Department of Economicsand

Institute for Policy AnalysisUniversity of Toronto150 St. George Street

Toronto, Ontario M5S 3G7Canada

Friday, 6 July 2001

WORKING PAPER NO. 2 for 2001

UT-ECIPA-MUNRO-01-02

The Origins of the Modern Financial Revolution: Responses to Impedimentsfrom Church and State in Western Europe, 1200 - 1600

John Munro

Copyright © by John Munro 2001Department of EconomicsUniversity of Toronto

Author's e-mail: munro5@chass.utoronto.ca

http://www.economics.utoronto.ca/munro5

On-line version: http://www.chass.utoronto.ca/ecipa/wpa.html

JEL Classifications: B1, E5, E6, F3, F4, G1, G2, H3, H6, K4, N2, N4, P5

The Origins of the Modern Financial Revolution: Responses to Impedimentsfrom Church and State in Western Europe, 1200 - 1600

Abstract: John H. Munro (University of Toronto)

The basic thesis is that the modern ‘financial revolution’, usually dated to eighteenth century England, butfar more properly to the sixteenth-century Netherlands, in terms of those institutions for both governmentfinance (borrowing) and international finance (bills of exchange), owed its essential origins to theimpediments of Church and State that reached their harmful fruition in the later thirteenth and earlyfourteenth century. The major obstacle that came from the Church was of course the usury doctrine, andmore accurately the final evolution of this doctrine in Scholastic theology and canon law, along with theintensification of the campaign against usury in the thirteenth century. The major obstacles that the Stateprovided, with the spreading stain of ever more disruptive international warfare from the 1290s, was thedevelopment of nationalistic bullionist philosophies and of monetary-fiscal policies (to finance warfare) thathindered the international flow of specie in later medieval Europe. For public borrowing, one must beginwith the contentious policies of Venice, Florence, and other Italian city states in basing their finances onforced loans, which did pay interest, and thus with the usury controversies that erupted, over not just theloans, but the sale of interest-bearing debt certificates in secondary markets. The alternative solution, foundelsewhere – first in Flemish towns from the 1270s -- and one that would govern European public finance upto the nineteenth century, was to raise funds for urban governments through the sale of rentes, for one ormore lifetimes (lijfrenten, erfelijkrenten). These were not loans, and hence they were not usurious, becausethe buyer of rentes had no expectation of repayment (unless the government chose to redeem them); insteadthey represented the purchase of a future stream of income, either lifetime or perpetual (heritable). Thoserentiers who sought to regain some part of their invested capital had only one recourse: to seek out buyersin secondary markets. The true efficiency of modern public finance also rested upon the development ofsuch markets and thus upon the development of full-fledged negotiablity; and public finance also dependsupon satisfactory instruments to permit low risk, low cost international remittances. The solution to bothproblems lay in the development of the negotiable bill of exchange. Such bills, at first non-negotiable,emerged in the late thirteenth century as a response to circumvent not only the usury doctrine (to ‘disguise’interest payments in the exchange rate) but also the almost universal bans on bullion exports. Yet anotherbarrier that medieval English merchants faced was the virtual absence of deposit-banking because of thecrown’s strict monopoly on the coinage and money supply, so that the usual origin of such banking, inprivate money-changing, was unavailable. Although English merchants sought remedies by usingtransferable commercial bills, they were not truly negotiable, for they had no legal standing in Common Lawcourts. But from the late thirteenth century, the Crown was incorporating the then evolving internationalLaw Merchant into statutory law, and it also established law merchant courts, which did give such financialinstruments some legal standing. In 1437, a London law-merchant court was the first, in Europe, to establishthe principle that the bearer of a bill of exchange, on its maturity, had full rights to sue the ‘acceptor’ orpayer, on whom it was drawn, for full payment and to receive compensation for damages. From thatprecedent, and then from those provided by similar law-merchant court verdicts in Antwerp and Bruges(1507, 1527), the Estates General of the Habsburg Low Countries (1537-1541) produced Europe’s firstnational legislation to ensure the full legal requirements of true negotiability – including the right to sueintervening assignees to whom bills had been transferred in payment. These Estates-General also legalizedinterest payments (up to 12%), thus permitting open discounting, another obviously essential feature ofmodern finance, private and public. Antwerp itself, with the foundation of its Bourse in 1531, became theinternational financial capital of Europe, especially as a secondary market in national rentes – the veryinstrument that became the foundation of English public finance, in the form of annuities, from the 1690s.

JEL Classifications: B1, E5, E6, F3, F4, G1, G2, H3, H6, K4, N2, N4, P5

1 See the final note, n. 107

2 By far the best study on the medieval and scholastic doctrines on the usury (and just price)questions is: John T. Noonan, The Scholastic Analysis of Usury (Cambridge, Mass. 1957). See also these

valuable studies: Richard Tawney, Religion and the Rise of Capitalism (London, 1926), chapter 1, ‘TheMedieval Background,’ pp. 11-60; T.P. McLaughlin, ‘The Teaching of the Canonists on Usury (XII, XIIIand XIV Centuries),’ Medieval Studies, 1 (1939), 81-147; 2 (1940), 1-22; Bernard W. Dempsey, S. J.,Interest and Usury (London, 1948), especially chapter VIII, ‘Value and Usury,’ pp. 148 - 85; BenjaminNelson, The Idea of Usury (Princeton, 1949); Bernard W. Dempsey, ‘An Analysis of St. Thomas Aquinason Usury,’ in St. Thomas Aquinas, Summa Theologica, Vol. III (New York, 1952); Raymond De Roover,‘Scholastic Economics: Survival and Lasting Influence from the Sixteenth Century to Adam Smith,’Quarterly Journal of Economics, 69 (1955), 161-90; reprinted in Julius Kirshner, ed., Business, Banking, andEconomic Thought in late Medieval and Early Modern Europe: Selected Studies of Raymond de Roover(Chicago, 1974); Raymond De Roover, ‘Les doctrines économiques des scolastiques: à propos du traité surl'usure d'Alexandre Lombard,’ Revue d'histoire ecclésiastique, 59 (1964), 854 - 66; Raymond De Roover,San Bernardino of Siena and Sant'Antonino of Florence: Two Great Economic Thinkers of the Middle Ages(Kress Library of Business and Economics no. 19, Boston, 1967), especially section VIII ‘What Was Usury?’

The Origins of the Modern Financial Revolution: Responses to Impedimentsfrom Church and State in Western Europe, 1200 - 1600

John H. Munro (University of Toronto)

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Was adversity or necessity the mother of innovation in the development of modern European

financial institutions? Perhaps a combination of both. Very few, if any, of the studies that have examined

the origins of the modern financial revolution, as it developed in the form of both public and private

institutions in the sixteenth-century Netherlands and eighteenth-century England, have given sufficient

attention to all their antecedents in western Europe during the previous three or four centuries. Nor, therefore,

have most economic historians observed the fundamental facts about these antecedents: that they had evolved

as responses to serious impediments that both Church and state had imposed upon the operation of those

financial instruments, including those involved in remitting funds between different jurisdictions, that we

now regard as fundamental for both an efficient market economy and efficient governments.1

The Medieval Usury Doctrines

The most obvious, the best known, but still imperfectly studied impediment was the usury doctrine:

the exaction of any interest, any pre-specified return – anything beyond the principal value – on a loan, as

defined in the Roman Law concept of the mutuum.2 Unfortunately, however, the most commonly published

2

pp. 27-33; Raymond De Roover, La pensée économique des scolastiques: doctrines et méthodes (Montrealand Paris, 1971); Jacques Le Goff, ‘The Usurer and Purgatory,’ in Fredi Chiappelli, Center for Medieval andRenaissance Studies, UCLA, ed., The Dawn of Modern Banking (New Haven, 1979), pp. 25-52; Jacques LeGoff, Time, Work, and Culture in the Middle Ages (trans. Arthur Goldhammer, Chicago, 1980), especially‘Merchant's Time and Church's Time in the Middle Ages,’ pp. 29-42; and ‘Licit and Illicit Trades in the

Medieval West,’ pp. 58 - 70; Odd Langholm, Wealth and Money in the Aristotelian Tradition: A Study in

Scholastic Economic Sources (Bergen: Universitetsforlaget, 1983); Odd Langholm, ‘Scholastic Economics,’in S. T. Lowry, ed., Pre-Classical Economic Thought (Boston-Dordrecht-Lancaster, 1987); Jacques Le Goff,Your Money or Your Life: Economy and Religion in the Middle Ages, trans. by Patricia Ranum (New York,1988); Norman L. Jones, God and the Moneylenders: Usury and Law in Early Modern England (Oxford,1989); James A. Brundage, ‘Usury,’ in Joseph R. Strayer, et al, eds., in Joseph R. Strayer, et al, eds.,Dictionary of the Middle Ages, 13 vols. (New York: Charles Scribner's Sons-MacMillan, 1982-89), Vol. XII(1989), pp. 335-39; Odd Langholm, Economics in the Medieval Schools: Wealth, Exchange, Value, Moneyand Usury According to the Paris Theological Tradition, 1200 - 1350 (Leiden: E.J. Brill, 1992).

3 John Gilchrist, The Church and Economic Activity in the Middle Ages (New York, 1969), inparticular chapters 4-6, pp. 48-121, but especially pp. 62-75.

4 See Jacques Le Goff, ‘The Usurer and Purgatory’, pp. 27-52; John W. Baldwin, Masters, Princes,

and Merchants: The Social Views of Peter the Chanter and His Circle, 2 vols. (Princeton, 1970); John F.McGovern, ‘The Rise of New Economic Attitudes: Economic Humanism and Economic Nationalism duringthe Later Middle Ages and the Renaissance,’ Traditio, 26 (1970), 217-53; John F. McGovern, ‘The Rise ofNew Economic Attitudes in Canon and Civil Law, A.D. 1200-1550,’ The Jurist, 32 (1972), 39-50.

interpretations on the medieval usury doctrine are based on several misconceptions that have led far too many

economic historians to believe that this doctrine was not a serious impediment to medieval commerce and

finance. Usury did not, as John Gilchrist so wrongly suggested, refer merely to ‘excessive interest’; nor

was the usury ban merely limited to consumption loans; nor did strictures against and enforcement of the

usury ban wane with the commercialisation of the European economy during the later Middle Ages.3 On the

contrary, just when the Commercial Revolution was reaching its apogee, during the later twelfth and

thirteenth centuries, the ‘campaign against usury’ was vigorously resuscitated, especially by the new teaching

orders of Franciscans and Dominicans, who managed to convince the secular authorities to act just as

strenuously as the Church and canon lawyers in more rigorously enforcing the usury ban on all genuine loans

(i.e. mutuum).4 With the contemporary scholastic analysis of usury, and especially with the wider spread

dissemination of the masterful treatise Summa Theologica of St. Thomas Aquinas (c.1225-1274), usury came

to be considered as not just a sin against charity, but much worse, as a sin against commutative justice and

3

5 LeGoff, ‘The Usurer and Purgatory’, pp. 29-34.

6 See the following loan contract from Genoa, 1161: ‘I, Embrone, have taken in loan from you,Salvo of Piacenza, £100 Genoese, for which I shall pay you or your messenger ... £120 within one year; butif I wish to pay you the aforesaid £100 and accrued interest before the next Feast of Purification, you mustaccept them.’ From Robert S. Lopez and Irving Raymond, eds., Medieval Trade in the Mediterranean World:Illustrative Documents (New York and London, 1955). With introductions and notes; see: Part III:‘Commercial Contracts and Commercial Investments,’ pp. 157-238.

7 See for example Stephen of Bourbon (d. 1261): ‘Since they sell nothing but the expectation ofmoney, which is time, they sell the day and the night. But the day is the time of light and the night of rest,and so consequently they sell light and rest. Therefore, it is not right that they should have eternal light andrest.’ From: La tabula exemplorum, ed., T. J. Welter (Paris, 1926), cited in Noonan, Scholastic Analysis ofUsury, p. 58.

a sin against natural law, and thus a truly mortal sin. Preaching with lurid and horrifying exempla, diabolic

stories about the ghastly fates awaiting usurers in and after death, and aided as well by the far more

generalized observance of compulsory confession, these friars and other priests successfully convinced the

public that usurers were ‘linked with the worst evildoers, the worst occupations, the worst sins, and the worst

vices’.5 Thus the loan contracts of a much earlier era, for example in twelfth-century Genoa, that openly

admitted the payment of interest would not be found from the thirteenth century.6

In popular preaching, in this revived campaign against usury, from the later twelfth to fourteenth

centuries, the Franciscans and Dominicans could be not be content with the older methods of condemning

usury as a sin against charity: in taking advantage of the plight of one’s neighbours, in exacting interest on

consumption loans. For clearly the usury prohibition applied as well to commercial loans from which the

borrower hoped to gain, often substantially, by investing the borrowed funds in some enterprise or property

that would produce a perfectly legitimate return, in profits or rent.

More ingenious arguments therefore had to be adduced in attacking usury. The most powerful was

that, since usury (interest) was calculated according to the duration of the loan, it therefore meant the ‘theft

of Time’, which belongs to God alone – clearly a dreadful sin.7 With scholastic analysis of re-emerging

ancient Greek texts, the Aristotelean-based arguments about the supposed ‘sterility of money’, bearing no

fruit, became a popular weapon, even if theologians and canon lawyers did not real believe that invested

4

8 The first reference is in the palea Ejiciens, apparently written in the fifth or sixth century, andincorporated into Gratian’s Decretales (Decretum Gratiani) c. 1180, contending, inter alia, in comparingthe differences between usury from a loan and rent from a field: ‘First, because money is only meant to beused in purchasing. Secondly, because one having a field by farming receives fruit from it.... Therefore, hewho rents a field or house is seen to give what is his own use and to receive money... But from money whichis stored up you take no use. Thirdly, a field or a house deteriorates in use. Money, however, when it is lent,is neither diminished nor deteriorated.’ See also St. Thomas: ‘All other things from themselves have someutility; not so, however, money. But it is the measure of utility of other things, as is clear according to thePhilosopher [Aristotle] in the Ethics V:9. And therefore the use of money does not have the measure of itsutility from this money itself, but from the things which are measured by money according to the differentpersons who exchange money for goods. Whence to receive more money for less seems nothing other than

to diversify the measure in giving and receiving, which manifestly contains iniquity.’ Cited and translated

in Noonan, Scholastic Analysis of Usury, pp. 38-39, 52-53.

9 See Noonan, Scholastic Analysis of Usury, pp. 39-40. Evidently the Bolognese canon lawyerPaucapalea was the first the first, in 1165, to correlate Roman law with the canon law on usury, incommenting on the section on usury in Gratian’s Decretales (Decretum Gratiani), by paraphrasing theJustinian code (Digesta Justinium Augusti, corpus juris civilis) on the mutuum. Under Roman law, mutuumcontracts themselves could not specify interest, and permitted the repayment only of the exact sum lent; butRoman law did permit auxiliary contracts (stipulatio) to specify interest payments under certain conditions,with supposedly ‘moderate’ interest rates. See Noonan, Scholastic Analysis of Usury, pp. 22-33, 39-40.

