading, banking, and exchange by bills, the latter being their exclusive domain, though integrated into an array of diverse activities that were more or less important depending on the nation concerned. They thus appear as both merchants and bankers in the statistics of the period, the fiscal documents of the Nommés (1516) or of the Ferme de Ia Grande Draperie of the city of Lyons, and their limited number compared to the total number of foreigners visiting the Lyons fairs (80 families for 5,000 traders) belies their position in terms of their wealth.

In 1571 the Italians paid about 80 percent of the taxes collected from foreign merchants or bankers, which corresponded to 25 percent of the taxes paid by all taxpayers, although they represented only 5 percent of the tax-paying population.

The Lucchese are most often listed as bankers (12 out of 18), the Milanese as merchants (19 out of 21), whereas the Florentines (24) and Genoese (18) always combined these activities. [1] Although Bologna, Rome, Naples, and Palermo were major exchange centers, they did not produce nations playing a part in the organization of the European bill-of-exchange network. Venice joined this network at the end of the sixteenth century.

The Florentines

The Florentines were the first organized nation: in 1447 they already had a consul and two counselors in Geneva who negotiated with the princes and municipal authorities. Their experience in trading with money (exchange and credit) goes back to the Middle Ages, when they practiced this trade in the Levant, as well as in Italy, France, the Low Countries, and England. Up to the late fifteenth century the Medicis and their allies exercised considerable influence, but after that they were gradually displaced by rival families. Throughout the sixteenth century, political upheavals in the city of Florence drove many exiles into France, especially to Lyons, which they turned into a "French Tuscany."

The Medicis, who were well established in the political hierarchy, specialized, often as a strategy, in granting loans to princes, which resulted in many bankruptcies between 1464 and 1494. Until the former date, they constituted a powerful firm that was run in a decentralized manner by a general manager residing in Florence. The various allied companies were held by a majority ownership, and their bookkeeping was strictly controlled. All these companies dealt with exchange by bills, sold letters of credit, and traded in the usual products of the me, namely, wool, silk, alum, spices, oils, and even objets d'art. Moreover, the parent company functioned in Rome as a banker to the Roman Curia for the transfer of papal taxes. Yet their power rested on weak foundations. For the funds used by these firms came from deposits remunerated at a rate of about 10 percent, not from solid joint stock. The obligation to make payments at sight was a constant burden on the management and added to the impossibility of making the deposits profitable in loan operations to princes, because these imposed lower debtor rates. This is why their banks, which had been established in Lyons since 1470, finally collapsed and gave way to those of other families.

The trading and banking houses of the Frescobaldi and Gualterotti were the greatest financial power in England, Bruges, and Antwerp from 1480 to 1510. But among the Florentines, it was above all the Strozzi who took over from the Medicis. Exiled from Florence in the mid-fifteenth century, they settled in Naples, from where they ran companies in Rome and Florence. By refusing to pay interest on deposits, they avoided becoming involved in high-risk operations. They returned to Florence in 1516, under the protection of the Medicis, who, allied with the king of Spain, chased them away once more in 1535. They then settled in Lyons, having been approached for loans to King François I. Like many Florentines they suffered heavy losses from the collapse of public finances in 1556, and they left Lyons for Paris in 1559. The regency of Catherine de Medici enabled some of them to resume their business, but in a way that was dependent on the royal financial network. This weakened their position within the bill-of-exchange system, which was flourishing at the time.

The Lucchese

In the thirteenth century, the Lucchese were already to be found at the fairs of Champagne and in England. They organized themselves into an autonomous nation in Bruges, held a prominent position in Geneva in the early fifteenth century, and skillfully plied their trade in Lyons and Antwerp throughout the sixteenth century, avoiding any political stance in the maelstrom of alliances formed over these centuries. They were mainly bankers, but they never gave up trade, which for the most part consisted of staple consumer products. This ensured the solidity of their business and differentiated them from the Genoese, who, in the sixteenth century, specialized in exchange and finance.

The Bonvisi dominated the Lucchese nation in the sixteenth century. Starting out in England in 1505 with loan transactions to Henry V Ill, they were in Antwerp in 1517 and later in Lyons, where they went bankrupt in 1629.

The Genoese

A Fugger agent once called the Genoese "dry shavers" because of the hard bargains they drove and because of their enormous power in Spain in the sixteenth century. In this period they gave up all merchandise trading to devote themselves to the more or less speculative money trade, taking advantage of the massive arrivals of metals from America.

In the fourteenth and fifteenth centuries the Genoese abroad were essentially bound up with consignment trade, and their banking activities were limited. In the late fifteenth century they started subscribing to loan and exchange transactions as allies of the Fuggers, and in 1519 they participated in the affair of bribing the Electors against Frangois I. They frequently attended the Lyons fairs. But their alliance with Charles V, who opposed the French intervention ending the new popular government in the Republic of Genoa in 1507, led François I to arrest the Genoese bankers and to forbid them to carry on any trade in France for several years.

The Genoese then started to create an organization of their own to control exchange. After a period of preparation (1535—1543), when they received the support of Charles V, new fairs run by the Genoese became more and more of a serious threat to Lyons. Despite the Franco-Spanish war the Genoese stayed in Lyons, however, and only occasionally disappeared from the scene (particularly in 1551, after their consul was assassinated). After 1566 they even quoted a specific exchange rate for any business conducted with the Genoa center.

Their alliance with Spain involved them in the financial circuits spanning Europe all the way to the Low Countries in order to pay the Spanish troops who tried to remain there. Through their bills of exchange they were able to avoid unsafe and costly transfers in the war zones, but at the same time they enriched themselves by appropriating a considerable part of the boatloads of silver ingots unloaded in Seville, which they easily managed to ship to Italian ports, where these metal pieces fetched high prices. So they became experts in the trade of money, in the form of both exchange by bills and transfer of specie, using as relays the fairs they themselves created.

The successive bankruptcies of the Spanish Treasury in 1557, 1575, 1596, and 1612 only temporarily shook their supremacy, for if their loans were partly paid back in government bonds of low value, they were allowed to pay their own creditors back in the same money. The Genoese nation remained settled in Spain until 1650, after which it disappeared in Europe, although some Genoese continued to take part in financial operations.

