Italian Bankers in Late Medieval England

A century before the advent of the Medici, Italian merchants and bankers had significance far beyond Italy. They carried out much of the trade between northern and southern Europe, like the import of Mediterranean luxuries and export of wool in England. Italian bankers also financed this private trade as well as the borrowing of English kings. The control of these economic activities by Italians was the result of the peculiarities of northern Italy in the Late Middle Ages.

Italy

In the late medieval world, Italy was unusual. For a pre-industrial society, northern Italy was surprisingly urban; 16% of its population lived in cities or towns of 10,000 or more. In these places, most would have been engaged in economic activities that would have been associated with a smaller share of employment in the larger world. For one, there was more manufacturing taking place in these cities; Milan was a city of smiths, weavers, shoemakers, and tanners in the late 13th century. Venice was a shipbuilding center and that industry alone employed perhaps a fifth of its working residents. Italian shipbuilding would be relevant to its maritime trade, including with England, especially once sea routes to northern Europe came to be favored over land routes.

Still more, in Tuscany by 1338, Florence had about 30,000 people working in, or dependent on those working in, the cloth industry. This is a remarkable share of the workforce. Perhaps more remarkable still, while Florence may have had larger scale textile industries with more substantial differentiation of labor than most places, largely on account of piece work, most production still happened in the setting of small shops with perhaps three workers, counting the apprentice. Regardless of the numbers employed, truly industrial scale production of textiles was still in the distant future.

Besides their artisans, craftsmen, and laborers, these cities also had large professional middle classes. They were home to thousands of merchants, bankers, and lawyers, certainly more than anywhere else in Europe. The guild of notaries in Bologna alone had over 1,300 members. Italian merchants were engaged in trade all over Europe and beyond, but their primary role consisted of marketing goods from the East and the Mediterranean in other parts of Europe and sourcing the raw materials for Italian industry from where they could be bought.

To fund their trade, merchants borrowed from money-changers who lent funds deposited with them by city dwellers; they also accepted investment from the wealthy urbanites of northern Italy. Some merchants came to be bankers and Italian bankers developed bills of exchange to help fellow merchants move money between cities and the medieval trade fairs where buying and selling happened. This was not cheap financing; compared to interest rates today, the cost of money was rather high. Even money lent to Italian city governments, one would think among the safest investments then available, earned the lender interest of as much as 15% in normal times.

Of course, notwithstanding the work of others, most of the region was still employed in agriculture and northern Italy was not particularly endowed with good land. In the 14th century, about half of the land in the region was either too mountainous or too marshy to be arable. Draining marshes provided some new land but much of that would happen later than this period. Crucially, this did not limit the growth of the cities though; the region’s towns chose instead to exchange their manufacturers for food from other regions of Italy.

Despite the limitations, even the rural dimension of Italy’s economy seemed lucrative, albeit to property owners specifically. While land was sparse and rents on land high, higher than in England for one, production techniques were not very different, so productivity was probably not any better in Italy. Nonetheless, the higher rents likely made property-owners wealthier even if at the expense of tenant farmers or peasants. However, land ownership was more diffuse in northern Italy than in England or many other places so the proportion of unlanded peasants or tenant farmers was likely not as large there even if it must have been a numerous class. When it comes to the wealth of the cities, phenomenal for the time, the high land rents enhanced the incomes of landowners, many of whom lived in a city or town. This added to the funds available for investment in commerce.

England

Compared to Italy, England had a much more agrarian economy. The country exported farm produce, including wool, its most notable export; wool exports alone amounted to £150,000 per year. Much of it was destined for Italian cities. Besides wool though, England also exported lead, coal, and hides to the rest of Europe. In contrast to Italy, the country was not known for its manufactured products.

Also, unlike Italy, the country was not urban. Just 3% of England’s population lived in cities or towns of at least 10,000 people; a fifth of the proportion in Italy. So, England may have seemed less developed but it’s important to note that English agriculture was no less productive than Italy’s so living standards were comparable for most people, certainly when comparing people in like jobs, so that marker of development would not have implied a large difference in affluence. Italy and England at the end of the Middle Ages had economies of very different orientation but neither was definitively richer than the other at least in terms of the standards of living of ordinary people.