10 In Italian and other partnership societas contracts, the partner was entitled to a share of the profit,in proportion to his investment; and normally bore a proportional share of the losses. But under Roman law,and law codes since then, each partnership investor bore unlimited liability for all losses. In one-venture

money was really so ‘sterile’.8

The ultimate juridical foundation, in scholastic thought and canon law, for the usury ban was the

Roman law definition loans as mutuum – literally that what had been mine becomes thine; i.e. that in making

the loan the lender transfers the actual ownership of the capital or principal sum, in money (or goods),

including all attached property rights, for its entire duration. Hence it would be clearly unjust, and a clear

violation of commutative justice, i.e., equality in exchange, to ‘rob’ the borrower of the fruits of his ‘own’

capital, or indeed to require the borrower to make any payment for the use of what was temporarily his own

property.9 Conversely, in a partnership contract (societas) or a maritime-based commenda contract, the

investor, whether or not an active participant in the venture, supplied equity capital. Thus, in retaining the

ownership of that capital investment, he/she was licitly entitled to some share of the profits (as a residual

and not fixed return), if any, from the venture, while bearing liability for losses, usually proportional though

legally unlimited liability.10

5

commenda contract (also known as collegantia in Venice, and societas maris, in Genoa), the investor, if thesole investor, was entitled to 75 percent of the profits; but his liability was limited to the loss of his investedcapital, and he was not liable for other debts or obligations incurred by the active, sea-going partner. In abilateral commenda, the silent partner put up two-thirds of the capital and the active, sea-going merchant putup the remaining third; and each was entitled to 50 percent of the profits. Many commenda-type contractsinvolved many investors, each taking a share or loca of the venture. See Robert Lopez and Raymond,Medieval Trade in the Mediterranean World: Illustrative Documents.

11 Noonan, Scholastic Analysis of Usury, pp. 35-36; also partly cited in LeGoff, ‘The Usurer andPurgatory’, pp. 25-26.

12 Francesco L. Galassi, ‘Buying a Passport to Heaven: Usury, Restitution, and the Merchants ofMedieval Genoa,’ Religion, 22 (October 1992), 313-26.

Of course, there were various ways of circumventing the usury bans on the true mutuum, but not

without a significant impact on increasing transaction costs, in both the private and state spheres of finance.

Perhaps the most common illicit technique was to disguise the actual amount of the loan, by augmenting the

stipulated principal to be repaid – over and above the amount actually lent – by the amount of the required

interest payments. But a defaulting borrower might claim that he (she) had been the victim of extortion in

agreeing to a fraudulent contract. Apart from the threat or prospects of unpleasant prosecutions, and of

severe social stigma, the participants would both know that they were guilty of fraud and usury. As Noonan

remarked, even if the Church normally chose to inflict excommunication and other punishments only on

‘open’ and ‘flagrant’ or ‘notorious’ usurers, nevertheless ‘all hidden usury was still a mortal sin, and the

ultimate punishment of [eternal] damnation still awaited all hidden usurers.’ Thus, ‘the real force of the usury

law lay in its hold on men’s souls, and there no evasion was possible.’ Particularly in this medieval era, when

the Church held such sway, ‘who will say that there is no meaning to the salvation or damnation of a man?’11

Whether or not such matters are really subject to econometric analysis, Francesco Galassi has provided

convincing statistical evidence that, with the intensification of the anti-usury campaigns, Genoese merchants,

financiers, and other business were evidently seeking ‘fire insurance’ or even ‘passports to Heaven,’ by

increased donations to the Church, some clearly in the form of restitution of illicit gains from usurious

transactions.12 For a somewhat later period, in fifteenth century Florence, the Medici bank’s account books

provide no visible evidence of interest payments that, according to Goldthwaite, were most certainly earned

6

13 Richard Goldthwaite, ‘Local Banking in Renaissance Florence,’ Journal of European EconomicHistory, 14 (Spring 1985), 5 -55.

14 The following is based principally upon Noonan, Scholastic Analysis of Usury, pp. 100-53; andMcLaughlin, ‘The Teaching of the Canonists on Usury’, Medieval Studies, 1 (1939), 81-147; 2 (1940), 1-22.

from loans – accounts that are therefore difficult to reconcile by modern accounting principles.13

There were also, to be sure, three permissible or licit exceptions to the usury prohibitions, so-called

extrinsic titles that permitted lenders and borrowers to engage in making some payment beyond the principal

in redeeming loans, in accordance with the basic concepts of commutative justice.14 Because, as noted, such

concepts had provided the real foundation of the usury doctrine (and of the Just Price doctrine), a lender

could claim compensation -- a compensatory return -- if proof was supplied that, in making such a loan, he

or she subsequently suffered some kind of loss. But the conditions were strict and restrictive: the loss had

to be real, and not supposed or imagined; and the loss had to be unforeseen and to have begun after the loan

contract had begun. The first was poena or mora: a penalty imposed for late payment, i.e. repayment of the

loan after the specified date of maturity of the loan. Such payments normally increased with the number of

days or weeks of delay; but it could not be seen as a fixed percentage payment based on both the amount

of principal and the duration of the loan, until repayment. Obviously if a financier was observed engaging

in loans that always involved payment of poena, and if the payment penalties varied according to such

provisions, the financier or merchant ran the risk of incurring prosecution for usury. The second was known

as damnum emergens: a compensation for any damages or loss that the lender incurred after having made

making the loan and incurred from having done so, i.e. from not having the money himself to use in a some

sudden emergency – the destruction of a barn in a fire -- that had clearly taken place after the money had

been lent in the mutuum loan. And that condition had to be well proven to make this title legitimate.

The third was and still remains the most contentious: lucrum cessans, which literally means ‘cessant

gains’, or potential and foregone gains that could have been derived from other, alternative but licit

investments. As just explained, there was no usury or related canonical ban on returns from investment in

the form of profits, e.g. returns from equity investments in a partnership enterprise in trade or industry, or

7

15 Noonan, Scholastic Analysis of Usury, p. 118, citing Hostiensis, Commentaria, V: De usuris, 16.

16 See Noonan, Scholastic Analysis of Usury, pp 118-21, 249-68. Our modern word interest comesfrom this use of the term by Hostiensis: which clearly indicates that interesse represents the opportunity costinvolved in lending money: i.e. in foregoing the opportunity of earning a legitimate return through trade(profit) or from property (rent), the lender as the owner of the capital is entitled to compensation. Interesse:a medieval substantive derived from quod interest: that which remains.

dividends from, in effect, joint-stock enterprise. The real litmus test for the licitness of profit, apart from

th ownership of the capital, was simply that the investment return had to be residual, varied, and uncertain,

and one that could be deemed (though not necessarily, under canon law) a reward for incurring risk.

Similarly, there was no ban on receiving rental incomes from the ownership of land or of physical property

(including, for example, the rental use of a horse). Thus lucrum cessans may be viewed as the opportunity

cost of the lender: in not using that money, furnished in a mutuum loan, in order to invest in a legitimate,

profit-making enterprise, or in the ownership of land or property for rental income. The most widely citation

for the legitimacy of lucurum cessans is the following observation penned by Hostiensis or Henry of Susa,

sometime before 1271:15

If some merchant, who is accustomed to pursue trade and the commerce of fairs, and thereprofit from, has, out of charity to me, who needs it badly, lent money with which he wouldhave done business, I remain obliged to his interesse, provided that nothing is done in fraudof usury... and provided that the said merchant will not have been accustomed to give hismoney in such a way to usury.

The problem was that this claim to compensation could easily be seen as pre-determined and fixed,

so that it did not meet the required conditions of loss under commutative justice, thus making the return

clearly usurious. Note, in particular, Hostiensis’s own insistence that the merchant making the loan could

not be one accustomed to earn income in this fashion, as indeed most merchants were, both lending and

borrowing to finance commercial enterprises. For these reasons, in fact, subsequent canon lawyers, popes,

and other Church authorities would not – contrary to the expressed opinions of some historians -- accept the

doctrine of lucrum cessans as a legitimate claim or extrinsic title to usury; and the first grudging acceptance

from the papacy came only in the sixteenth century (and more fully in the eighteenth).16

There were also several other exceptions, but of much lesser importance: including the right to

8

17 See the following example, from the Twelfth General Council, Lateran IV, Constitution 67 (1215),published and translated in Gilchrist, Church and Economic Activity, pp. 181-82: ‘The more Christians arerestrained from the practice of usury, the more are they oppressed in this matter by the treachery of the Jews,so that in a short time they exhaust the resources of Christians. Wishing, therefore, in this matter to protectthe Christians against cruel oppression by the Jews, we ordain in this decree that if in the future, under anypretext, Jews extort from Christians oppressive and excessive interest, the society of Christians shall bedenied them until they have made suitable satisfaction of their excesses.... Lastly we decree that the Jews becompelled by the same penalties [including a ban on business dealings with Christians] to compensatechurches for the tithes and offerings owing to them, which the Christians were accustomed to supply fromtheir houses and other properties before they fell into the hands of the Jews....’ Obviously this decree doesnot mean that the Church regarded as usurious only ‘oppressive and excessive interest’, but rather it usedsuch terms in order to vilify the Jews.

charge usury on a loan made to an enemy alien, and justified on the grounds of weakening and undermining

the enemy. Similarly the prohibition against usury did not apply to any non-Christians, including therefore

Jews, who nevertheless were continually subjected to excoriating diatribes for engaging in money-lending

(chiefly restricted to pawnbroking), including some from canon lawyers and papal officials that would have

not been out of place in Nazi newspapers of the 1930s.17

In view of the importance of rent for this analysis, and for the foundations of modern finance, we

must clearly understand why rental income from the loan of physical property was always licit, while ‘rental’

income from the loan and use of money was not – why the latter constituted the mortal sin of usury.

Especially for those not convinced that the distinguishing feature was the retention of ownership in capital

investments (equity capital), St. Thomas Aquinas again provided the solution to this seemingly vexing

conundrum in his analysis of fungibles within a mutuum loan. A fungible, of course, is any commodity not

distinguishable from others in its type or group by any specific defining individual characteristics, and thus

is one that can be fully replaced and replicated by any other exactly similar such commodity, from that group:

e.g. sheaves of wheat, a flagon of wine, a jar of olive oil, coined money – and, today, paper clips. But St.

Thomas Aquinas added another important qualifying addition: that the use of such goods necessarily meant

their consumption and thus complete destruction, which in turn meant that replacement was possible only

with identical units of that commodity type. Obviously, one borrows money in order to consume it,

necessarily making repayment with an exactly equivalent number of identical coins, or in reality an

9

18 St. Thomas, De malo, Q.13, art. 4c: ‘In those things whose use is their consumption, the use isnone other than the thing itself; whence to whomever is conceded the use of such things, is conceded theownership of those things, and conversely. When, therefore, someone lends money under this agreementthat the money be integrally restored to him, and further, for the use of the money wishes to have a definiteprice, it is manifest that he sells separately the use of the money and the very substance of the money. Theuse of money, however, as it is said, is not other than its substance: whence, either he sells that which is not,or he sells the same thing twice, to wit, the money itself, whose use is its consumption; and this is manifestlyagainst the nature of natural justice. I answer: that to receive usury for money lent is in itself unjust sinceit is the sale of what does not exist; whereby, inequality results, which is contrary to justice.’ Cited inNoonan, Scholastic Analysis of Usury, pp. 53-54.

19 Somewhat similar arguments can be found in the palea Ejiciens, incorporated into Gratian’sDecretals; see n. 5 above.

20 See note 36 and 57 below.

equivalent amount in value; but no more than that.18 Conversely, a non-fungible good is one with individual

distinguishing characteristics and one not consumed and destroyed by its use: such as a piece of land, a

house, barn, or horse. Therefore, one may lend the use of a ‘durable’ property or good, which is not so

consumed; and thus licitly earn a rental income for that use – in part as compensation for the wear and tear

involved in its use, while subsequently regaining possession of the very same individual commodity so lent

(rented out).19

Medieval State Loans: the Italian Republics of the Thirteenth and Fourteenth centuries

Obviously no medieval European governments – urban, territorial, or national – were ever able to

function without some form of borrowing, all the more so since their taxing and rent-exaction powers were

relatively limited. The later thirteenth century brought with it not only the fruition of the Commercial

Revolution era, with many new financial instruments – in particular the bill-of-exchange, but also an

exponential increase in ever more costly warfare that did much to quench the beneficial fires of the

Commercial Revolution era, above all in Italy.20 In Italy, the leading city-states established what may be

regarded as the first permanent funded debts, to finance such ongoing warfare; and most of them did so in

the form of prestanza, or forced loans. Venice was evidently the first to so, in 1164, although that initial

loan, secured by Rialto revenues, seems to have been voluntary. By 1207, however, such state loans, in the

form of interest-free imprestiti had become forced, with fixed levies based upon the citizens’ ability to pay,

10

21 See Reinhold Mueller, Money and Banking in Medieval and Renaissance Venice, vol. II: TheVenetian Money Market, Banks, Panics, and the Public Debt, 1200 - 1500 (Baltimore and London: The JohnsHopkins Press, 1997), Part V: Public Debt and Private Wealth: Forced Loans and Marketable Credits, pp.453-567; Gino Luzzatto, Storia economica di Venezia dall;11 al 16 secolo (Venice, 1961); Gino Luzzatto,Il debito pubblico della Reppubblica di Venezia, 11200 - 1500 (Milan, 1963), with the appendix by FredericLane, ‘Sull’ammontare del “Monte Vecchio” di Venezia,’ which was subsequently published in translationas ‘The Funded Debt of the Venetian Republic, 1262 - 1482', in Frederic C. Lane, Venice and History: theCollected Papers of Frederic C. Lane (Baltimore, 1966), pp. 87-108. See also: Frederic C. Lane, ‘PublicDebt and Private Wealth, Particularly in 16th Century Venice’, in Mélanges en honneur de Fernand Braudel,2 vols. (Toulouse, 1973), vol. I, pp. 317-25. James D. Tracy, A Financial Revolution in the HabsburgNetherlands: Renten and Renteniers in the County of Holland, 1515 - 1565 (Berkeley-London, 1985), pp.9 -13 (see pp. 9 - 11, for Genoa). Luzzatto does not believe, and Lane and Mueller also agree, that Venice hada genuine public debt before 1264.