Through establishing their own fairs, through the speculative practices they developed there, and through their privileged position in controlling the public finance of a country that was the main producer of metallic coins, the members of the Genoese nation became an essential wheel in the monetary system of the period, but they also played an active part in disrupting it. During the second half of the sixteenth century the Genoese nation more and more frequently came into conflict with the other nations of exchange bankers.

An Uncommon Professional and Cultural Life

The cohesion of the club also demanded a particular way of life, one which responded to the requirements of the organization of exchange by bills. Endogamy made for profitable marriages within each nation and, above all, upheld the oligarchic character of their monopoly. Thus the Bonvisi, who were in Lyons from 1466 to 1629, married into none of the local families (nor did they buy any significant real estate). This exchange of sons and daughters among a few families brought about a similar education, acquired in schools built next door to those of the clerks. These schools taught arithmetic, reading, writing, a knowledge of languages, and, above all, bookkeeping, which would enable their pupils to master the complex system of exchange by bills all over Europe. However, the particular mentality instilled in these schools was not limited to professional techniques; it was also developed through the new customs and habits they helped to introduce.

Together with the introduction of Arabic numerals, including the zero, double-entry bookkeeping enabled exchange bankers to manage their funds in a precise and rational way and to mobilize them constantly within the various monetary circuits. The arithmetic of exchange rates thus acquired a degree of precision which only a few initiates could master and turn to profit. In addition, economic calculation is a universal language that can be imposed on all foreign correspondents, whatever their language or local customs may be. Bookkeeping was always the same, from Barcelona to Florence, and all the way to Rational bookkeeping started at the beginning of the thirteenth century, after the Pisan Leonardo Fibonacci introduced Indo-Arabic numerals and their use in business arithmetics in 1202. By the end of the thirteenth century, double-entry bookkeeping was known in Lucca, Siena, and Florence; Genoa and Venice caught up with it somewhat later. The firm was now considered as an entity that was distinct from the fortune of its partners. One could take stock of it, then draw up a balance sheet on the basis of monetary prices, rather than content oneself with a patrimonial assessment in terms of physical data made at very rare intervals. The large Italian companies kept proper ledgers, like those of Francesco di Bolduccio between 1310 and 1342, which included ciphered information about the prices of money and goods, the distances between centers, the amount of taxes to pay, and so forth.

All these elements were taken up and systematized by Luca Pacioli in a Treatise of Accounting dated 1494 but with no noticeable innovations since the end of the fourteenth century. The technique of the exchange by books was hardly analyzed in these handbooks, because it was mainly learned by experience, by apprenticing the sons of families in the major companies. Most of the news about the state of the markets was communicated during the dispatch of bills of exchange between correspondents. The steady improvement in the speed with which these papers were transported made it possible to obtain the latest data required for activities of a speculative kind, whether they concerned transactions in merchandise or the use of disposable funds. All action was thus based on forecasting and on centralization of the information contained in the account books.

Exchange bankers also made innovations in the practical conditions of their existence. The reform of the calendar and the use of the mechanical clock revolutionized their ways of thought while facilitating their commercial practices. Custom, which varied with each country, had made the beginning of the year coincide with important religious holidays, Christmas on December 25, Easter between March 22 and April 25, and so forth, thus in mid-month and without a fixed term for the annual period serving to close accounts. So the commercial companies arbitrarily fixed the beginning of the year either on January 1 or July 1, thus introducing a new calendar distinguishing social practices from the customary religious symbols. This conception of time as an abstract entity imposed on people was essentially accomplished by giving up the variable duration of "hours" depending on the length of the day and the night. For a mechanical clock to strike the hour regularly, the day has to be divided into regular parts regardless of the season; and here again the rational demands of the great Italian merchants imposed this type of "secular hour" on Florence in 1325. The division into minutes and seconds became customary after 1345.

By rejecting traditional practices the exchange bankers became the social minority through which new habits were introduced. As "uncommon alchemists, multiplying money a hundredfold," they were naturally denounced by the entire traditional society for their trade, which was branded as "vile and criminal, like brothels and pimping." [2] But the markets they captured and the profits they amassed inspired respect and fear. They assiduously frequented the court, where they not only counted money but also recounted news received from their correspondents, which earned them the nickname "gazetteers." They made a great show of piety and took care to make up for the sensual pleasures they freely indulged in by granting generous donations to churches and mendicant orders.

Exchange by Bills

According to the trading laws established throughout Europe, merchants had to charge their correspondents in the money of the country in which they conducted business for them. Any trade with a foreigner therefore implied exchange, unless it consisted of a simple barter of goods. This exchange might assume the form of a transport of specie, as was usual all over the world. From the thirteenth century on, however, intra-European trade was distinguished by the use of specific exchange practices which had as their most conspicuous result precisely the minimization of transports of specie.

As a commercial paper of a new type, the bill of exchange, through its very characteristics, required a specific framework in which to develop. The exchange bankers' club, neatly structured as it was through its personal links, provided the necessary condition for a business relying on a specific monetary instrument.

The complementarity between the nature of the social group of exchange bankers and the particular operation of which they had the monopoly gave rise to a system of privately managed relations within institutions that were to disappear with the system itself in the seventeenth century.

The Specific Nature of Exchange by Bills

The earliest recorded bills of exchange go back to the end of the twelfth century and appear to coincide with the establishment of commercial practices in Italy's inland cities. There exist a few earlier cases of contracts resembling bills of exchange stemming from the city of Genoa, dated 1156 and 1186. But these deal with transfers of funds between Italy and trading posts in Asia and the Middle East, and due to their exceptional character they cannot be considered as elements in the European, Latin system of exchange by bills. They do, however, point to one of the main factors at the origin of these practices, namely the dissociation between an import and an export, which were completely connected until that time. In the thirteenth century the notarized exchange contract spread throughout Italy's trading centers and was widely used in France, at the fairs of Champagne, and in the Lorraine, where Florentine and Sienese exchange bankers had been settling since 1250; it was also introduced in Avignon, with the establishment of the papacy there in 1309, followed by Tuscan companies. [3]

At the beginning, exchange by bills necessarily required a notarial deed in a form which was a creation, a commercial innovation of the great Italian merchants of the thirteenth century, in the sense that there was no trace of it either in the Roman law or in the rules of maritime trade. Moreover, a study of the numerous notarial deeds shows a departure from the practices of manual exchange, which was from then on highly organized because of the splitting up of the area of trade. Particularly important was the fact that those who contracted a bill of exchange did not belong to the social group of money changers but were usually Italian inland merchants largely engaged in intra-European trade. They were therefore often faced with problems regarding availability of funds in various places, which in the thirteenth century involved complicated exchange constraints. The functional origin is therefore different from that of manual exchange, which was carried out in one place.

