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 14th
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.