22 Interest payments did resume in 1382, but were then subject to withholding taxes, so that somenetted only 3 percent, and other 4 percent. A new series of public debt was initiated in 1482, thus giving riseto the term Monte Vecchio for the earlier public debt. Lane, ‘Funded Debt’, pp. 87-88; Mueller, VenetianMoney Market, pp. 465-76.

in accordance with the recorded value of moveable-property in the communal estimo. Such loans were

considered temporary; and state payments to the debt holders were considered to be redemptions of the

principal. In or by 1262, however, the Venetian Senate consolidated all the outstanding national debts into

one fund (later called the Monte Vecchio); and decreed that debt-holders were to receive annual interest of

five percent, to be paid twice yearly from eight specific excise taxes. Such interest payments were indeed

regularly made without fail until the War of Chioggia in 1379-81. These debt claims (with interest payments)

were readily assignable; and by at least 1320 an organized secondary market for them had developed.21 In

this era when interest payments were regular, i.e., up to 1379, with occasional amortisation, they traded

between par and 75 percent.22

During this same era, in the years 1343-45, Florence had established the best known Italian public

debt: the monte comune – literally a ‘communal debt mountain’, which was similarly an interest-bearing

forced-loan, now called prestanza. Such loans, for the Italian city states, had two major advantages. First,

they made absolutely clear that the whole commune had a clear public duty to provide the city-state with

financial support, if only to help guarantee its territorial integrity and security. Thus, the nobility and

wealthy bourgeoisie could not escape this duty, and thus could not avoid ‘paying their fair share’ in doing

11

23 Anthony Molho, Florentine Public Finance in the Early Renaissance (Cambridge, Mass., 1971);Anthony Molho, ‘The State and Public Finance: a Hypothesis Based on the History of Late MedievalFlorence,’ Journal of Modern History, 67 (Dec. 1995), republished in Julius Kirshner, ed., The Origins ofthe State in Italy (Chicago, 1996), pp. 97-135; Marvin B. Becker, ‘Economic Change and the EmergingFlorentine Territorial State’, Studies in the Renaissance, 122 (1966), 7-14, 36-39; reprinted in AnthonyMolho, ed., Social and Economic Foundations of the Italian Renaissance (London and New York, 1969),pp. 123- 31; Gene Brucker, The Civic World of Early Renaissance Florence (Princeton, 1977); Carlo M.Cipolla, The Monetary Policy of Fourteenth-Century Florence (Berkeley, 1982); Julius Kirshner, ‘Stormover the Monte Comune: Genesis of the Moral Controversy over the Public Debt of Florence’, ArchivumFratrum Praedictorum, 53 (1983), 219-76; Julius Kirshner and Jacob Klerman, ‘The Seven Percent Fundof Renaissance Florence,’ in Dino Puncuh and Giuseppe Felloni, eds., Banchi pubblici, banchi privati emonti di pietà nell'Europa preindustriale: Amministrazione, tecniche operative e ruoli economici, Atti della

società Ligure di storia patria, new series, vol. 31, 2 vols. (Genoa, 1991), vol. I, pp. 367 - 98; William

Bowsky, The Finances of the Commune of Siena, 1287-1355 (Oxford, 1970), pp. 177-80; William Caferro,‘City and Countryside in Siena in the Second Half of the Fourteenth Century,’ The Journal of EconomicHistory, 54:1 (March 1994), 85 - 103; William Caferro, ‘Mercenaries and Military Expenditure: The Costsof Undeclared Warfare in XIVth Century Siena,’ Journal of European Economic History, 23:2 (Fall 1994),219-47. For Italy in general, see Brian Pullan, A History of Early Renaissance Italy (London, 1973), pp. 203-32.

so. Second, because the loans were forced, under these circumstances of rendering one’s public duty, most

canon lawyers, as well as secular jurists, were able to justify the payment and receipt of interest payments

(with some version of damnum emergens), since volition and intent were at the very core of the usury

doctrines.23

Such justifications became far more difficult to concoct, however, when secondary markets in the

monte necessarily developed, and very quickly, with the establishment of monte comune to pool all

outstanding issues. Obviously, if those individuals forced to make such loans were not permitted the right

to sell their claims to their share of the monte, and thus their claims to the annual interest payments, public

resistance to these prestanzi would very like have mounted (or become more intense than they did become).

The secondary market was a free one, so that those who offered their shares often to had agree to sell them

at discount, in order to attract buyers. Nevertheless, what justification did such third parties, entering into

fully voluntary contracts, have for receiving interest payments on the shares of the monte that they had just

purchased (and at often higher yields)?

Much ink was spilled in the later fourteenth and fifteenth centuries on such justifications. The best

known treatise, and a very long one, is De Usuris, composed in 1403-04 (ns) by the Florentine politician and

12

24 See Noonan, Scholastic Analysis of Usury, pp. 69, 123, 126-29.

25 See Lawrin Armstrong, ‘The Politics of Usury in Trecento Florence: The Questio de Monte ofFrancesco da Empoli’, Mediaeval Studies, 61 (1999), 1-44; and also his forthcoming monograph Usury andthe Public Debt in Renaissance Florence (Toronto: PIMS Press).

26 The same problems vexed the Church and the public with the Venetian public debt (though notinterfering with its operations). On the usury problem in Venice, see Julius Kirshner, ‘The Moral Theologyof Public Finance: A Study and Edition of Nicholas de Anglia’s Quaestio disputata on the Public Debt ofVenice’, Archivium Fratrum Praedictorum, 40 (1970), 47-72; and Julius Kirshner, ‘Reading Bernardino’sSermon on the Public Debt’, in Domenico Maffei and Paolo Nardi, eds., Atti del simposio internazionalecateriniano-bernardiniano, Siena, 1980 (Siena, 1982); F. C. Lane, ‘Investment and Usury’, Explorations inEntrepreneurial History, 2:2 (1964), 3-15, republished in Venice and History: the Collected Papers ofFrederic C. Lane (Baltimore, 1966), pp. 56-68; and Mueller, Venetian Money Market, pp. 484-87. Forfourteenth-century Flanders, banking, and public finance, see David Nicholas, The Metamorphosis of a

Medieval City: Ghent in the Age of the Arteveldes, 1302 - 1390 (Lincoln, 1987), p. 122:‘The Flemingsseem to have been more concerned than the Italians to avoid the imputation of usury.’

27 See Noonan, Scholastic Analysis of Usury, p. 155. But there is some evidence that the Greek citystate of Miletus, in Asia Minor, had engaged in the sale of census contracts, in what would be later known

civil jurist Laurentius di Ridolfis, who also taught canon law. 24 While Laurentius di Ridolfis in fact accepted

the already evolved usury doctrine, he sought to explain why, within the context of canon law, interest

payments on shares of monte purchased in secondary markets were not usurious. One of his most important

arguments was based upon the treatise of the much earlier, fourteenth-century Franciscan master, Francesco

da Empoli. Both contended that such shares of the Florentine monte purchased in this manner were not or

were no longer mutuum contracts. Instead, they were an emptio-venditio (purchase-sale) contract in which

the holder was not in fact a lender to the state, but now the purchaser of the right to collect an income stream

from the state – and argument with considerable significance.25 Suffice it to say that such legal treatises,

brilliant and eloquent though they were, never sufficed to satisfy Church, state, and the consciences of

investors. Therefore some alternative route to a morally safer and more efficacious form of public finance

had to be found, at least elsewhere in Europe.26

The Census Contracts

That route was found through the use of an older medieval contract, the census (Fr. cens), which

probably had feudal origins, and was certainly unknown to Roman law. 27 By this contract, a merchant or

13

as rentes viagères or lijfrenten, from as early as 203 BCE. See Raymond Van Uytven, Stadsfinanciën enstadsekonmie te Leuven: van de XIIe tot het einde der XVIs eeuw, Verhandelingen van de KoninklijkeVlaamse Academie voor Wetenschappen, Letteren en Schone Kunsten van België, Klasse der Letteren,Jaaregang XXIII (Brussels, 1961), p. 196; citing M. Van Haaften, ‘Lijfrente’, Winkler Prins, vol. XIII, pp.164-65.

28 Noonan, Scholastic Analysis of Usury, p. 155.

29 Though the evidence on this ill-researched subject is far from conclusive, the only peasants whocould engage in this form of finance, selling some of their future income streams from the exploitation oftheir holdings, were those who enjoyed some form of free-hold, or were free from the constraints ofcommunal common- or open-field farming. Common-field farming, in which peasants held their tenanciesin the forms of scattered and separated plough strips in two or three great open fields, and were subject tocommunal restraints on the use of such lands, was never universal in medieval Europe; but it was far moreprevalent in northern Europe (excepting Normandy, the Low Countries, SE England) than in southern,Mediterranean Europe. Mezzadria or métayage was an alternative method of financing peasant agriculture:another landowner, a merchant, financier, etc. invested capital in the peasant’s holding (livestock, olive trees,vineyards, tools, working capital) in return for a share, usually one-half of the harvest. For similar reasons,the relative absence of communal constraints, this system was far more prevalent south of the Loire thannorth of that boundary for the same reasons.

some other person purchased, for a fixed sum of money furnished in advance, an obligation on the part of

the recipient ‘to pay an annual return from fruitful property’.28 Thus it provided a means by which a

landowner or even a peasant could acquire some capital to work his agricultural holding, while the investor

would receive a guaranteed annual income, often perpetual and certainly for at least a lifetime, from the

fruits of that holding.29 Originally, indeed, such payments were normally made in kind, though later evolving

into money payments based upon the value of the agricultural or other output from that property. For that

reason the census or cens later came to be more commonly known as the rente, from which, of course, we

have derived the term rentier. The modern English term with the closest equivalence is annuity, though this

term does not imply that the annual return was based on a ‘fruitful good.’

According to Van der Wee, in many parts of medieval Europe, these cens, which commonly came

to be assigned to third parties, evolved into two other, more commercial contracts: (1) the constitution de

rente, as a lifetime or hereditary contract by which some property holder sold (as the débirentier) the right

to receive a fixed annual income from the property, for one, two, or three ‘lives’; and similarly (2) the bail

à rente, as ‘the sale of real estate in return for payment of a hereditary annuity’, somewhat akin, indeed, to

14

30 Herman Van der Wee, ‘Monetary, Credit, and Banking Systems,’ in E.E. Rich and Charles Wilson,eds., The Cambridge Economic History of Europe, Vol. V: The Economic Organization of Early ModernEurope (1975), pp. 303-05.

31 Noonan, Scholastic Analysis of Usury, pp. 155-56; the more extreme view was that of that of thefourteenth-century theologian Henry of Hesse, who argued that those who purchases a census in effectbecame part-owners of the property, and were thus entitled to some share of its fruits.

32 See John Munro, ‘Wool-Price Schedules and the Qualities of English Wools in the Later MiddleAges, ca. 1270 - 1499,’ Textile History, 9 (1978), 118-69; reprinted in John Munro, Textiles, Towns, andTrade: Essays in the Economic History of Late-Medieval England and the Low Countries, (Aldershot,Hampshire; and Brookfield, Vermont, 1994).

33 Cf Noonan, Scholastic Analysis of Usury, p. 160: ‘The real perpetual census was accepted almostunanimously’, citing particular Innocent IV, Apparatus: V, De usuris, in civitate. Even Henry of Ghentagreed that if A, needing money, sold his farm to B, B was then permitted to rent the farm to A, in return forannual payment; and ‘the effect is that of a perpetual census). Noonan also notes that the ‘real-life’ censuswas accepted ‘by almost everyone: Innocent IV, Hostiensis, the Gloss, Giles of Lessines, AlexanderLombard, Astensanus, Eutin, Gerson, Panormitanus, Laurentius de Ridolfis, St. Bernardine, and St.Antoninus’ (pp. 154-70). Debates instead centred more on short, fixed-term contracts that appeared to be just

the even older mortgage.30 There was, to be sure, some ecclesiastical opposition to such census contracts,

particularly from Henry of Ghent (c. 1293), who contended that the census really involved the sale of money,

which is ‘non-vendible’, and was thus usurious. According to Noonan, however, ‘his opinion was singular

and apparently startling to his thirteenth-century contemporaries, who had placidly accepted the contract as

lawful.’ The much more commonly accepted view was that the census was simply the licit purchase of the

right to receive an income; and most argued that its legitimacy should be governed by the canon laws on Just

Price, rather than on usury.31 In most respects, the census did not differ in essentials from the thirteenth-

century collecta purchase contracts that Italian merchant-financiers undertook in dominating the English

wool trade. By an agreement to provide a fixed cash payment in advance, these merchants purchased annual

future deliveries of wool from various Cistercian and other monasteries, over many years, though not, of

course, ‘in perpetuity’, as was the case with heritable census contracts.32

Surely the crucial feature of these various contracts was that no mutuum type loan was involved, for

the purchaser, who furnished the capital sum, had no expectation of any repayment of that principal sum,

before expiry of the contract (if not perpetual), after the stipulated one, two, or three lives.33 In any event,

15

loans.

34 Noonan, Scholastic Analysis of Usury, pp. 160-61; Van der Wee, ‘Monetary, Credit, and BankingSystems,’ pp. 304-05.

35 See Georges Espinas, Les finances de la commune de Douai des origins au XVe siècle (Paris,1902), esp. pp. 314-46; Georges Espinas, La vie urbaine de Douai au moyen âge (Paris, 1913); see alsoJames D. Tracy, A Financial Revolution in the Habsburg Netherlands: Renten and Renteniers in the Countyof Holland, 1515 - 1565 (Berkeley-London, 1985), pp.12-16. In medieval and modern Dutch, erfelijk doesmean heritable, transmissible; but the root erf means farmyard or premises, i.e. real estate. Normally, onlythe erfelijke renten were redeemable, at the option of the town governments.

moral, legal, and ecclesiastical doubts were fully resolved in the fifteenth century, by papal bulls of Martin

V (Extravagantes comunes, 1425), Nicholas V (Sollicitudo, 1452), and Calixtus III (Regimini, 1455). These

census contracts (including bail à rente and constitution de rente) were all permissible, under three

conditions: (1) that the contracts had to be ‘real’, assigned to specific properties; (2) that the seller of the

census (the débirentier) had to be permitted to redeem the contracts, if he (they) so desired; and (3) that the

annual return or annuity payments could not exceed 10 percent of the invested capital sum.34 Note that such

rights of redeemability resided only with the seller or issuer of the census; and they usually reserved the

option to exercise this right chiefly with rentes heritables or erfelijkrenten (often called erfrenten ). Those

who purchased such rentes (furnished the funds) never had any right to request let alone demand repayment.

If the purchaser (crédirentier) wished to regain some or all of the capital that he had so invested, he or she

had to find some third party willing to buy the rente. Evidently, from the very early history of their

evolution, such rentes had been transferable or assignable, though not, strictly speaking, negotiable.