In thirteenth-century Genoa, with the dissociation between import and export operations, exchange was first grafted onto the merchandise circuit and acquired its essential characteristics. The man of business who dealt in exchange from then on ceased to be the financial intermediary who borrows at a center against a sale of foreign currency abroad, pledging to mobilize the funds he possesses over there (as in the case of exiles), or else to transport them there. He now becomes a buyer of bills of exchange and supplies money against a promise of payment abroad, made by a merchant who pledges to transport and sell his goods there in order to reimburse him.

The man of business now becomes strictly speaking an ' 'exchange banker," and it is this transformation of the commercial structures that brought about the fabulous expansion of this practice from the fourteenth century on. Until that time almost all the great merchants had been travelers, but in the fourteenth century they became sedentary. They traveled periodically, but less and less with the objects they traded. They went to places where they had trading posts and partners, and they managed their European or worldwide affairs from there. The expansion of cities, the invention of the bill of exchange, and the settling of merchants are the three concomitant and complementary facts that explain the economic transformation of Europe at this period through an unprecedented commercial expansion.

Indeed, saving time that had previously been spent on adventurous trips enabled the merchant to diversify his activities by establishing a network of correspondents and branches and at the same time by combining them in his account books. This internal organization of family firms was paralleled by the running of exchange operations centralized in the fairs. This double movement made it both possible and necessary to multiply bills of exchange, which gradually lost their notarial form to be reduced to simple missives which the exchange banker addressed to his correspondent abroad. Their codified wording preserved their character as probative and binding notarial contracts. The creation of an organized exchange network led to the advantage of a simple schedule that was quick and easy to handle, and also made it easier to keep professional secrets. After these formal modifications, the nature of the exchange contract remained unchanged until the seventeenth century.

The structure of homogeneous and organized social groups within trade and banking reflects the differentiation of medieval exchange into three types of distinct operations, the specific nature of which is acknowledged from the fourteenth century on. Luca Pacioli provides a complete and systematic description of them in his late-fifteenth-century treatise, referring to the various elements contained in manuals of trade and theological books. Here is an excerpt of H. Lapeyre's account of such works: [4]

“Most of the authors writing about exchange begin by establishing a distinction between three kinds of exchange: manual (minutum), real (reale) and dry (siccum ). Sometimes they add fictitious (fictum) exchange, which is but a variant of the preceding exchange. This distinction is quite classic.

We already find the expression cambium siccum in Baldus at the end of the 14^th century, but it was Laurentius de Rudolphis (Lorenzo Rodolfo) who appears to have first reported this theory in his treatise on usury. He actually contrasts cambium minutum with another type of exchange, which he subdivides into cambium per litteras and cambium siccum. At the beginning of the 16th century, Sylvestre de Prierio, who was read by all the scholastics, clearly defined the three expressions we mentioned, which became traditional.

If they were so successful, it was because they corresponded with the nature of things. There were indeed three kinds of differences in exchange, as Cajetan says and Soto repeats, numismatum et locorum et temporum, in other words:

• manual exchange stems from the need to barter for one another present specie of diverse values;

• real exchange stems from the need to exchange a present money for an absent one;

• dry exchange stems from the need to exchange a sum of cash for another sum which you will receive at the same place, but later.”

Note that although this passage consistently deals with exchange and therefore with moneys, there is some ambiguity in the terms used for the three definitions: specie, money, and sum of cash. These multiple designations refer to the different monetary forms which make up the substance of monetary transactions depending on their nature and which participate in distinct circuits with regard to both "those who count" and what they count with. The canonical ban on interest-yielding loans may account for the profusion of monetary operations and supports. The fact that it was impossible to trace the progress of a given sum of money directly through a merchant's accounts—precise though these usually were—prevented any conviction for profits that had vague and multiple sources.

What, then, were the possible means for enrichment through exchange?

1. Real exchange, according to J. Trenchant, an author of that period, was "to take money in one city and return its value in another, or on the contrary, to lend in one place and take back the value in another." [5] This exchange may produce a profit which can be neither calculable nor lawful unless certain well-defined conditions are met, and these we shall examine below.

2. Manual exchange consists of an actual transfer of specie in a single place and at a given moment: either changing small denominations for large ones (often silver coins for gold coins) or changing domestic specie for foreign specie of similar or different metal. The Church admitted the legitimacy of a normal profit for exchange involving work or risks.

3. Dry exchange was the contemporary term that described, as a rule, any illicit exchange, and its etymological origin seems to refer to a common image reported by Lopez: "It is exchange without the existence of exchange, but only its appearance, like a dry tree, which has a shape still wearing the appearance of a tree, but not its existence." [6] It usually consisted of an exchange by bill between three people, with the interest rate fixed at the beginning of the transaction, which made it illicit. Fictitious exchange is a form derived from dry exchange, consisting of drawing up in the same place bills of exchange nominally issued in two places and at different times, in order to disguise a real and direct loan transaction. Both these variants use the formal support of an exchange by bills, but they contradict and distort it on several points. This explains how contemporary jurists and theologians managed to detect them when they meticulously scanned each transaction for all the characteristics of the exchange by bills.

Only the entire set of characteristics could legitimize a potential profit made by the exchange bankers.

As an instrument for the evolution of ways of thinking and social practices, the bill of exchange is a crystallization of traces of the medieval past together with the germs of rational thought destined to oust traditions. For three centuries it brought about the beneficial juxtaposition of an area split up by the rivalry of ambitious states and a homogeneous trading and banking network organized on a European scale. This pragmatic and innovative origin can be found in the essential characteristics of the bill of exchange, because it involved different places with different moneys. But at the same time it organized exchange on the basis of pure moneys of account created and managed for the purpose, namely, exchange moneys.