Depiction of London at the time of the 1381 Peasants’ Revolt

In any case, England had a much smaller non-agrarian workforce and there were far fewer people engaged in professional, commercial, or industrial work. The wealthy owed largely all their riches to their landholdings and urban fortunes of any nature whatsoever were few and far between. There were virtually no bankers. In England, savers, even very rich ones, left their money in chests, typically in the custody of abbeys; that was the nature of banking in medieval England. With little intermediation of capital, borrowing was much more expensive in England than in Italy. While data is sparse, a few royal loans of the 14th century seem to have been contracted at rates of 26% or higher.

Trade and Private Finance

These two economies were clearly different but they were not disconnected. Italian merchants began to sell Mediterranean goods, particularly luxury goods, in Northern Europe, displacing a role earlier held by the Hanseatic League merchants, traders from northern Germany. Even goods from faraway Asia made their way to the end of caravan routes in the Byzantine Empire, where merchants from Venice and Genoa would buy with the intent of marketing the products in Europe. This trade was largely overland until the 14th century, when sea trade, particularly that of the Genoese around the Strait of Gibraltar, began to overtake it.

In England specifically, Italian merchants were active from the early 13th century. They sold luxury products to the court of Henry III (reigning 1216-1272) and bought English wool to sell to the textile works of Florence and other Italian cities. The role of the Venetians and Genoese in this trade is well known but merchants from other Italian cities preceded them.

Like merchants, Italian bankers were also resident in England. They offered short-term loans to hold over their merchant clients with irregular or seasonal incomes; they provided advances against future receipts from the sale of wool, for example. Some of the money they lent may have come from Italy, but they did raise funds from local sources in England too.

Lending to Kings

Besides funding merchants, numerous Italian bankers lent to the English monarchs over the course of well over a century. The Ricciardi, Bardi, and Ballardi families lent money to Edward I (reign 1272-1307) and Edward II (reign 1307-1327). This business went hand-in-hand with their private activities; in lieu of some interest, lenders obtained commercial advantages from the king. Kings protected the private trade of foreign merchants because they relied on the credit these people extended.

The Ricciardi family from Lucca had been major lenders to Edward I from the 1270s, when he fought in a crusade. This partnership had more than just a lending dimension to it, as was typical for the era. For instance, the Ricciardi were given the job of collecting fines from Flemish merchants violating an embargo in force at the time. So, the lending resulted in other business opportunities. However, it was a peril to lend to monarchs. The extravagance of kings rose in this period by more than their tax revenues. Yet this was nothing in comparison to military expenditures when war broke out.

Edward I engaged in a war with France, the Gascon War which began in 1294, as well as wars in Scotland and Wales. The estimated cost of these came to £750,000 at a time when the king’s income was perhaps £50,000 per year, inclusive of a new customs duty on wool and hides that had been established in 1275.

Kings borrowed more during wars and it became even more difficult to demand repayment; bankers generally found it slow to recover money from a king. Yet, bankers like the Ricciardi funded their business with deposits from merchants and other bankers who could withdrawal their money quickly and who became nervous easily. New deposits also became harder to raise. Because of this disparity, in the 1290s, when the Ricciardi encountered trouble because of the war between England and France, they could only borrow money from 15-20% interest as compared to 10-15% before then yet they could not simply liquidate their loans. This is the episode that led to the bankruptcy of the Ricciardi bank but crises of this sort afflicting Italian bankers were common in the Middle Ages and Renaissance.

Besides straining bankers, war could affect the trade of the Italian merchant community too. For instance, during the Hundred Years’ War, Genoese trade in England came to an end because Genoa had an alliance with the enemy, France, and their trade was able to be circumvented by competition from another Italian state, Florence. As yet another example, when the Gascon War between England and France began in 1294, the king seized the inventory of wool merchants to raise some money. Despite all these tribulations, Italian trade with England continued to grow in the 15th century though the ‘winners’ of this trade changed.

Lesson

In late medieval England, bankers and merchants were few and capital was scarce. In Italy by contrast, there were thousands of people trained and employed in commerce and capital was comparatively plentiful. There should be some exchange in these resources between countries like Italy and countries like England. Indeed, in a modern global economy, merchants and monies can be moved between countries where such a differential exists, but not in closed economies. Even in the Late Middle Ages though, there were expatriate communities of Italian merchants and bankers in many countries, including in England. The bankers amongst them raised local and foreign monies to fund trade and kings alike. Without them, the interactions between different parts of Europe would have been far fewer and the borders between them much more strangling.

More from the Tontine Coffee-House

Read about the banking communities of Siena, Lucca, and Florence, some specific Florentine banking families that preceded the Medici, and the workings of the English treasury during the High Middle Ages. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.