Long before those bulls were issued, indeed almost two centuries earlier, many northern towns had

already resorted to rentes, similarly assignable, to finance some part of their urban expenditures. From the

early 1260s, Douai, a major francophone textile town, but then still part of the county of Flanders (until

1305), had been selling both rentes viagères (lijfrenten) and rentes heritables (erfelijkrenten) to finance civic

expenditures. So had Calais, and perhaps other northern French towns, from about this same period. 35 To

the north, another Flemish textile town, Ghent, had begun issuing its own lijfrenten in 1275, finding most

16

36 See: David Nicholas, Medieval Flanders (London, 1992), pp. 186-202, 212-24 ; Henri Nowe, La

bataille des éperons d’or (Brussels, 1945), pp. 13-113; David Nicholas, Town and Countryside: Social,Economic, and Political Tensions in Fourteenth-Century Flanders (Bruges, 1971); Nicholas, Metamorphosisof a Medieval City, passim. Philip IV of France invaded Flanders in June 1297, but made a truce in October(in effect with England, Count Guy’s ally and Philip’s enemy), seizing half the county. On its expiry inJanuary 1300, he incorporated all of Flanders into the royal domain; and imprisoned Count Guy (d. 1305).

In July 1302, the citizenry of the towns, led by guildsmen, and aided by the count’s supporters rebelled and

defeated the French army at the Battle of Kortrijk; but were in turn defeated by the French armies at Mons-en-Pévèle in August 1304. The subsequent Peace of Athis-sur-Orge, in June 1305, cost the Flemish enormousindemnities and a large perpetual rent (ceasing only in 1333). Lille, Douai, and Béthune were placed underroyal control, as security for the debts; and these towns were transferred (with) Orchies to the French royaldomain by the Treaty of Pontoise in July 1312. Further Flemish resistance ensued to 1319, but ended withthe Treaty of Paris on 5 May 1320, by which Count Robert III de Béthune (1305-22)recognized Frenchsuzerainty. Subsequently, in 1323 the coastal peasantry and the towns of Bruges and Ypres took part in thedestructive Revolt of Maritime Flanders (against his successor Louis de Nevers), which was crushed byFrench armies at the Battle of Mont Cassel, in 1328. The next revolt took place, under the leadership ofGhent, in 1339, when the Flemish towns decided to support Edward III against Philip VI, with the outbreakof the Hundred Years’ War. That revolt ended in 1349, with the return of the exiled new count Louis deMaele (1346-1389).

37 M.M. Fryde, ‘Public Credit, with Special Reference to North-Western Europe,’ in Michael Postanet al., eds., The Cambridge Economic History of Europe:Vol. III: Economic Organization in the Middle Ages(Cambridge, 1963), p. 495, citing H. Johnstone, ed., Annales Gandenses (London, 1951), p. ll. For anexcellent and detailed discussion of state finances under the counts of Flanders and subsequent dukes ofBurgundy (to 1477), see pp. 492-507.

of its purchasers, in a free market, in the nearby city of Arras, long famous for its bankers and financiers,

who agreed to convert their short term debt claims into the much longer term rentes. These Flemish

rentes were guaranteed by the Count of Flanders, but only in the sense that the count would use his powers

to ensure that the Ghent civic governments made their annual payment obligations.

As is well known, from the late 1280s, Count Guy de Dampierre (1278-1305) engaged in serious

conflicts with the merchant-patriciate governments of these towns, who sought support from the kings of

France. Those conflicts ultimately led to a French invasion and civil wars from 1297 to 1319-20.36 Having

himself incurred very heavy loans, especially from Arras bankers, Count Guy appealed to Pope Boniface

VIII, in 1298, for assistance in releasing him from these usures that he owed the Arras bankers, a commonly

used threat that may have enhanced the attractiveness of renten for many investors.37 Nevertheless, as a

consequence of such debilitating warfare and continued turmoil, further Flemish civil wars, against the

17

38 Tracy, A Financial Revolution, pp. 13-15.

39 See note 36, above.

40 Hans Van Werveke, De Gentsche stadsfinanciën in de middeleeuwen, Koninklijke VlaamseAcademie voor Wetenschappen, Letteren, en Schone Kunsten van België, Klasse der Letteren, JaargangXXXIV (Brussels, 1934), pp. 282-90; See also Fryde, ‘Public Credit’, pp. 430-543; Tracy, FinancialRevolution, pp. 13-15.

41 See Alfons Van Werveke, ed., Gentse stads- en baljuwsrekeningen (1351-1364), KoninklijkeAcademie voor Wetenschappen, Letteren en Schone Kunsten van België (Brussels, 1970), with anintroduction by Hans Van Werveke, pp. ix-xxi; and for the records of the renten, see pp. 26, 92, 140, 188,232, 261, 317, 377, 453, 497, 550, and 659; David Nicholas and Walter Prevenier, eds., Gentse Stads- enBaljuwsrekeningen (1365-1376), Koninklijke Academie van België, Koninklijke Commissie voorGeschiedenis (Brussels, 1999), pp. 7, 12, 34, 35, 58, 85, 102, 105, 123, 127. For the years 1352 to 1373,Ghent received total revenues of £1,240,454.9 payement, of which £45,231.2 were from sales of renten. Seealso Stadsarchief Gent, Stadsrekeningen, Reeks 400: nos. 1 - 43 (1315-1520); Algemeen Rijksarchief België,

Rekenkamer, reg. nos. 38,635-72; Stadsarchief Brugge, Stadsrekeningen, 1302/03 to 1519/20. Tracy,

Financial Revolution, p. 14 states ‘between 1346 and 1356;’ but clearly the annual issues extended longbeyond that year, certainly up to the next Ghent (Artevelde) revolt of 1379.

42 See Fryde, ‘Public Credit’, pp. 502-05.

counts, in 1323 -28 and 1339- 1349, the count’s guarantees came to count for nothing, so that the values of

these lijf- and erfrenten were seriously undermined, especially by the 1330s.38

Yet, in 1346, when Ghent was virtually independent of the count (though only until 1349),39 its civic

council of schepenen launched a new series of renten, primarily erfelijkrenten, usually for two or three lives;

and it found most of its buyers in the Brabantine drapery towns of Brussels and Leuven, and some others in

the neighbouring county of Hainaut.40 Thus in curious contrast to Italy, where public-debt financing was

almost entirely communal and internal, the Flemish towns depended strongly on external sources. But in the

more peaceful years of the 1350s, 1360s, and early 1370s, the revenued from the sale of these renten were

responsible, on average, for only 3.65 percent of Ghent’s total urban revenues.41 In this same period, Count

Louis de Maele (1346- 1389) also raised public finances for the county of Flanders by selling both lijfrenten

and erfelijkrenten, which were secured by aides and other payments that he received from the towns. This

practice was followed by the successor dukes of Burgundy, from 1389 to 1477: in Flanders, the neighbouring

county of Hainaut, and the duchy of Brabant.42

18

43 Van Uytven, Stadsfinanciën, pp. 196-231; and for some annual lists of lijfrenten, see also TablesXIVA and B (1377-78, pp. 209-110), XV (1389, p. 213), XVI (1391, pp. 217-18), XVII (1396 and 1407, p.221), XVIII (1429-30, p. 223); XIX (1492, p. 225-27). The rates (Table XIII, pp. 199-200) were quoted infractions: 1/7 (1d. for 7d), 1/8, 1/9, and 1/10; i.e., from 10% to 14.29%. For the archival accounts from 1345- 1600: Stadsarchief Leuven, nos. 4986 -5224.

44 See sources in nn. 39-40.

45 For Leiden, from about the 1360s, and for the German towns, by the early 15th century, see Tracy,Financial Revolution, pp. 13-14; Bruno Kuske, Das Schuldenwesen der deutschen Städten im Mittelalter(Tübingen, 1904). See also Winifried Trusen, ‘Zum Rentenkauf im Späten Mittelater,’ Festschrift fürHermann Heimpel, 3 vols. (Göttigen, 1972), vol. II, pp. 140-58.

By 1356, the Brabantine textile town of Leuven was also selling lijfrenten and erfelijkrenten, the

latter generally for two lives, at rates averaging 12.5 percent (1/8).43 Typically, an individual investor would

purchase such a rente for, say, £100 groot Flemish or Brabantine, in order to receive a lifetime or ‘perpetual’

annual income of the aforesaid £12 10s 0d groot. The town government paid this annuity with the revenues

that it earned from various urban properties, but more commonly from its collection of excise or sales taxes

(accijnzen), or indeed from the annual sales of the excise farms (pachten). Virtually all legal authorities

agreed that these revenue sources were the equivalent to the ‘real property’ attachments that the Church was

then demanding as a test of a legitimate census.44

Early Modern Public Finance: Rentes, Renten, and Juros in the Habsburg Empire and France

Subsequently, in the course of the later fourteenth and fifteenth centuries, most other towns in the

Low Countries, and then in France and Germany had also adopted such rentes as an important, if not yet the

primary vehicle for public finance.45 In the Burgundian and then the Habsburg Netherlands, all these towns

stipulated that they, and they alone, had the right to redeem or ‘call’ these rentes whenever they wished.

Imperial Habsburg edicts (Charles V) formally made this principle applicable to the entire duchy of Brabant

(Antwerp, Brussels) in 1520, and to the County of Flanders in 1529. A few years later, in 1533, King Henry

II of France promulgated similar legislation for all the French towns; and such redeemability provisions were

also imposed on all the German towns in Habsburg Empire by Reichspolizei-ordnungen issued in 1530, 1548,

19

46 Van der Wee, ‘Monetary, Credit, and Banking Systems’, p. 304. See also Bernard Schnapper, Lesrentes au XVI siècle: histoire d’un instrument de crédit (Paris, SEVPEN, 1957). For France, see MartinWolfe, The Fiscal System of Renaissance France (New Haven, 1972).

47 See in particular Tracy, A Financial Revolution, pp. 28-70; and also James Tracy, ‘Taxation andState Debt,’ in Thomas Brady, Heiko Oberman, and James Tracy, eds., Handbook of European History, 1400- 1600: Late Middle Ages, Renaissance and Reformation, Vol. I: Structures and Assertions (Leiden and NewYork, 1994), pp. 563-88.

48 Tracy, A Financial Revolution, pp. 30-32. In pounds of 20 stuivers or 40d. groot, aggregaterevenues were £15,093,458; the revenues from sales of renten were £1,016,051; from domainal receipts,£2,509,04; from parties extraordinaires, £1,051,717; and finally from loans raised on obligations, £405,889.The subsidies were known as aides in French-speaking provinces; and beden in the Nederlands regions.Evidently the annuity rate of 1/16 had been in force since the era of Philip the Good of Burgundy (1419-67).

49 See Lane, ‘Public Debt and Private Wealth’, pp. ; Tracy, A Financial Revolution, pp. 12-13:‘...lijfrenten seem not to have played any role in Italian public finance until the Venetian mint began offeringlife annuities... between 1536 and 1540'. Tracy notes, however, that fifteenth-century Florence had utilized

and 1577.46

Indeed, even before then, from at least 1515, the provincial Estates (parliament) of the Habsburg

Netherlands, beginning with those of Holland, began issuing such renten, each backed by specific tax

revenues.47 For the county of Holland, a financial report presented to Charles V’s government for the fiscal

years 1521 to 1530 indicated that revenues from the sales of renten accounted for 6.73 percent of the

province’s total income, which was then overwhelmingly dominated by ‘subsidies’ (67.0 percent), i.e., taxes

voted by the Estates. By this era, and evidently from a much earlier period, the annuity rate on erfelijkrenten

had fallen by one half, to a much more modest 6.25 percent (1/16).48

In view of this long historical experience with renten in northern Europe, and generally a successful

experience, it seems all the more surprising that the Italian city states did not resort to them before the

sixteenth century. Venice, or more properly speaking the Venetian mint (zecca), was the first to do so, from

1536, issuing life annuities at 14 percent; and from 1571, during war with the Turks, heritable annuities at

8 percent. Yet this turned out to be only a temporary mode of public finance. From 1577 to 1600, the

communal government of Venice spent over 10 million ducats to redeem all the outstanding annuities and

remaining shares of the monti that had the zecca had issued in its own name.49

20

a ‘bank of dowries’ that ‘bore some resemblance to the life annuities of the day’, by allowing fathers to investin dowries for their daughters for 15-year periods; if the daughter was not alive on the maturity, the fundsreverted to the state. On this, see Molho, Florentine Public Finance, pp. 79-87.

50 Van der Wee, ‘Monetary, Credit, and Banking Systems’, pp. 373-76, Table 28 (based onresearches of F. Ruiz-Martin). See also Fernand Braudel, La Méditerranée et le monde méditerranéen àl'époque de Philippe II, 2nd rev edn. (Paris, 1966; original edn. 1949); republished as The Mediterraneanand the Mediterranean World in the Age of Philip II, translated by Sian Reynolds, 2 vols. (London and NewYork, 1972-73), Vol. 1, pp. 500-15, 528-32; and Tracy, Financial Revolution, pp. 21-25 . His figures for theexpansion of Spanish juros are 5 million ducats in 1515 and 83 million in 1600.

Thus the Habsburg governments of both Spain and their Netherlands’s provinces were the first in

Europe to establish, in effect, permanently funded national debts, based on these rentes. The best example

to illuminate the magnitude of such public debts is the case of Spain, under Charles V and his son Philip II,

where the aggregate volume of such rentes – better known first as censos (for private rentes) and then as

juros (state issues), yielding from 3 to 7 percent – ballooned from 3.536 million ducats (escudos of 375

maravedís) in 1515 to 80.039 million ducats in 1598. Part of this enormous expansion involved the forced

conversion of short-term debts into 5 percent perpetual and heritable juros, when King Philip II declared

‘bankruptcy’, or, rather, his financial inability to meet such debts: in 1557, 1575, and 1594. Yet such an

expansion pales in comparison with the 25-fold expansion in the issue of French rentes, between 1547 and

1574 – and without any such payment suspensions as in Habsburg Spain.

The success of all these financial adventures in such rente issues was essentially based upon the

development of secondary financial markets. A physical presence for such a market had been provided by

the foundation of the Antwerp Beurs (Bourse) in 1531. From there, trading in these rentes and juros became

one of the principal activities of the South German merchant-banking houses, led by the Fuggers, Welsers,

Höchstetters, Herwarts, Imhofs, and Tuchers. As Van der Wee has so justly commented, this sixteenth-

century ‘age of the Fuggers and [subsequently of] the Genoese was one of spectacular growth in public

finances’.50

Such secondary markets in turn had depended upon the very recent adoption, first nationally in the

21

51 See below, pp. for the discussion of this legislation.

52 See in particular the sources cited in n. 15 above; and especially Julius Kirshner and JacobKlerman, ‘The Seven Percent Fund of Renaissance Florence,’ pp. 367 - 98. According to Goldthwaite, ‘LocalBanking in Renaissance Florence,’ pp. 5 -55 (and private correspondence), the Florentine Mercanzia wasthe recognizing the validity of credits and debits owing as recorded in the account books that merchantsbrought there for inspection.

Habsburg Low Countries (1537-41), of full-fledged negotiability: complete legal sanctions to sustain the

judicial rights of third-party creditors who purchased these rentes and similar credit instruments.51 In that

respect, assignability and negotiability of shares in the Florentine (and other Italian) monte had been much

simpler and much more efficacious: in that the seller and buyer met together in the financial offices of the

communal government to effect the transfer of shares in writing, which also legally assigned the annual

interest payment to the new buyer.52 Furthermore, these city state governments were less likely to repudiate

or ‘dishonour’ their debt-payment obligations.