Exchange by bills is distinguished from the two other types of exchange by combining three differences, those of place, time, and money of exchange. This qualified it as a "real" exchange for the (canonical) censors who authorized its development. If we specify exchange by bills in terms of difference in place, it is in order to locate in it the origin of the other two differences, those of time and moneys, which are thus logically deduced from the first, though adding some specific aspect. This is explained by the practical conditions of the development of exchange by bills, which aims at simultaneously allowing available funds without transfer, loans without a fixed interest, and exchange without the handing of specie. Hence the originality of this monetary instrument, which cannot be reduced to one of these operations alone.

1. The difference in places is essential. Exchange by bills consists of supplying money in place A against a document (the bill) which guarantees, when presented, the delivery of money in place B; the presence and absence of the money, according to the definition of the authors of the period, consequently refer to places: in A, where the exchange transaction is contracted, the money supplied against the letter is "present," whereas the money of which delivery is guaranteed elsewhere (in B) is "absent" here. Exchange by bills is precisely defined as the exchange of a money which is present at the place of the contract against a money which is absent at that place.

2. The difference in moneys is another characteristic of exchange by bills, because the latter is jointly organized in intra-European trade and connects zones of different administrative sovereignty (even if they cannot yet be always described as states). It is distinguished from internal exchange because it exchanges one money of account for another money of account. The terminology of the period often leads to confusion, because in numerous writings exchange also means any banking or credit transaction that converts a sum of money into another, whether this difference be due to time, space, or the material form of the instruments used (specie or commercial paper). In this sense, inland exchange only involves two or three people at most and exclusively concerns the unit of account of the sovereignty in question. It was normally carried out by ordinary merchants.

Because it deals with moneys of account, exchange by bills cannot be compared with a substitute form of manual exchange, since the latter exclusively concerns circulating coins, whereas the moneys referred to in the bill of exchange are pure arithmetical constructions established by the trans-European group of exchange bankers.

3. The difference in time is also a corollary of the difference in place, which, in view of the conditions at that period, involved more or less of a time interval for the transfer by "courier" of the bill of exchange from A to B. So the time that elapsed between the issue of the bill and its presentation depended on the distance between A and B. This time interval, which was called "usance," consisted—when setting off from Lyons, for example—of two months to Palermo, London, or Seville, thirty days to Naples, twenty-five days to Florence, Rome, Venice, Lucca, or Antwerp, and twenty days to Genoa or Milan. This interval also distinguished exchange by bills from manual exchange, which was instantaneous because it consisted of exchanging "present" specie. Thus the difference in place, combined with the difference in moneys and time, enables us to describe exchange by bills as a specific contract, a legal as well as an economic innovation.

The Standard Form

What does a standard transaction look like? Before answering this question, we must point out that the exchange bankers shrouded their practices in a finicky formalism which lent itself perfectly to ensuring their monopoly. Any bill of exchange which did not observe the exact formulas of the customary wording, was not written entirely in the same handwriting (the signature did not count as sufficient authentication), or was written in a scribe's calligraphy, was considered fake.

The bill of exchange concerns two moneys, occurs between two places, and concerns four people, according to the following scheme:

At place I, the "deliverer" (of the money) hands the money to the "taker." The former is said to "give this money for exchange" or "lend it for exchange," and the latter "takes it for exchange." The taker signs for the deliverer a bill of exchange which he draws on a person of his choice in favor of a "payee" named by the deliverer.

At place 2, and on a fixed date, the payee hands the drawee the bill of exchange he has received from the deliverer by courier, and the drawee, if he accepts it, pays him the stipulated sum in the other money.

The deliverer is said to "make a remittance" from 1 to 2, where he transfers his claim, and the taker to "draw a draft" on 2, where he orders payment.

Usually, the payee at 2 is the deliverer's correspondent, if not purely and simply his agent, while the drawee has a similar relationship with the taker (drawer).

Sometimes the drawee (payer) is merely the assignee of the taker of money at 1. The existence of assignments (and a fortiori of business correspondents) does not, however, prevent the transaction from taking place between four legally distinct persons, of whom only two have the status of contracting parties (those of place 1) and of whom the other two merely carry out the contract (with no right of appeal against the former).

The drawee is thus held to accept paying the bill in his personal name: he is then qualified as "acceptor" and may not retract, even if he does not receive the equivalent (as a result of the drawer's bankruptcy, for example). The drawer, on the other hand, is always free to revoke the payment order even after the drawee has accepted it (this order automatically lapses if the payee dies after acceptance). Formally, one of the four persons can play two roles without invalidating the transaction from a legal point of view.

As an instrument for the execution ofa contract, the bill of exchange contains in its wording both an order to pay and the description of the transaction. A concrete example will help describe the forms, in the case of a draft drawn in Lyons on Seville: [7]

Addi 10 di settenbre 1537

V 100 a maravedi 378 per ducato. Paghate a uso per questa prima di cambio

a Francescho Botti scudi cento, a maravedi trecentoseptantotto per V, Ia valuta

qui da Francescho e Bartholomeo del Bene e Comp., e ponete a mio conto. Dio

vi guardi.

Philippo di Federigho Strozzi in Lione

[On the back:] "Domino Francesco Lapi in Sabilia Prima."

The transaction is as follows: on 10 September 1537, in Lyons, Francescho and Bartholomeo del Bene and Co. (deliverer) paid 100 écus to Philippo di Federigho Strozzi (taker), who drew on Domino Francesco Lapi (drawee) in Seville a bill payable in this city for 37,800 maravedis to Francescho Botti (payee) at usance. We note that the exchange rate is included in the bill: the money received in Lyons is evaluated 'to be repaid by equivalent" in Seville.

Originally, and until the beginning of the seventeenth century, the bill of exchange could only be handed over to a banker, and the legal monopoly of the deliverer's functions emphasized the inter-individual character of this exchange contract and prevented the free transmissibility of bills by endorsement. With regard to the wording of the bills concerning the moneys exchanged, an explicit and systematic dissymmetry can be observed. Whether they dealt with a remittance from Lyons to Medina del Campo or, conversely, with a remittance from Medina to Lyons, the bills, which were very frequent between these two fairs, always began with: “Paghate a... X scudi…” in accordance with a certain rate of the scudo in maravedi stipulated in the bill. They were always orders to pay in scudi (or écus), while these were alternately present money or absent money in the place where the contract was made. This shows that the different exchange places formed a permanent organization, which the exchange bankers had organized into a hierarchy. We shall analyze this later, in connection with the area of the exchange by bills.