The Medieval Bill of Exchange and the Negotiability Problem

The road to the early-modern establishment of effective negotiability, in northern Europe, lay

through the evolution of another vital credit instrument in European economic development, the bill of

exchange. According to De Roover, the bill of exchange, though based upon the earlier lettre de foire of the

Champagne Fairs, technically known as the instrumentum ex causa cambii, also owed its real genesis and

successful dissemination, from the later thirteenth and early fourteenth centuries, to the now universal

mercantile necessity of evading usury legislation. In De Roover’s famous thesis, the bill of exchange

effectively achieved this objective by so cleverly disguising the real interest rate within the exchange rates,

by ‘artificially’ raising them in favour of the ‘lender’. The bill of exchange, however, was not so much a

loan instrument as a remittance or investment instrument, to effect the purchase and sale of foreign bank

balances.

While the earlier instrumentum ex causa cambii was in fact a formal, notarized loan contract, the bill

of exchange was simply a holograph document, a letter involving two principals in one city and two financial

22

53 See example of bills-of-exchange, from the Datini archives in Prato, involving Italian merchantsin Bruges and Barcelona, in 1399-1400: in De Roover, Money, Banking and Credit in Mediaeval Bruges,

pp. 56, 72.

54 On this see, Raymond De Roover, ‘Le contrat de change depuis la fin du treizième siècle jusqu'audébut du dix-septième,’ Revue belge de philologie et d'histoire, 25 (1946-47), 111-28; Raymond De Roover,Money, Banking, and Credit in Mediaeval Bruges: Italian Merchant-Bankers, Lombards, and MoneyChangers (Cambridge, Mass., 1948), especially chapter IV, pp. 48-75; Raymond De Roover, L'evolutionde la lettre de change, XIVe-XVIIIe siècles (Paris, S.E.V.P.E.N., 1953); Raymond De Roover, ‘NewInterpretations of the History of Banking,’ Journal of World History, 2 (1954), 38-76; reprinted in JuliusKirshner, ed., Business, Banking, and Economic Thought in late Medieval and Early Modern Europe:Selected Studies of Raymond de Roover (University of Chicago Press, 1974), pp. 200 - 38; John Munro,‘Bullionism and the Bill of Exchange in England, 1272-1663: A Study in Monetary Management andPopular Prejudice,’ in Center for Medieval and Renaissance Studies, UCLA, ed., The Dawn of ModernBanking (New Haven and London; Yale University Press, 1979), pp. 169-240; republished in John H. Munro,Bullion Flows and Monetary Policies in England and the Low Countries, 1350 - 1500 (London, Variorum,

1992); Reinhold C. Mueller, ‘The Spufford Thesis on Foreign Exchange: the Evidence of Exchange Rates,’

The Journal of European Economic History, 24:1 (Spring 1995), 121-29.

agents in some foreign city. By this letter, the principal merchant in city A (the taker or prenditore), having

received investment funds or funds for remittance from another principal (the deliverer or datore), ‘drew a

bill upon’ his resident payer agent in city B abroad, thereby instructing him to make payment on his behalf

to the payee agent of the merchant from whom he had received the original funds (i.e., the deliverer).53 If

the first city was, say, Florence, and the second, say, London, the letter would specify the receipt of funds

in florins and stipulate repayment in English sterling, at a specific exchange rate, on a specified date

(usance), usually three months after the bill had been drawn. For the bill to be valid, the payee (beneficiario)

agent first had to present the bill to the payer (pagatore) agent, in order to obtain his written assent, in the

form of words acknowledging ‘acceptance’, on the back; and then he had to present it once more, for

redemption, on the maturity date. In turn that London agent arranged to remit the proceeds to the original

deliverer by similarly buying a bill of exchange drawn upon a Florentine merchant banker.54

So far as the Church and canon lawyers were concerned, there was nothing usurious about such

contracts, so long as the second set of exchange rates were not predetermined, thus permitting the element

of risk that exchange rates might subsequently alter adversely for the original deliverer. If both sets of rates

23

55 On this see, see sources cited in note 53, and Raymond De Roover, ‘What is Dry Exchange? AContribution to the Study of English Mercantilism,’ Journal of Political Economy, 52 (1944), 250-66; andRaymond De Roover, ‘Cambium ad Venetias: Contributions to the History of Foreign Exchange,’ in Studiin onore di Armando Sapori (Milan, 1957), pp. 631-48; both reprinted in Kirshner, ed., Selected Studies ofRaymond de Roover, pp. 183-99, 239-59; and Noonan, Scholastic Analysis of Usury, pp. 175-92.

56 Statutes of the Realm, vol. II, p. 514 (3 Henrici VII. c. 6). Though genuine ‘merchant’s exchange’did escape this renewed ban, while ‘drye eschaunge’ did not, another statute of this same 1489 Parliamentforbade anyone ‘to paye or delyver wyttyngly be way of exchaunge’ any moneys to any aliens formerchandise, on pain of double forfeiture. Ibid., p. 546 (4 Hen. VII. c. 23).

57 See Irene Katele, ‘Piracy and the Venetian State: The Dilemma of Maritime Defense in theFourteenth Century,’ Speculum, 63 (Oct. 1988), 865 - 89; John Munro, ‘Industrial Transformations in theNorth-West European Textile Trades, c. 1290 - c. 1340: Economic Progress or Economic Crisis?’ in BruceM. S. Campbell, ed., Before the Black Death: Studies in the ‘Crisis’ of the Early Fourteenth Century(Manchester and New York, 1991), pp. 110 - 48; reprinted in Munro, Textiles, Towns, and Trade; JohnMunro, ‘The “New Institutional Economics” and the Changing Fortunes of Fairs in Medieval and EarlyModern Europe: the Textile Trades, Warfare, and Transaction Costs’, Vierteljahrschrift für Sozial- und

on the original cambium and on the recambium had been fixed, in that manner, then the contract was most

clearly usurious, as cambio secco (‘dry exchange’).55 But even secular authorities regarded any bills of

exchange with grave suspicions: as ‘dampnable bargaynes groundyt in usurye,’ as the preamble to a 1489

English parliamentary statute colourfully contended, while strengthening enforcement of the anti-usury

laws.56

Bullionism and the Bill of Exchange in Later-Medieval Europe

Nevertheless, an even more important, and certainly an equally important, reason for its widespread

diffusion in later medieval Europe, from the late thirteenth and early fourteenth century, was to reduce the

payment risks, and attendant transaction costs, involved in the physical transport of precious metals in

international trade. One of the greatest risks lay in the now almost universal bans on the export of bullion

across international frontiers. The fundamental reasons that explain both the higher degree of risk itself, in

general, and the implementation of these bullion export bans was the almost exponential rise in international

warfare and violence, throughout the Mediterranean basin and western Europe, from the 1290s. Such

warfare and the consequent weakening of central authorities in their police powers led to an even more

debilitating and commercially disruptive spread of brigandage on land routes and piracy on sea routes.57

24

Wirtschaftsgeschichte, 88:1 (2001), 1 - 47.

58 See: A. Girard, ‘Un phénomène économique: la guerre monétaire, XIVe-XVe siècles’, Annales:

E.S.C., 2 (1940); Hans Van Werveke, ‘Currency Manipulation in the Middle Ages: The Case of Louis de

Male, Count of Flanders,’ Transactions of the Royal Historical Society, 4th ser. 31 (1949), 115-127, reprintedin his Miscellanea Mediaevalia (Ghent, 1968), pp. 255-67; A. Grunzweig, ‘Les incidences internationalesdes mutations monétaires de Philippe le Bel’, Le moyen âge, 59 (1953), 117-72; R. Cazelles, ‘Quelquesreflexions à propos des mutations monétaires de la monnaie royale française (1295-1360)’, Le moyen âge,72 (1966), 83-105, and 251-78; John Munro, Wool, Cloth, and Gold: The Struggle for Bullion in Anglo-Burgundian Trade, 1340-1478 (Brussels and Toronto, 1973); John Munro, ‘Bullion Flows and MonetaryContraction in Late-Medieval England and the Low Countries’, in John F. Richards, ed., Precious Metalsin the Later Medieval and Early Modern Worlds (Durham, N.C., 1983), pp. 97-158; reprinted in John Munro,Bullion Flows and Monetary Policies in England and the Low Countries, 1350 - 1500 (London: VariorumReprints, 1992); Munro, ‘Bullionism and the Bill of Exchange’, pp. 169-240; Carlo M. Cipolla, TheMonetary Policy of Fourteenth-Century Florence (Berkeley, 1982); Peter Spufford, Money and Its Use inMedieval Europe (Cambridge, 1988), pp. 267 - 396.

59 Taverner to Elizabeth I, in 1570: Tawney and Power, Tudor Economic Documents, 3 vols.(London, 1924), vol. III, no. iii.5, p. 362.

Another impediment to international specie flows also arose from what became, from 1296, one of

the most common non-debt forms of public, and especially princely, financing of endemic warfare: coinage

debasements, beginning with those of Philip IV in France, in his wars with England and Flanders. Since so

many of the debased coins were counterfeits (even of the earlier, better versions), and since a chief objective

of coinage debasement, as a fiscal policy, was to lure bullion away from competing mints, most princes

reacted to such debasements by preventing the import of most foreign coins and by more rigorously enforcing

bans on bullion exports.58

Obviously a major benefit of employing bills-of-exchange, with funds furnished in one currency and

repaid in another, was in obviating the shipment of so much bullion and specie over long distances, and thus

in greatly reducing the risks of high costs of doing so. That significance was not lost upon one of Queen

Elizabeth I’s councillors who remarked, though without any historical documentation, that ‘marchauntes

naturall exchaunge was first divised and used by the trewe dealing marchauntes immediately after that

princes did inhibit the cariadge of gould and silver out of their Realmes’.59 Risks, of course, were by no

means fully eliminated, of course, because much bullion and specie still had to be transported in trading with

25

60 See Eliyahu Ashtor, Les métaux précieux et la balance des payements du Proche-Orient à labasse-époque (Paris, 1971); Raymond De Roover, ‘La balance commerciale entre les Pays-Bas et l'Italie auquinzième siècle,’ Revue belge de philologie et d'histoire, 37 (1959), 374-86; Artur Attman, The BullionFlow Between Europe and the East, 1000-1750, translated by Eva and Allan Green (Göteberg, 1981). Bullionand specie flows were also instigated by coinage debasements and by changes in bimetallic mint ratios. Seealso sources in no. 57 above.

towns or regions, especially in the Baltic and eastern Europe, not equipped with bills-of-exchange banking,

and in settling adverse trade and payments balances (again, especially with the Baltic and eastern

Mediterranean zones).60 Furthermore, the bill of exchange itself involved considerable risks of repudiation

or non-payment, because, in not being a bond or formally notarized contract, it had no legal standing in most

medieval law courts; and thus enforcement of payment claims, when the bill was dishonoured, was often

difficult to achieve. Those third parties who accepted such bills in payment for other transactions were at an

even greater risk. Thus, even though bills of exchange and letters obligatory (ancestors of modern

promissory notes) were assignable to third parties, they had not yet become negotiable means of payment;

and they would not become fully negotiable until the early sixteenth century.

Coinage, Money Changing, and Deposit Banking: Medieval England and the Low Countries

The first major steps towards achieving modern negotiability took place, however, in supposedly

‘backward’ fifteenth-century England; and they are related to a third set of state financial impediments, those

that the Crown had long imposed upon money-changing and thus deposit banking. As De Roover and

others have long and correctly maintained, deposit- and transfer-banking arose in Italy and elsewhere almost

entirely through the agency of money-changing. From the late twelfth-century in northern Italy – in Genoa

and the Lombard towns – money-changers, who were required to exchange foreign for domestic coins and

to buy bullion for resale to the official mints, did become private bankers, even if necessarily licenced by

town or princely governments to practise their trade. Indeed, in medieval Flanders, and elsewhere in the Low

Countries, such bankers were commonly called tafeltiers, from the tafel or table that money-changers

maintained in engaging in their trade.

How such money-changers and coin dealers became bankers is a story now too well known to be

26

61 On deposit-banking and the usury problem, see Noonan, Scholastic Analysis of Usury, pp. 171-75.

62 For Italy and Europe in general, see: Raymond De Roover, ‘New Interpretations of the Historyof Banking,’ Journal of World History, 2 (1954), 38-76; reprinted in Julius Kirshner, ed., Business, Banking,and Economic Thought in late Medieval and Early Modern Europe: Selected Studies of Raymond de Roover

(University of Chicago Press, 1974), pp. 200 - 38; Raymond De Roover, The Rise and Decline of the Medici

Bank, 1397-1494 (Cambridge, Mass. 1963), especially chapters II (pp. 9-34) and VI (pp. 108-41); RaymondDe Roover, ‘Early Banking Before 1500 and the Development of Capitalism,’ Review of the History ofBanking, 4 (1971), 1-16; A.P. Usher, ‘The Origins of Banking: the Primitive Bank of Deposit: 1200-1600,’The Economic History Review, 1st ser., 4 (1939), 399-428; reprinted in F.C. Lane and J.C. Riemersma, ed.,Enterprise and Secular Change (London: Allen Unwin, 1952), pp. 262-91; Frederic C. Lane, ‘VenetianBankers, 1496 - 1533,’ Journal of Political Economy, 45 (1937), 187-206; reprinted in his Venice andHistory: The Collected Papers of Frederic C. Lane (Baltimore, 1966), pp. 69 - 86; A. P. Usher, The EarlyHistory of Deposit Banking in Mediterranean Europe, Vol. I, Harvard Economic Studies LXXV (Cambridge,Mass., 1943; reissued New York, 1967); Jacques Le Goff, Merchands et banquiers du moyen âge (Paris,1956); Charles de la Roncière, Un changeur florentin du Trecento: Lippo di Fee del Sega, 1285 env. - 1363env. (Paris, 1973); Marco Spallanzani, ‘A Note on Florentine Banking in the Renaissance: Orders of

Payment and Cheques,’ Journal of European Economic History, 7 (Spring 1978), 145 - 68; Fredi Chiappelli,

Center for Medieval and Renaissance Studies, UCLA, ed., The Dawn of Modern Banking (New Haven andLondon, 1979); Reinhold Mueller, ‘The Role of Bank Money in Venice, 1300-1500', Studi Veneziani, newseries, 3 (1979), pp. 47-96; Richard Goldthwaite, ‘Local Banking in Renaissance Florence,’ Journal ofEuropean Economic History, 14 (Spring 1985), 5 -55; Thomas Blomquist, ‘The Early History of EuropeanBanking: Merchants, Bankers, and Lombards of XIIIth-Century Lucca in the County of Champagne,’Journal of European Economic History, 14 (Winter 1985), 521 - 36; Richard Goldthwaite, ‘The Medici Bankand the World of Florentine Capitalism,’ Past and Present, no. 114 (Feb. 1987), 3 - 31; Edward English,Enterprise and Liability in Sienese Banking, 1230 - 1350 (Cambridge, Mass. 1988); Dino Puncuh andGiuseppe Felloni, eds., Banchi pubblici, banchi privati e monti di pietà nell'Europa preindustriale:Amministrazione, tecniche operative e ruoli economici, Atti della Società Ligure di Storia Patria, new series,

vol. 31, 2 vols. (Genoa: Società Ligure di Storia Patria, 1991). The most recent and best study is: Reinhold

expounded in any detail here. Suffice it to say, that because money-changers necessarily had to maintain

adequate security to protect their valuable inventories, they soon came to offer the additional service of

safeguarding the moneys, precious metals, and valuables of merchant clients. They also readily discovered

that, by maintaining a sufficiently high reserve ratio (usually a third), they could safely lend out the

remainder, in short-term interest bearing loans, disguising the interest by some of the means suggested

earlier. They could also permit their clients who maintained deposit accounts to make transfer payments,

with verbal and then written instructions (and ultimately, therefore, by cheques).61 Such transfer payments

(giro payments) of course greatly economized on the use of scarce coin; and was often preferable, when so

many coins were clipped, counterfeit, or otherwise debased.62 Certainly by the fourteenth-century, such

27

C. Mueller, Money and Banking in Medieval and Renaissance Venice, Vol. II: The Venetian Money Market:Banks, Panics, and the Public Debt, 1200 - 1500 (Baltimore and London, 1997), Part I: 1, ‘FromMoneychanging to Deposit Banking’, pp. 1 - 32. He also notes (p. 13) that ‘references to conditioneddeposits in the fifteenth century do not mention interest,’ even though it was certainly paid. And further (p.15): ‘Once moneychangers began accepting regular and irregular deposits, as they did in Venice during thethirteenth century, the step toward the ready transferability of deposits on current account was short.’