Until at least the late sixteenth century, the bill of exchange did not admit of any endorsement or possible transmissibility of its holder's right. What is more, throughout the sixteenth century the attitude of those who controlled the network of exchange by bills—namely, the Italian exchange bankers—was to reject such transmissibility constantly and resolutely. Even in Antwerp, where English and Hanseatic merchants put pressure on having the bill of exchange made payable to the bearer, like other drafts, the Italians opposed this development.

For this refusal, two types of explanation have been advanced, based on commercial or legal usage. According to de Roover, the fact that, in the practice of exchange by bills, the payee was normally a correspondent of the deliverer, and the drawee a correspondent of the drawer, made this kind of transaction depend largely on trust between correspondents. By introducing third parties — the endorsees — "the practice of endorsement would upset the relations of correspondence to which the Italian merchants particularly attached great importance." [8] Moreover, from a legal point of view the transmissibility of claims would have implied an extension of the bearer's rights to the detriment of those of the deliverer, and the change in jurisprudence in this field was just beginning to take place in the mid-sixteenth century. The legal principles founding the negotiability of claims on the one hand, and the exchange contract on the other, were so contradictory that the endorsement, when it was introduced in the seventeenth century, was first interpreted as the conclusion of a new exchange contract.

This specific feature of the bill of exchange compared to other commercial papers — its non-transmissibility — was not contradicted by the statements included in certain bills: though their amount could well be "transferred" by the payee to any other person, the transfer order was not an endorsement because, as de Roover also emphasizes, it concerned a paper that had already fallen due; [9] it was merely a way to dispose of the remitted sum, which confirms the difference in kind between the exchange transaction itself and the settlement procedure.

The person performing an exchange contract had to settle the sum stipulated in the bill, in addition to the following expenses: the local charges, which, like the usances, were customary (0.33 percent in Milan and Venice; 0.66 percent in Lyons; 0.50 percent in Seville; 1 percent in Lucca and Antwerp; 1.66 percent in Messina and Palermo), and the fees of the commission agents and brokers (between 0.25 percent and 0.50 percent).[10] The rapid expansion of exchange by bills implied the normal functioning of the two successive transactions (remittance and settlement), owing to efficient information between correspondents of the same firm about the availability of funds. It also required the legal protection provided for the bill of exchange, which was soon adopted as a privileged claim, payable without delay and without the possibility of the tribunals extending any term.

In case an exchange by bill was not properly performed, there were several possibilities for the outcome. First, it might happen that the drawee refused the bill which the payee presented to him at usance, either because he had no orders from the drawer or because he was short of funds. The payee would then have to draw up a "protest" before a notary, who would confirm nonacceptance of the bill. In Lyons this step had to be taken within twenty-four hours, but elsewhere the rules were more relaxed. The protest would be sent to the initial deliverer, who would then take proceedings against his debtor (the taker in 1). Before going to such extremes, however, it could always happen that a third party turned up (at place 2) and offered to replace the hindered drawee (either because the house had a good reputation or to avoid a chain bankruptcy). This third party was called acceptor by intervention, by honor, or "under protest."

Many evaluations of the quantity of "protested" bills exist, because it was always obligatory to notarize them. They are a sign of the transformations within the great Italian houses, as well as of the changing commercial trends in the large European cities. At the Lyons fair of August 1574, 38 percent of the protested bills were from Spain, whereas in 1566 there had been none at all. Moreover, between these two dates the total number of protests grew from 131 to 393, reflecting the degradation of the network of exchange by bills, which finally collapsed at the beginning of the seventeenth century.

Another type of outcome occurred when the drawee refused to pay the bill after having accepted it. Legally, the exchange contract was only binding to the contracting parties of place 1, without possible recourse by the payee. The latter thus had to draw up, within three days, a "protest of nonpayment," which he could then negotiate with a banker against the remittance of the same sum of money from place 2 to place 1. Another bill of exchange (called of "surprotest") was consequently drawn up, in favor of the initial deliverer, which the new drawee (initial taker) was obliged to pay, including all expenses for proceedings, commission, and transport. This simple operation of exchange in return drawn on the initial taker of the money is pointed out by a number of authors as a normal procedure for the outcome of such litigations in the thirteenth and fourteenth centuries. However, with the gradual expansion of exchange by bills, it was more and more used to disguise a loan and ended up in a complete distortion of the exchange transaction itself.

In cases where the initial taker (the new drawee) was insolvent, it became a habit to return the money through different exchange centers, at successive fairs, rather than "straightforwardly" from place 2 to place 1, at the next fair. This made it possible both to extend the repayment deadline for the initial taker and to use the sum in a succession of arbitrages that would be profitable for the successive takers. [11] What mattered at the time was to find a remedy against insolvency.

This was no longer true when conditions for an abnormal fulfillment of the exchange contract were agreed at the outset and became the very object of the contract. That occurred, in the first place, when the exchange was stipulated in advance at several fairs, so that the due date of payment was postponed beyond the usual term (prolongation). Secondly, it occurred when the money was carried forward from one fair to another. This deposito, a privilege of the exchange fairs, was always considered by the exchange bankers as an integral part of the exchange itself; moreover, they established its rate by following the same procedure as for the exchange. And thirdly, it occurred with the re-exchange, which we shall analyze in chapter 4 and which was a simple means for making a loan through successive transactions.

Finally, we should mention the case in which either the prolongation of the exchange or its repetition, or the re-exchange, stipulated the amount of the gain at the start. Such transactions were systematically fought against by the doctors of the Church until the seventeenth century and were contrary to the very nature of the exchange contract. In 1571 the In Eam Bull of Pius V strictly condemned all these transactions (including the deposito).

Another feature of the bill of exchange is the method of payment of the sum written in it. Although this sum was measured in an abstract unit of account, it was settled at place 2 either in specie or in bank transfer. Thus the exchange banker who dealt with bills of exchange had to know the relations between various units of account and means of payment, which were as follows:

1. The units of account in which the prices of goods and all kinds of contracts were expressed. Although most European countries used the scale: 1 pound = 20 sous = 240 déniers, it would be wrong to believe in the existence of a single system of account throughout Europe. Each sovereign zone had its own domestic unit of account, which had gradually spread all over the territory with the conquests of former feudal powers by princes. Thus there were as many definitions of the account system as there were sovereign realms.

2. The exchange moneys, in which bills of exchange were exclusively drawn and which were either the same as the domestic units of account or specially created for exchange by bills. Thus the écu de marc in Lyons and Rouen differed from the French unit of account until 1575, although it was related to it. A complete table of these exchange moneys will be presented in chapter 4.

3. The metallic coins, the minting of which was the privilege of princes, who, moreover, determined the value in unit of account for which each of these coins was allowed to circulate within their area of sovereignty. Contrary to the unit of account, which was only valid in a given territory, most of these coins were also used at that period as means of payment or transfer outside the territory in which they were struck and defined. This question will be discussed at length in chapter 3. Suffice it to say here that a knowledge of the relations between various royal policies concerning coins was another decisive factor in the choice of methods of payment. In countries where exchange bankers were very influential, certain coins were even considered as directly interchangeable in payments, without having to be exchanged, although their metallic contents differed considerably.

These were gold écus of five mintages (Genoa, Venice, Florence, Naples, Castille); here the requirements of monetary circulation surmounted and eliminated any division caused by the power of princes. However, this perfect superposition was never generalized, because exchange by bills owed its raison d'étre to the principle of monetary division, and the harmonization of various monetary circuits could only be partial.

Exchange bankers enjoyed a crucial position due to their wide range of activities, which provided them with centralized intelligence on these circuits. The bill of exchange was thus deeply implanted within the different monetary compartments, because it implied a relation between the exchange money, the unit of account, and the coins of a place, as well as rates of exchange between various countries for exchange moneys and coins. These complex connections nevertheless suggest a certain autonomy in the exchange bankers' handling of exchange moneys. Peri observes that “the clever changers have succeeded in doing what no prince has ever done, [12] that is, create a perfectly stable money.

Scholastic Controversies about the Lawfulness of Profit

The scholastic controversies about the lawfulness of making profit through exchange were based on the teachings of Saint Thomas Aquinas, who had condemned usury (and also foreign exchange) on the strength of Aristotle's texts about money, none of the three essential functions of which was supposed to produce interest. This rigorous attitude still found advocates until the sixteenth century. But as early as the fourteenth century some interpreters of the Thomist doctrine, including particularly Henri de Gand and Alexander of Alexandria, authorized a relaxation of the canonical obstacles.

Saint Thomas Aquinas distinguished between two forms of legitimate exchange, depending on its being carried out between one merchandise and another or between merchandise and money, when the latter itself is regarded as merchandise in view of its meeting natural needs. These forms of exchange are contrasted with the exchange of money for money, or of merchandise for money when the latter is taken for profit alone and does not contain in itself its own limit. The earliest attempts at rehabilitating foreign exchange thus consisted for the doctors of the Church of transposing "trading denier for denier" into either one of the two Thomist categories of legitimate exchange.

The idea of comparing exchange by bills with a loan contract first prevailed with the theologians. It was no doubt based on the type of cases they had to deal with, consisting of merchant practices that tended to pass off maritime loans as exchange (with which they were connected). But several legal arguments rejected this comparison and justified the canonical authorizations of the fourteenth century. To mention the principal ones: the loan contract is unilateral, with only the borrower committing himself, whereas the exchange contract gives rise to mutual obligations; with the loan, the borrower returns the same thing, whereas with exchange, someone else returns something else; with the loan, you never give back less than you have received, which may be the case with exchange; the loan is usually payable at the same place in which it was contracted, whereas the difference in places is the very essence of exchange.

In its interpretation as purchase/sale, exchange by bills looks like a transaction in which one of the two contracting parties would sell a particular merchandise (the money that forms the object of the contract) and the other would pay the price in a different money. The innovation thus consists of introducing a contract in which the buyer would be paying cash for a merchandise that was not yet available to anyone.

In scholastic writings, and especially in those of Azpilcueta, this interpretation is supported by a distinction between the res and the pretium of the exchange. Between the fairs of Lyons and those of Medina, for instance, exchange by bills was presented — no matter which way the transaction went — as a purchase/sale of the écu de marc of Lyons, "the merchandise proper to those fairs." Its price was paid in a variable quantity of maravedis, the Spanish exchange money against which its value was measured.

But in view of the disparity in exchange rates that could be observed at the same time in various European exchange places, the question arose of finding a justification for the difference in prices existing in the same money at different places. Any price discrepancy that depended on the interval between the issue of the bill and the due date of the refund was condemned. All other price differences were justified on functional grounds. This argument went back to Aristotle's explanation of the value of money in terms of the exercise of its functions in its area of specific validity. In order to function in an area which is not its own, foreign money must be subjected to a depreciation chargeable to the person who operates this transposition. And so it is seen that the differences in exchange rates are a question not of time but of space.

With its interpretation as barter, exchange by bills appears to be a transaction in which each of the two contracting parties acquires one money by giving up another, both being considered as merchandise. This view respects the original symmetry of the co-exchangers and apparently reestablishes the argument of the risks and hazards involved in making profits through exchange. But if both moneys considered in the exchange by bills are considered merchandise, their value, to comply with Aristotle's analysis, would have to be measured before the act of exchange. To justify this mysterious difference in value observed in exchange, some doctors of the Church referred to the intrinsically greater qualities of a money that is present at a place compared to one that is absent from it and has to be sent for.

We are apparently brought back to the theory of exchange as a substitute for the transport of specie, with the buyer paying the transportation costs in terms of distance and risk. From this point of view, however, there is no justification for the inequality of the transport fees, depending on whether the barter was carried out in one direction or another (as particularly pointed out by Mercado). The explanation in terms of the presence/absence of moneys was then replaced by one based on their relative scarcity. According to Soto, moneys owe their respective value not to any essential characteristic they may possess as merchandise but to the common appreciation of those who use them.

By the late sixteenth century the rejection of the comparison between money and merchandise induced a definite break with Thomist doctrines. The doctors contented themselves with working out a theory of the "right price" of exchange, which results from a market without fraud or manipulation or from wise regulations issued by competent corporations. In these cases profit between two places was considered legitimate, because the exchange was actually made between equivalent sums, taking into account the respective scarcity of the moneys in each place. This construction gradually made it possible to dispense with the subtleties of the Thomist theory of "extrinsic titles," which justified a minimum of profit (corresponding with natural needs) through considerations outside the exchange contract itself: the damage suffered, the loss of profit from elsewhere, or the risk incurred. Although this interpretation was not accepted by all the doctors, allowance was normally made for a customary compensation on these grounds within the limits of 10 percent per year (considered divine law since Justinian).