63 See: Raymond De Roover, ‘Money, Banking, and Credit in Medieval Bruges,’ Journal ofEconomic History, 2 (1942), supplement pp. 52-65; Raymond De Roover, Money, Banking, and Credit inMediaeval Bruges: Italian Merchant-Bankers, Lombards, and Money Changers (Cambridge, Mass., 1948),

especially chapter IV, pp. 48-75; Raymond De Roover, The Bruges Money Market Around 1400 (with aStatistical Supplement, by Hyman Sardy), (Brussels, 1968); James M. Murray, ‘Cloth, Banking, and Financein Medieval Bruges,’ in Erik Aerts and John H. Munro, eds., Textiles of the Low Countries in European

Economic History (Leuven, 1990), pp. 24-31; Erik Aerts, ‘Money and Credit: Bruges as a Financial Centre,’

in Valentin Vermeersch, ed., Bruges and Europe (Antwerp: Fonds Mercator, 1992), pp. 57-71; Van der Wee,‘Monetary, Credit, and Banking Systems’, pp. 322-24.

64 The earliest extant ordinance is a royal proclamation of Henry III, dated 1222, forbidding anyoneto make exchange except at the Royal Exchanges of London and Canterbury, requiring all to do so throughthe duly appointed royal officials. Rogers Ruding, ed., Annals of the Coinage of Great Britain and ItsDependencies (London, 1840), II, pp. 138-39. A subsequent proclamation of September 1232 similarlyforbade anyone to ‘exchange new coins for old or make exchanges except at the King’s Exchanger’. In SeeThomas Rymer, ed., Foedera, conventiones, literae, et acta publica (London, 1709-12), vol. I.i, p. 207.

65 Statutes of the Realm, vol. I, p. 219. The Statute of Westminster (3 Edwardi I, c 15), of April 1275,had banned the importation of all suspected counterfeit or other defective coins, requiring them to be turnedover and sold for their bullion contents to the office of the Royal Exchanger. See Munro, ‘Bullionism andthe Bill of Exchange’, pp. 187-90, and Appendix A, pp. 216-19.

66 Paul L. Hughes and James F. Larkin, eds., Tudor Royal Proclamations, 3 vols. (New Haven andLondon, 1964-69, vol. I: The Early Tudors (1485-1553) (London, 1964), no. 88, p. 136 (25 May 1522); no.95, p. 141 (24 Nov. 1522); no. 102, p. 145 (6 July 1525); no. 103, p. 146 (8 July 1525); Robert Steele, ed.,

deposit-and-transfer banking had developed as well in Flanders, chiefly thanks to the activities of Italian

merchants, though many such bankers were indigenous Flemish money changers.63

In England, however, from at least 1222, and probably earlier, money-changing and commerce in

bullion was a strictly-enforced crown monopoly, which was exercised and controlled by a senior crown

official known as the Royal Exchanger.64 Indeed, from the Statutum de Moneta Magnum in 1282, the

importation of all foreign coins – and not just counterfeits – for domestic circulation was strictly prohibited;65

and that rigorous ban was relaxed, and then only temporarily, in May and November 1522, when Henry VIII

permitted the circulation of Italian ducats, florins, French écus, and Habsburg carolus coins as legal tender.66

28

A Bibliography of Royal Proclamations of the Tudor and Stuart Sovereigns, 1485- 1714, 4 vols. (London,1910), I, nos. 82, 88, p. 9 (May and November 1522); see also ibid., no. 105, p. 20 (Nov. 1526); no. 1792(Mar 1539). Evidently these decrees were issued only to ensure an alliance with the Habsburg monarchCharles V.

67 Royal proclamation of Dec. 1278, in Rymer, Foedera, vol. I:ii, p. 564; Statutum de Falsa Monetaof May 1299, in Statutes of the Realm, vol. I, pp. 131-35; royal proclamation of Jan. 1307, in Rymer,Foedera, vol. I:ii, p. 1007 (repeated in Feb. 1326, in Ibid., vol. II.1, p. 619); Statute 38 Edwardi III stat 1 c.2 (Jan. 1364), in Statutes of the Realm, vol. I, p. 383, and Rymer, Foedera, vol. III.ii, p. 728; Statute 15Carolus II c. 7 (May 1663), in Statutes of the Realm, vol. V, p. 452, sec. 9. See also Munro, ‘Bullionism andthe Bill of Exchange’, pp. 187-205, 216-39.

68 On this see Munro, Wool, Cloth, and Gold, pp. 11-64, 181-86; John Munro, ‘Billon - Billoen -Billio: From Bullion to Base Coinage,’ Belgisch tijdschrift voor filologie en geschiedenis/ Revue belge dephilologie et d'histoire, 52 (1974), 293-305, and other studies in Munro, Bullion Flows and MonetaryPolicies (1994). In continental countries, the bullion export bans usually defined the meaning of bullion(billon), as specific demonetized precious metals that had to be delivered to the mints, excluding legal tendercoins and certain types of plate and jewellery.

Similarly, Crown and Parliament had banned the export of all silver bullion (including by definition all

foreign silver coin) and plate from December 1278, then gold bullion from January 1307, and finally, from

January 1364, all coins, gold and silver, explicitly including all legal tender English coins (except under royal

licence). That all-inclusive export ban remained in force, with continuous re-enactments, until May 1663.67

In this latter respect, England seems to have been unique; for other (west European) states did permit the

export of legal-tender coins, reserving their export bans for bullion (as specific demonetized precious

metals).68 Thus, in medieval and Renaissance England, the duty of the Royal Exchanger, in enforcing these

statutes, was to employ licenced, salaried officials who were instructed to purchase or confiscate all foreign

coins and to turn them over to the Tower Mint for recoinage, and to prevent any private commerce in

precious metals, as well any export of such metals.

That the exercise of such princely authority over the coinage indeed did very adverse effects on the

development of deposit banking can be illustrated with the aftermath of the Burgundian monetary unification

and reform that duke Philip the Good undertook, from his original base in Flanders, after acquiring full

control over the neighbouring principalities of Namur, Holland, Zeeland, Hainaut, and Brabant, in the years

29

69 See Peter Spufford, ‘Coinage, Taxation, and the Estates General of the Burgundian Netherlands’,Anciens pays et assemblées d’états (Standen en Landen), 40 (1966), 63-88; Peter Spufford, MonetaryProblems and Policies in the Burgundian Netherlands, 1433 - 1496 (Leiden, 1970); John Munro, Wool,Cloth and Gold: The Struggle for Bullion in Anglo-Burgundian Trade, ca. 1340-1478 (Brussels, 1973), pp.93 - 126.

70 See note 68. The difference between the attitudes of late-fifteenth-century England and theHabsburg Low Countries on specie exports is revealed in this rebuke that Archduke Philip’s officialsdelivered to Henry VII’s ambassadors, in 1499: ‘They [the Archduke’s councillors] thynk that theye do verymoche for your subjectes to graunt them to conveigh oute of the archdukis landis all money current in thoosparties and also all manere of plate wrought and brought to eny man certen forme and fasshion [unbroken].For the archdukis subjectes may not have like pryvylage to convey money nether plate oute of your realmeof England into the archdukis parties, nor all manere of cune [coins]...’. Georg Schanz, ed., EnglischeHandelspolitik gegen Ende des Mittelalters, II: Zoll-und Handelsstatistik, Urkunden, Beilagen (Leipzig,1881), doc. no. 8, p. 196.

71 De Roover, Money, Banking and Credit in Mediaeval Bruges, pp. 236-46, 331-57, esp. pp. 339-42.The original text of the ordinance of 12 October 1433, in the Stadsarchief Gent, Chartes et documents, no.561, article 11 reads: ‘Item que aucune personne, changeur ne autre, ne puisse tenir en la ville de Bruges,ne ailleurs, table de banc pour recevoir l’argent des marchans et faire leurs paiements sur paine de ban detrois ans.’ Those provisions are repeated in the ordinance of 13 October 1467 [citing Louis Gilliodts-vanSevern, ed., Inventaire des archives de la ville de Bruges, 6 vols (Bruges, 1871-78), vol. V, p. 546]. See alsoHerman Van der Wee, ‘Monetary, Credit, and Banking Systems’, in E.E. Rich and C.H. Wilson, eds.,Cambridge Economic History of Europe, vol. V: The Economic Organization of Early Modern Europe(Cambridge, 1977), pp. 302, 312, 323-24 (noting similar problems in 15th-century Italy), 361-62; HermanVan der Wee, Growth of the Antwerp Market and the European Economy, fourteenth - sixteenth centuries(The Hague, 1963), vol. II: Interpretation, pp. 85-86, 333-40, 355-58.

1433-35.69 Fearing that the money-changers, especially those acting as deposit-bankers, were a threat to the

integrity of the ducal mints and of the money supply, Duke Philip and his successors issued a series of

ordinances to terminate such banking: in the years of the unification itself, in 1433-35, and then in 1467,

1480, and 1489. Certainly a major part of their concern lay in the normal functions of money-changing,

which the authorities feared involved the purchase and then circulation of imported debased or counterfeit

coin and most especially the sale of both coin and bullion for export.70 But the ordinances also reveal a deep

fear of their role as bankers, in decreeing (1433) that it was unlawful for anyone ‘whether a money-changer

or not, to have a bank in order to receive the money of merchants and to make their payments, under the

penalty of banishment for three years’.71 The 1489 ordinance, in again banning changeurs-bancquiers, also

contended that frequent bank ‘failures have wrought utter ruin among all classes of people, but especially

30

72 De Roover, Money, Banking, and Credit, pp. 339-40, 344, citing the text in Groot Placaet-Boeckinhoudende de Placcaten ende Ordonnantien van de Hoogh-Mogende Heeren Staten Generael derVereeinghde Nederlanden, vol. I (The Hague, 1658): ‘à l’entrée de ceste ordonnance, n’y aura nulzchangeurs-bancquiers: à sçavoir ceulx qui gardent l’argent des marchans, bourgeois et aultres personnes,don’t ilz faisonyent payements journelement.’

73 Van der Wee, ‘Monetary, Credit, and Banking Systems’, pp. 323-24; De Roover, Money, Bankingand Credit, pp. 341, 351.

74 See R. D. Richards, The Early History of Banking in England (London, 1929; reissued 1958), pp.1-25; and see esp. p. 15: ‘There does not appear to be any evidence to show that the goldsmith, the broker,of the merchant made a practice of receiving deposits in Tudor and Jacobean times. A few instances ofmerchants keeping deposits occur in the Elizabethan and early Stuart Chancery proceedings, though not asa regular and specialised business..... See also J. R. Anonymous, ‘The Goldsmith Bankers’, in B.L. Anderson

among the merchants...’72 According to not only De Roover, but also to Van der Wee, ‘the few deposit and

clearing-banks once operating in Antwerp and Bergen-op-Zoom had disappeared before the end of the

[fifteenth century].’ They both contend that, in the Low Countries, effective banking re-emerged only

slowly, in late sixteenth century Antwerp and then in Amsterdam, with the kassiers, or ‘cash-keepers’, who

similarly ‘combined manual exchange with deposit banking’ (kassierbedrijf).73

In medieval and Renaissance England, with an even more rigorous enforcement of the Crown’s

monopoly on money and coinage, such restrictions meant the absence, or virtual absence, of any form of

practical deposit-and transfer banking, until the emergence of the goldsmith banks in the seventeenth century.

To be sure, merchant-banking in the form of commerce in bills of exchange and letters obligatory was

always present. As R.D. Richards informed us long ago, late Tudor and early Stuart England also enjoyed

some very rudimentary forms of bank-lending, undertaken by various merchants, brokers, scriveners (notaries

public, who drew up letters obligatory, recognizances, etc.), and also some goldsmiths, some of whom may

occasionally have received moneys for safekeeping. The goldsmiths, as members of an ancient, fourteenth-

century guild of jewellers, in serving (or serving as well) as precious-metal merchants and illicit coin dealers,

were the most logical ones to become true bankers. But, according to Richards, their role was the least

effective of these four groups until at least the 1630s, when they were still being prosecuted for exporting

precious metals and illegal coin dealings.74 How the goldsmiths subsequently emerged, either during the

31

and P.L Cottrell, eds., Money and Banking in England: the Development of the Banking System, 1694-1914(London, 1974), pp. 159-65, published in 1676 as The Mystery of the New Fashioned Goldsmiths or Bankers.See also Steele, Royal Proclamations, vol. 3.

75 See also Van der Wee, ‘Monetary, Credit, and Banking System’s, pp. 351-52, which provides theconventional story: ‘Then came Charles I’s closure of the Tower Mint in 1640. Its silver deposits belongingto private persons were converted into a compulsory loan, so that deposits with goldsmith bankers henceforthseemed safer. Finally, government financial needs were also partially responsible for the rise of goldsmithbanks from 1640 to 1672 [with the Stop of the Exchequer, which had little impact on most banks].’