In chapter 6 we shall discuss the nature and foundation of the exchange bankers' enrichment through bills of exchange. Meanwhile, we will examine other merchants who belonged to the world of fairs to see to what extent they participated in the transactions on bills of exchange.

Traders at Fairs

By dealing with exchange the club of exchange bankers dissociated itself from traders at fairs as a whole, but it relied on the overall merchandise trade for its network to function. In the sixteenth century there was some differentiation between people doing business at fairs, depending on the more or less international dimension of their transactions and on the monetary instrument they applied.

Since the early Middle Ages the fair had been the most popular way of organizing big business by periodically bringing together a large number of merchants and a wealth of merchandise of various origins. From Flanders it spread all over Christian Europe (including England and Germany), but its true emancipation from local trade began with the fairs of Champagne. In the thirteenth century these became, at the instigation of the Genoese, a market for capital and merchandise alike. When merchandise cannot be transported within a day, its convoy, security, and accommodation require specific arrangements; and when exchange transactions deal with important assets and are carried out between strangers, conditions for payment and the authentication of documents also require specific laws and accounts.

At the fairs the traders organized themselves according to their nationalities and were protected by their consuls, who represented them permanently. But what differentiated traders at fairs was the nature of the transactions they carried out at set dates and with other merchants. During the periods in which there were no fairs the city would again become a local market with its permanent transactions, but these did not have the same scope and did not bring together the same merchants. During the fair, however, local markets within the fair's perimeter were altogether forbidden.

The first specific problem of traders at fairs was the transportation of great quantities of goods over long distances. Except for the particular case of spices, however, for which a kind of order for future delivery existed between a group of Antwerp merchants and the king of Portugal, transactions at the bourse virtually did not exist until the seventeenth century. The fair differed from the bourse for the following reasons: first, traders had to go there and present their wares, which would be delivered and paid for immediately; second, the period of trading did not continue throughout the year but was divided up into several well-defined phases. This division met several requirements. Ensuring peace at the fairs and collecting the taxes demanded a large administrative staff, who could not be mobilized all through the year. At the beginning, permanent trade was even considered a type of smuggling and was prosecuted as such. But dividing up the periods of fairs also partly corresponded with the discontinuity of supplies.

Moreover, it enabled merchants to take to the road again and sell off the purchased goods elsewhere, as well as renew their sales stocks. At the same time, it furthered a great concentration of transactions. This was to become the prevailing element in establishing the intervals between fairs, to the point that it involved frequent manipulations of dates and deadlines for reasons of liquidity and taxation.

The deadline, in fact, was the great moment when the trader at the fair, having sold his stocks, could settle a bill of exchange presented to him by an exchange banker in the name of a faraway purveyor who had made him his drawee. It was also the great moment when (through the sale of goods and the repayment of loans) his lending capacity was built up again and previous debts were settled.

These settlements took place either "in the bank," through transfer drafts in account books, or "outside the bank," through the designation or assignation of a third party, a nonbanker, to pay in his place; or else in the bourse with certain commercial papers representing private or public debts when these became transferable and negotiable. The latter procedure was not yet very widespread in the sixteenth century. As long as there was not much access to the bourses, these easily fell a prey to associations of traders who, by grouping their purchases, organized artificial shortages for their own benefit. This obviously made the bourse transactions themselves fall into disrepute.

Depending on the type of instrument used as a means of settlement, two categories of traders existed, even though from the sociological point of view they did not always strictly correspond with historically organized groups.

The first category had a multinational calling, with correspondents in several European countries, as well as a more marked vocation for reselling merchandise. This category of traders used specific financing methods, whereby they applied to exchange bankers in one center to obtain the sums required for buying merchandise (by signing bills of exchange) and settled their debts in another center, in another country, after having resold the goods. We shall describe this category of traders as intra-European merchants.

The second category had a more pronounced national vocation. These traders had a tendency to specialize in certain kinds of networks which ensured them a supremacy over local merchants. They were largely self-financing, and when they made any loan transactions, it was usually as creditors. They did not enter into direct contact with exchange bankers. We shall refer to these traders as inlanders, meaning merchants whose activity extended beyond the local framework but whose merchandise was not transported beyond the frontiers of the kingdom.

Intra-European Merchants

Through the many sovereign areas in which they plied their trade the intra-European merchants entered into a system of monetary transactions which was peculiar to them. Their specific feature consisted of the relations they maintained with the exchange bankers, whose clientele they formed. As we have seen, they could be 'takers" of money in one center and "drawees" in another country, because of the commercial relations they maintained with other intra-European merchants. Their use of exchange by bills was more or less frequent, depending on what other ways of payment they could arrange at fairs (carrying forward to the next fair, transport of specie and manual exchange, etc.). So they were a relatively large group who, at one time, were only partly in touch with exchange bankers. However, they almost always had to deal with money changers. They thus provided a contact between these different spheres.

These great merchants were characterized by their wealth and by their influence with the consulates at the fairs, or with the municipal authorities, in all European countries (in France, they were almost all foreigners). Since they handled exchange and credit papers, they were well versed in the methods of "commercial arithmetic" and shared many private and public features with the group of exchange bankers. The fact that they were settled outside their countries of origin made it possible to establish a network of subsidiaries to cope with export and import movements in several countries. Thus the Italians (Genoese or Lucchese) managed to transfer spices that arrived from the Mediterranean through the Italian states, then through France, to the Netherlands or England.

Through their European extension this group of merchants, unlike other traders in fairs, played an essential part in the interplay between different monetary circulations.

Inland Merchants

Typical cases of inlanders were the French traders who attended the fairs of Lyons, Rouen, or Marseilles. They saw to supplying the French provinces with products, but they never managed to get hold of the export trade of these same products, whether they consisted of pastel, cereals, cloth, or wool. Nor did they trade with Italy, Spain, or Germany. The only exception was their establishment in Antwerp, which was neither particularly influential nor wealthy. We can thus classify almost all those French merchants as inlanders whose commercial perspectives were limited to a few regions. In addition, they showed great reluctance to use any instruments of credit. Such an attitude was rarely found in other nationalities, who eventually developed the debenture bill. However, attempts at extending it to local markets were thwarted for a long time.