76 On this complex subject, see Michael Postan, ‘Credit in Medieval Trade’, Economic HistoryReview, 1st series, 1 (1928), and his ‘Private Financial Instruments in Medieval England’, Vierteljahrschriftfür Sozial- und Wirtschaftsgeschichte, 23 (1930), both republished in Michael Postan, Medieval Trade andFinance (Cambridge, 1973), pp. 1 - 27, 28-64; James Holden, The History of Negotiable Instruments inEnglish Law (London, 1955), though very wrongly contending, on p. 21, that ‘it was not until about themiddle of the fifteenth century that commercial paper was much used by the native English merchants’. Seealso John Munro, ‘The International Law Merchant and the Evolution of Negotiable Credit in Late-MedievalEngland and the Low Countries,’ in Dino Puncuh, ed., Banchi pubblici, banchi privati (Genoa, 1991), pp.49 - 80; reprinted in Munro, Textiles, Towns, and Trade (1994); and John Munro, ‘English “Backwardness”and Financial Innovations in Commerce with the Low Countries, 14th to 16th centuries,’ in Peter Stabel,Bruno Blondé, and Anke Greve, eds., International Trade in the Low Countries (14th - 16th Centuries):Merchants, Organisation, Infrastructure, Studies in Urban, Social, Economic, and Political History of the

Interregnum or early Restoration era, as full fledged deposit-and transfer and bills bankers, and ultimately

before the end of the century, as note-issuing banks, is a most complex and contentious subject, too complex

to be considered here. It might be tempting to believe that the breakdown of royal authority (along with

Charles I’s seizure of mercantile deposits in the Mint), was the key factor; but that remains far from being

proved.75

Medieval English Credit Instruments and the Law Merchant

In any event, before then, the absence of truly effective deposit bankers, on the continental model,

meant as well that one of its key functions, in providing deposit-transfer payments by written agreement, was

not readily available, not in late-medieval England. Even though the rather severe bullionist mentality of the

English crown in this era had also made the development of any financial institutions very difficult,

nevertheless ingenious English merchants had long ago found a remedy for making such ‘coinless payments’,

through assignable or transferable bills that did pass from hand to hand. Such transferable forms of credit,

especially informal holograph credit documents, can be found from at least the twelfth century.76 One may

32

Medieval and Early Modern Low Countries (Marc Boone, general editor), no. 10 (Leuven-Apeldoorn, 2000),pp. 105-67.

77 Statutes of the Realm, vol. I, pp. 53-4 (11 Edward I: 12 Oct. 1283). The Statute of Acton Burnell(or Statutum de Mercatoribus) gave creditors the power to compel debtors to register their loans as bondsbefore the mayors of London, York, Bristol, other ‘good towns’, and fair courts. Their clerks were requiredto enter the debt on a Roll of Recognizance (reconisaunce enroulee), to produce a corresponding bill

obligatory (escrit de obligacion) for the creditor, and to fix the seals of both debtor and the king to that bill.

The most significant feature of this Statutory Recognizance, an important advance over earlier forms, wasthe recourse given to creditors when debtors defaulted: in obligating mayors or sheriffs to imprison debtorsand seize their lands and chattels without any further legal action. Other legal disputes over recognizancescould be adjudicated by Common Law courts, which, in Postan's words, regarded the sealed bond as ‘the

highest form of documentary evidence’ (Postan, ‘Financial Instruments’, pp. 40-54). Subsequently, in June

1285, the Statute of Merchants (Statutum Mercatorum, 13 Edwardi I, stat. 3, in SR, I, pp. 98-100) permittedrecognizances to be registered before the mayors of any ‘good town’ or before fair courts, expandedprovisions for debt registrations, and increased the creditor's powers of execution over the debtor's assets --lands as well as goods -- with immediate imprisonment. Many of these provisions were nullified by theOrdinances of 1311, but were restored with the overthrow of the Lords Ordainers and repeal of theirOrdinances in 1322.

indeed argue that the very absence of the safe, secure, and low-cost mechanisms for transferring credits,

so readily available in contemporary Italian financial institutions, provided medieval English merchants with

a powerful incentive to resolve the problems, especially legal problems, that accompanied their own transfer

payments.

The central legal and financial problem should obvious: that third parties receiving such informal

commercial paper had no readily available means of enforcing payments from the original debtor or issuer

of commercial paper, or rather of the forms of credit that came to be most commonly used. To be sure,

merchants and others could transfer formal, notarized debts, those in particular known as ‘recognizances’

(reconisaunce enroulee) that had been registered in the Rolls of a designated mayor’s court, in major English

towns, according to the provisions of the 1282 Statute of Acton Burnell.77 Such debts (payments claims)

could indeed be transferred to a third party; but such assignments necessarily meant that the two parties had

to draw up an entirely new notarized, sealed, and enrolled recognizance, at some considerable cost.

Subsequently, if the original debtor defaulted, that third-party creditor could file suit in a Common Law

court only if fully armed with a duly notarized and unrevoked power of attorney to justify his/her claim. He

33

78 See Postan, ‘Financial Instruments’, pp. 40-54, especially p. 43: ‘the courts made use of thedoctrine of the chose in action, i.e. the doctrine of the unassignable nature of mere legal claims, to confinevalid assignments to those cases only in which the assignor and the assignee could prove a ‘commoninterest’.’ The assignor's debt to the assignee was considered a ‘common interest’ so that the transfer of anobligation in settlement of a debt could be enforced in Common Law’. See also A.H. Thomas, ed., Calendarof Select Pleas and Memoranda of the City of London Preserved Among the Archives of the Corporation ofthe City of London at the Guildhall, Vol. 3: A.D. 1381 - 1412 (Cambridge, 1932), pp. xxxvi-vii: ‘a commoninterest could not be proved if it appeared that the assignee had merely purchased the deed [bond] from theassignor without any particular reason for doing so’. According to Holden, Negotiable Instruments, pp. 13-14: ‘the fifteenth century saw the advent of maintenance as an objection to the assignment of funds if theassignee sued for the debt in the assignor's name. The rule developed that it was maintenance to purchasea bond and sue upon it.... There was an exception, however, if the bond was transferred to satisfy a pre-existing debt’, according to the ‘common interest’ test.’ All cite William Holdsworth, A History of EnglishLaw (London, 1909 - 66), V, pp. 534-45, on this issue.

79 See Postan, ‘Financial Instruments’, pp. 33-5, 38-40, 43, 47-54, contending that Common Lawcourts and Parliament ‘ made the emergence of fully negotiable paper impossible’, so that ‘the transfer ofobligations was fraught with cumbersome formalities’. Some support for Postan’s views can be found in

Alice Beardwood, trans. and ed., The Statute Merchant Roll of Coventry, 1392-1416, the Dugdale Society

(Oxford University Press, 1939), pp. xx-xxi, contending that, of 288 recognizances on this roll from 1392to 1416, only 15 seem to concern mercantile transactions. But according to Pamela Nightingale, ‘Monetary

Contraction and Mercantile Credit in Later Medieval England’, Economic History Review, 2nd ser., 42(November 1990), 560-67, the Coventry roles indicate that most did indeed involve commercial contracts;and she strongly contends that recognizances continued to play a fairly important, even if relativelydiminishing role, in later medieval English commercial and financial transactions.

could then hope for success, but at very considerable cost in time – for long delays were commonplace --

and money. According to Michael Postan, a major authority on this subject, English Common Law courts

became ‘increasingly hostile’ to the assignment of such debts during the later Middle Ages. They generally

recognized the validity of only those debt tranfers that involved ‘a common interest’ between assignor and

assignee, generally limited to assignments that satisfied ‘a pre-existing debt’ between them.78. Therefore, he

argued implicitly, such rising transaction as well as rising legal costs forced most merchants to resort instead

to such low-cost holograph documents as the letter obligatory (promissory note) and the bill of exchange,

neither of which, of course, had any standing whatsoever in Common Law courts.79

Nevertheless, a legal alternative to such courts then developed, if rather slowly, to resolve these

financial problems. Surprisingly, as early as the late thirteenth century, the medieval Crown and Parliament,

in supposedly anti-alien England provided the genesis of that ultimate remedy in legislation to incorporate

34

80 J.H. Baker, ‘The Law Merchant and the Common Law Before 1700’, Cambridge Law Journal,38 (1979), pp. 295-322, reprinted in J.H. Baker, The Legal Profession and the Common Law: HistoricalEssays (London, 1986), pp. 341-68. He cites Lex Mercatoria, in F.B. Bickley, ed., The Little Red Book ofBristol (Bristol, 1900), I, pp. 57-8l; and also Paul Teetor, ‘England’s Earliest Treatise on the Law Merchant’,American Journal of Legal History, 6 (1962), pp. 182-31 For the significance of law merchant in an earlierera of European commerce, and for reducing transaction costs at the Champagne Fairs, see in particular: PaulR. Milgrom, Douglass C. North, and Barry Weingast, ‘The Role of Institutions in the Revival of Trade: TheLaw Merchant, Private Judges, and the Champagne Fairs’, Economics and Politics, 2:1 (March 1990), 1-23.

81 See evidence found in the documents cited in the next note.

82 Also known as the Statutum de Nova Custuma: Clause 8: ‘Item, volumus quod omnes ballivi etministri feriarum, civitatum, burgorum, et villarum mercatoriarum, mercatoribus antedictis, conquerentibuscoram eis, celerem justiciam faciant de die in diem, sine dilatione, secundum legem mercatoriam, deuniversis et singulis quae per eandem legem poterunt terminari;’ Clause 10: ‘Item quod in omnibus generibusplacitorum salvo casu criminis ..ubi mercator implacitatus fuerit ...idem implacitatus extiterit extraneus velprivatus in nundinis civitatibus sive burgis ubi fuerit sufficiens copia mercatorum predictarum terrarum etinquisicio fieri debeat sit medietas inquisicionis de eisdem mercatoribus et medietas altera de aliis probis etlegalibus hominibus loci illius ubi placitum illud esse contigerit...’ Clause 5 also stipulated that all merchantcontracts were to be binding after ‘God's penny’ had been paid. Texts in N.S.B. Gras, The Early EnglishCustoms System: A Documentary Study of the Institutional and Economic History of the Customs from theThirteenth to the Sixteenth Century, Harvard Economic Studies XVIII (Cambridge, Mass., 1918), pp. 260-1;H. Thomas Riley, ed., Munimenta Gildhallae Londoniensis: Liber Albus, Liber Custumarum et Liber Horn(London, 1859-62), II.i: Liber Custumarum, pp. 207-08. The text in Rymer, Foedera, vol. II.ii, pp. 747-48,

the then evolving code of international Law Merchant into English statutory law. According to the British

legal historian J.H. Baker, the so-called Law Merchant, as expounded in the treatise Lex Mercatoria (c. 1280)

was ‘not so much a corpus of mercantile practice or commercial law as an expeditious procedure especially

adapted for the needs of men who could not tarry for the common law.’ It differed from Common Law in

its far speedier process, the ‘liability of pledges to answer’, and denial of the time-consuming Common Law

practice of ‘wager of law’ in the negative, i.e. a compurgation with eleven witnesses swearing a formal oath

to deny a specific debt obligation.80 At about this very time, in 1285, Edward I had established a Law-

Merchant court in London composed of foreign merchants specifically empowered to settle their own

commercial disputes.81 Subsequently, by the 1303 Carta Mercatoria, a treaty regulating English relations

with foreign merchants, Edward further stipulated that all merchants were permitted to receive ‘speedy

justice’ by the Law-Merchant (secundum legem mercatoriam); and that, in any dispute between foreign and

domestic merchants, half of the jury had to consist of foreign merchants.82 Finally, in 1353, his grandson

35

is a reconfirmation by Edward II, issued on 8 August 1328. Clause 10 on the composition of Law-Merchantjuries was subsequently reconfirmed in the Ordinance of the Staples of 1353 (see the next note).

83 27 Edwardi III stat. 2, in Statutes of the Realm, vol. I, pp. 332-43. The primary purpose of thisstatute was to return from abroad the official staples for the sale of English wools and other stapled goods.It explicitly enjoined the King's justices or other legal officers from interfering with anything ‘which

pertaineth to the Cognisance of the Mayor and Ministers of the Staple’ (c. 5). See also A. H. Thomas, ed.,Calendar of Plea and Memoranda Rolls Preserved Among the Archives of the Corporation of the City ofLondon at the Guildhall, I: AD. 1323 - 1364 (Cambridge, 1926), p. 258; A. H. Thomas, ed., Calendar ofPlea and Memoranda Rolls Preserved Among the Archives of the Corporation of the City of London at theGuildhall, II: AD. 1364 - 1381 (Cambridge, 1929), pp. 248-9; A. H. Thomas, ed., Calendar of Select Pleasand Memoranda of the City of London Preserved Among the Archives of the Corporation of the City of

London at the Guildhall, III: AD. 1381 - 1412 (Cambridge, 1932), pp. vii-xli; and Hubert Hall, ed., SelectCases Concerning the Law Merchant, III: Central Courts, Supplementary, AD. 1251 - 1779, Selden Society

Publications Vol. 49, 1932 (London, 1932), pp. xi - xxxii.

84 Plaintiffs holding bonds as Statutory Recognizances were also allowed to sue at Common Law(27 Ed III, stat. 2, c. 8). See also Thomas, Calendar of Select Pleas, 1381-1412, pp. xxiii-iv.

85 See in particular, Postan, ‘Private Financial Instruments’, pp. 33-54; Nightingale, ‘MonetaryContraction and Mercantile Credit’, pp. 560-67; Munro, ‘The International Law Merchant’, pp. 49-80;Munro, ‘English Backwardness’, pp. 105-67; Munro, ‘Bullionism and the Bill of Exchange’, pp. 169-239.

Edward III completed this full royal empowerment of the international Law Merchant, by having Parliament

enact the Ordinance of the Staples, which established fifteen Staple Courts, in the leading English port towns,

to settle all disputes among merchants conducting their commerce there.83 Thus, all such merchants and

their agents ‘shall be ruled by the Law Merchant (lei marchant), of all Things touching the Staple, and not

by the Common Law of the Land’ (c. 8), without any interference from royal justices or other legal officers.

Each court was to be conducted by the town’s Staple Mayor, ‘having Knowledge of the Law-Merchant to

govern the Staple’, with the aid of two constables and a jury composed of domestic and/or foreign

merchants, depending on the case. Finally, the Staple courts were empowered to seize the goods and chattels

of defaulting debtors .84

The Legal Foundations for Modern Negotiability: Law Merchant and the Burton v. Davy Case (1436)

The subsequent history of the treatment of bills of exchange and other transferable credit instruments

in English law merchant (and Common Law) courts during the later fourteenth and early fifteenth centuries

has been discussed elsewhere, in several publications.85 The culminating development took place in March

36

86 Full text in Hubert Hall, ed., Select Cases Concerning the Law Merchant, vol. III: Central Courts,

Supplementary, AD. 1251 - 1779, Selden Society Publications Vol. 49, 1932 (London, 1932), vol. III, pp.