Drawn up in the form of an acknowledgment of debt, the debenture bill is distinguished from the bill of exchange by the following three characteristics:

• By the agents who used it, for it concerned all merchants (not just the exchange bankers and intra-European merchants);

• By the area in which it enabled funds to be transferred, for it corresponded with a single zone of sovereignty, namely, that of the unit of account in which it was drafted; and

• By its transmissibility, for it was not revocable and often contained an "alternative clause" which allowed the debt to be paid to the bearer rather than to the initial creditor.

Unlike the sight bill, which was not really widespread until the seventeenth century, the debenture bill continued to contain a deadline and could not be repaid at any time and without interest. Unlike the promissory note, which also came later, the debenture bill was only opposable by the bearer (or the initial creditor), without the joint guarantee of all the intermediaries, whose names it did not contain.

Depending on countries or periods, the practice of debenture bills was organized in different ways. It was more or less exclusive to fairs; it was more or less wrapped in formalities, from the notarized deed to the letter written on unstamped paper; its transmissibility was more or less complicated, with or without the procedure of a power of attorney for the bearer. In Flanders this practice proved most flexible and widespread, sanctioned, what is more, by an imperial mandate of Charles V (dated 1537), which conferred on the bearer all the rights of a normal creditor, including the right of appeal against intermediary bearers. The "Fugger bills" were widely circulated at this period, both at the Antwerp market where they were negotiated every day, and in current transactions, where they served as payments.

Within each sovereign area, the trade of debenture bills drawn from one city on another gave rise to money movements which proved particularly fruitful in the sixteenth century. This was the "inland exchange." Constantly practiced in France as early as the fourteenth century, this transaction spread to Spain in the fifteenth century, then to England in the sixteenth century. It manifested itself through a map of the inland centers, containing the customary usance terms and specialized brokers. [13]

If, for instance, a merchant from Marseilles or Bordeaux owed money in Nantes or in Rouen, he could try to obtain on-the-spot credits payable by merchants residing in these cities, [14] rather than convey specie to them. He could also find a banker who would carry out this remittance of money in the cities concerned, by drafting a bill to be paid by one of his correspondents there. This bill, which transferred a given amount in the same unit of account between two centers of the same sovereign area, was also, at the time, usually described by the term "bill of exchange." [15] Because the price of this exchange was what it cost at a given time in a given center to have the funds that were advanced in one place available elsewhere, the exchange was said to be "at par" when as many units were paid as were actually stated in the bill.

This price varied depending on the scarcity of credits in the center and on the shortage of cash; and the variability was put forward by many theologians to justify the practice of inland exchange. It should be particularly noted that this transaction was by no means based on an agreement between parties with a view to avoiding the risks of monetary depreciation. Attempts made by creditors in this sense, especially regarding the possibility of settlement before the due date or writing out the debt in specie evaluated at the time of signature, were never legalized.

From the early thirteenth century on, there appeared in Europe an international group of bankers who were destined to play a more and more important role in relation to each of the political micro-societies that were being formed. Although they asserted themselves through their wealth, these exchange bankers nevertheless remained unpopular with other merchants and developed a distinct clannishness. Their organization of exchange by bills was to disappear with the founding of the nation-states in the seventeenth century.

The members of this club, who were for the most part of Italian origin, established themselves all over Europe in the fourteenth century and soon became sedentary. They then organized themselves into a homogeneous exchange network that spanned the European area by means of an array of exchange moneys which pervaded the existing political and monetary divisions and turned them to advantage.

The exchange banker's specific function consisted of trading in a particular monetary instrument which was not a general circulating medium (for it was not transmissible). Unlike the manual exchange of specie in the same place, exchange by bills was organized to function between several places on the basis of moneys specifically created and managed for that purpose.

As the specific function of a club, exchange by bills was also a privileged way for this club to enter into a client—purveyor relationship with other elements of the merchant society, for this particular enrichment of the exchange bankers, which created so many moral and analytical problems for their contemporaries, would not have been possible without the existence of all the other traders.

Notes

1. These figures are based on Gascon [15].

2. The expressions are by E Cleirac, a Bordeaux lawyer, in his “Usance du Négoce” [77], p. 5.

3. For further details about the origin of the bill of exchange, cf.: Thieury [191], pp.11 and 30; Forbonnais [101], vol. I, p. 25; Bouthillier [55], p. 29; Nouguier [162], p. 44; and Cleirac [771, pp. 28-50.

4. Lapeyre [22], pp. 24748.

5. Trenchant [36], p. 342.

6. Lopez, "Tractatus de contractibus et negotiationibus," Lyons, 1593, quoted by Lapeyre [22], p. 249. For Sayous, the origin of the expression "dry exchange" stems from the non-maritime nature of this type of contract. Cf. [180], p. 294.

7. Example taken from de Roover [28), p. 152.

8. De Roover [28], p. 92. See also Levy-Bruhl [144].

9. De Roover [28], p. 84. The author supplies (p. 153) an example of a bill of exchange containing three successive transfer orders.

10. The calculation of these costs is based on information provided by: Boyer [5], p. 106 ff.; Dupuy de Ia Serra [94], p. 222; de Norry [161], p. 106; Damoreau [82), p. 15; and Savonne (179], pp. 168 and 171.

11. The advantages of this cambio arbitrario were already explained in the mid-fifteenth century by Da Uzzano, quoted by Sayous [181], p. 1434.

12. Peri [164].

13. On inland exchange, see: Bouthillier [55], pp. 29, 74, and 212; Cleirac [77), pp. 62-63; Gascon [106], pp. 236, 241, 255, 282, and 317; Lapeyre [22], pp. 265, 293, 314—16, and 486—92; de Roover [28], pp. 45, 53, 62, 108, and 175; Savary [1 78], vol. 1, p. 931; and da Silva [32], p. 598.

14. The other great French centers for inland exchange were Paris, Toulouse, Tours, La Rochelle, and of course Lyons, where these transactions were centralized.

15. In the present volume, the term "bill of exchange" will be restricted to international exchange, the term "debenture bill" being used in inland exchange.