117-19 (Latin and French, with English translations). Précis and incomplete, somewhat misleading analysesin Frederick Beutel, ‘The Development of Negotiable Instruments in Early English Law’, Harvard LawReview, 51 (1938), pp. 830-1, and Holden, Negotiable Instruments, pp. 23-44. The entire document is in theform of a reply by the London Mayor, John Mitchell, to a Chancery writ of Henry VI, dated 14 February 15Hen. VI, or 1437, the year erroneously given by Beutel, Holden, and many others for the London case itself.These legal historians do not consider the significance of this document for international trade and finance.Postan (in ‘Financial Instruments’, p. 60, n. 72) knew of this case only from a précis of a related (andmisleading) document in Reginald Sharpe, ed., Calendar of Letter-Books Preserved among the Archives ofthe Corporation of the City of London at the Guildhall: Letter Book K. Temp. Henry VI (London, 1911), pp.208-09

87 Hall, Select Cases, vol. III, p. 117: ‘To my very honoured master, Elias Davy, mercer, at London,let this be given. Very honoured sir, please it you to know that I have received here [in Bruges] of JohnBurton [by the hands of Thomas Hanworth] by exchange, 30l. [sterling] payable at London to the aforesaidJohn [Burton] or to the bearer of this letter of payment on the 14th day of March next coming, by this myfirst and second letter of payment. And I pray you that it may be well paid at the day. Written at Bruges, the10th day of December [1435], by your attorney, JOHN AUDELEY, etc.’

and November 1436, when the London Mayor’s law-merchant court was called upon to adjudicate a dispute

concerning a dishonoured bill of exchange. The case involved five parties in an Anglo-Flemish commercial

transaction.86 In Bruges, on 15 December 1435, the Englishman Thomas Hanworth, resident ‘factor and

attorney’ for the Norwich-based merchant John Burton, acting as the deliverer, purchased a bill of exchange

from John Audley, who was the resident factor for Elias Davy, a London-based Mercer engaged in the import

trade from the Low Countries; and he used the Flemish funds so acquired to purchase linens for delivery to

the Mercers in London. As the taker, Audley thus drew the bill for payment on his master Elias Davy, as the

designated payer, with instructions to pay the sum of £30 sterling to the designated payee, the aforesaid ‘John

Burton or the bearer of this letter of payment’. Subsequently, in another commercial transaction, Burton sold

his claim to the bill (or used the bill to make payment) to John Walden, another London merchant.

Presumably, from the evidence, Davy had ‘accepted’ the bill upon presentation.87 But when Walden tried

to collect payment on the designated maturity date, 14 March 1436, Davy refused – he ‘dishonoured’ the bill.

Presumably following further rebuffs, John Walden presented this dishonoured bill to the London

Mayor’s court, on 10 August 1436, with a ‘supplication made in the name of the aforementioned John

37

88 Ibid., p. 118: ‘Et dictum est predicto Johanni Walden, portitori litere predicte, qui loco dictisupplicantis tenetur, habetur et admittitur in hoc casu, juxta legem mercatoriam et consuetudinem antedictas,quod custodiat tunc hic diem suum, etc.’

89 Ibid., pp. 118-19. Cf. Sharpe, Letter Book K, pp. 208-09: ‘by the Law-Merchant and the ancientliberties and customs of the City the Mayor and Aldermen, from time immemorial, had exercised jurisdictionover mercantile disputes arising between merchants of the City; and that Elias Davy, mentioned in the writ,was for many years and is a merchant and citizen of London, and was warned by order of Henry Frowyk, theMayor, and the Aldermen to appear before them in the Chamber of the Guildhall...’

Burton, according to the Law Merchant and custom of the city of London’. Speedy justice did indeed follow.

Three weeks later, on 1 September, the London Mayor Henry Frowyk issued the court’s decision: that the

petitioner ‘John Walden, the bearer of the letter aforesaid ... is held, reputed, and admitted in place of the

said supplicant in this case [Burton], according to the Law Merchant and custom before said’.88 When Elias

Davy sought to escape this jurisdiction by transferring the case to the Common Law Court of King's Bench

at Westminster, where he could ‘wage his law,’ and where Walden would clearly have had no standing,

Mayor Frowyck refused, stating that ‘no discontinuance, according to the Law-Merchant and custom

aforesaid, is permitted in any mercantile causes of a court of this nature’. On 3 November 1436, at the law-

merchant court’s next session, Walden and Davy (though not Burton), along with Hanworth and Audley,

appeared before the new Mayor, John Mitchell, who first ruled, successfully, that his law-merchant court,

and not the Court of King’s Bench, had sole jurisdiction in this case, ‘according to the Law-Merchant ... and

by divers statutes and Parliaments’, and indeed in all other cases, involving ‘all manner of loans, barratries,

exchanges and letters of payment and other things, and mercantile contracts made or entered into between

merchants themselves or their factors’.89 At the next session, on 19 November, after hearing all the testimony,

Mayor Mitchell’s verdict was equally swift and decisive: that Elias Davy must pay the stipulated amount of

£30 sterling, ‘according to the Law Merchant and the custom aforesaid in such like cases,’ and according to

‘the force, form and effect of the said letter [to] the supplicant or to John Walden, the bearer of the same

letter, who is held and reputed in [Burton’s] place’. Davy was also fined an additional 20s. – equivalent to

38

90 Ibid., p. 119: ‘ideo consideratum est per eandem curiam mercatoriam juxta legem mercatoriam etconsuetudinem predictam in hujusmodi casibus etc. usitatas et approbatas, quod idem Elias juxta vim,formam et effectum dicte litere solvat easdem xxxl. prefato supplicanti vel Johanni Walden portitori ejusdemlitere, qui loco suo tenetur et habetur in hoc casu, etc., juxta legem mercatoriam et consuetudinemantedictam, etc. et xxs. ultra pro dampnis in hac parte habitis et sustentatis, etc.’ Elias Davy then appealedthis this decision to Chancery; and on 14 February 1437 Henry VI issued a royal writ to London's mayor ‘thatyou do send the tenor of the record and process of the plea aforesaid to us into our Chancery’. MayorMitchell immediately responded and successfully rebuffed this appeal to Chancery, by reiterating all thearguments made in rejecting the king's previous writ of 3 November. See Hall, Law Merchant, III, 117-19.

91 For a contrary view, denying that this case had any real significance in English law, see JamesSteven Rogers, The Early History of the Law of Bills and Notes: A Study of the Origins of Anglo-AmericanCommercial Law (Cambridge, 1995), pp. xi-xiv, 1-11, 44-68. In my view he seriously misinterpreted thereported testimony and the circumstances of this case. See my rebuttal in Munro, ‘English Backwardness’,pp. 105-67. First, the conclusion is inescapable that Davy had originally accepted the bill and thendishonoured it. Secondly, since this was a legal precedent, Walden necessarily had to support John Burtonin this lawsuit, but played no further role. Thereafter, the bearer had the uncontested right to sue on his ownbehalf for payment.

92 Alison Hanham, The Celys and Their World: An English Merchant Family of the Fifteenth Century

(Cambridge, 1985), pp. 187-202: with bills or drafts drawn on the Bruges wisselaers Collard De May and

John Newenton, in 1477-79. See also the evidence in Alison Hanham, ed., The Cely Letters, 1472 - 1488,The Early English Text Society (London, 1975), passim; and Alison Hanham, ‘Foreign Exchange and theEnglish Wool Merchant in the Late Fifteenth Century’, Bulletin of the Institute of Historical Research of theUniversity of London, 46 (1973), pp. 160 - 75.

30 days wages for a London master mason – for damages incurred.90

This landmark case, if not then establishing the full-fledged legal conditions and sanctions for

modern negotiability, nevertheless provided the true legal precedent in laying its foundations.91 Certainly

no English law-merchant court, or any other court, subsequently denied the right of the unnamed bearer of

a bill of exchange to sue the acceptor (the payer), or even the drawer, for payment and damages - except,

of course, when the bill was illegally obtained. English commercial records for late-fifteenth and sixteenth

century trade fully attest that bearer bills were now commonplace – bills that would later become better

known as ‘acceptance bills’ .92 The common argument that England did not establish the legal conditions

for negotiability until the beginning of the eighteenth century has been used entirely out of context. To be

sure, in the seventeenth century, Chief Justice Edward Coke did attempt to give Common Law courts more

39

93 In 1632, Coke limited the jurisdiction of the Admiralty Courts (successors of law-merchant courts)over commercial cases; and in 1648, transferred it fully to Common Law Courts. In 1628, however, Cokehad stated that the Law Merchant ‘is part of the lawes of this realme’, in essence repeating Chief JusticeHobart's statement of 1622 that ‘the custome of merchants is part of the common law of this kingdome ofwhich the judges ought to take notice’. See Eric Kerridge, Trade and Banking in Early Modern England

(Manchester University Press, 1988), p. 72, who also comments: ‘Assignability is not negotiability... To be

fully negotiable a credit instrument must, first, be transferable as by the custom of merchants..; and secondly,it must be capable of being sued upon by the holder for the time being’.

94 Holden, Negotiable Instruments, pp. 33-6; Beutel, ‘Negotiable Instruments’, pp. 833-34; Kerridge,Trade and Banking, pp. 71-2. In Woodward vs. Rowe (1666) the Common Law court declared that ‘the lawof merchants is the law of the land, and the custome is good enough generally for any man, without naminghim merchant’; and in Williams vs. Williams (1693) it ruled that the customs of Law Merchant did not haveto be detailed, for ‘tis sufficient to say that such a person secundum usam et consuetudinam mercatorumdrew the bill’.

95 ‘An Act for Giving Like Remedy Upon Promissory Notes as is Now Used Upon Bills ofExchange...’ 3 & 4 Anne c. 8 (1704), in Statutes of the Realm, vol. VIII, pp. 355-56.

and more restrictive jurisdiction over commercial cases.93 Nevertheless, in 1666, the Common Law courts

did agree that ‘the law of merchants is the law of the land’, and therefore that endorsed and bearer bills of

exchange were fully ‘transferable within the custom of merchants’.94 Astoundingly, however, in 1703, Chief

Justice Holt issued a decision that in effect rejected such legal sanctions for the negotiability of promissory

notes (letters obligatory) -- the right of the bearer or endorsee of such bills to sue the debtor for non-payment

-- on the very narrow and specious grounds that they were not bills of exchange. The next year, in 1704,

Parliament was forced to remedy that blunder in the Promissory Notes Act: to make all such bills fully

transferable and negotiable, whether to order by endorsement or to bearer, ‘according to the custom of

merchants ... as is now used upon Bills of Exchange’.95

The Establishment of Modern Negotiability in the Habsburg Netherlands, 1507 - 1541

If the 1436 law-merchant verdict in the Burton v. Davy case may certainly be considered as the true

foundation for that legislation, it was, much further back in time, also the fundamental precedent for Europe’s

first national legislation to provide the complete judicial sanctions for modern negotiability, as we now

understand the term. The route, ending in the Habsburg Netherlands, was indirect. First, in May 1499, the

law-merchant court of Lübeck rendered a verdict concerning the property rights of bearers in disputed bills,

40

96 For this case, see Pierre Jeannin, ‘De l'arithmétique commerciale à la pratique bancaire: l'escompteaux XVIe - XVIIe siècles,’ in Dino Puncuh and Giuseppe Felloni, eds., Banchi pubblici, banchi privati e

monti di pietà nell'Europa preindustrial (Genoa, 1991), vol. I, pp. 95 - 116, citing Wilhelm Ebel,

Forschungen zur Geschichte des lübischen Rechts, I: Dreizehn Stücke zum Prozess-und Privatrecht (Lübeck,1950), p. 135: Zyderdissen vs. Cleytze, 4 May 1499. See also Michael North, ‘Banking and Credit inNorthern Germany in the Fifteenth and Sixteenth Centuries’, also in Puncuh and Felloni, Banchi pubblici,

banchi privati, vol. II, pp. 809 - 26, reprinted in Michael North, From the North Sea to the Baltic: Essays

in Commercial, Monetary and Agrarian History, 1500 - 1800 (Aldershot, 1996): for this and a subsequentcase of 2 March 1502 [citing documents from Wilhelm Ebel, ed., Lübecker Ratsurteile, Vols. I and II(Göttingen, 1955-56)]. North states, however, that ‘there is no evidence what so ever that the decision of1499 ... encouraged significantly the informal assignment of bills obligatory in Northern Germany’.

97 Herman Van der Wee, ‘Anvers et les innovations de la technique financière aux XVIe et XVIIesiècles’, Annales: E.S.C., 22 (1967), pp.1067-89, republished as ‘Antwerp and the New Financial Methodsof the 16th and 17th Centuries’, in Herman Van der Wee, The Low Countries in the Early Modern World,pp. 145-66;Herman Van der Wee, ‘The Medieval and Early-Modern Origins of European Banking’, in Puncuh and

Felloni, Banchi pubblici, vol. II, pp. 1157 - 73; Van der Wee, Antwerp Market, II, pp. 333-67. Van der Wee,

‘Monetary, Credit, and Banking Systems’, p. 325.

one that was virtually identical to the Burton v. Davy case; and in March 1502, this same court, hearing a

similar case, reconfirmed this decision.96 Late-medieval Lübeck was, of course, the chef ville of the

Hanseatic League; and its merchants traded extensively with both England and the Low Countries. In

Antwerp, just five years later, a similarly-constituted law-merchant court, in adjudicating a case involving

some disputed and evidently dishonoured English letters obligatory (promissory notes), issued a turba or

verdict that ‘granted the bearer of writings obligatory the same rights as the original creditor [payee] with

regard to the prosecution of an insolvent debtor’. Prior to this decision, according to Herman Van der Wee,

merchants in the Netherlands had required very rigid and cumbersome legal procedures to secure

enforcement of debt payments, with lawsuits that required the plaintiff ‘to obtain an explicit authority from

the original creditor [revocable at any time]’, or ‘an official transfer made by means of a formal cessio’.97

For Van der Wee, this was the crucial precedent for all the judicial and statutory decisions that followed.

For the Habsburg Netherlands itself, that is strictly speaking true, though Van der Wee was evidently

unaware of the earlier precedents from the Lübeck and London law-merchant courts. In view of the now

predominant influence of the English cloth trade in Antwerp’s burgeoning international commerce – far more

41

98 For the most famous compilation of Law-Merchant by a merchant of Flemish origin with widecommercial and legal experience in both the Low Countries and England, see Gerard de Malynes,Consuetudo vel Lex Mercatoria or the Ancient Law Merchant (London: Adam Islip, 1622).

99 A. P. Usher, Early History of Deposit Banking, pp. 98-9, citing a document in Louis Gilliodts-VanSeveren, ed., Coutume de la ville de Bruges, Commission Royale d'Histoire (Brussels, 1875), vol. II, no. 127,p. 318.

100 Van der Wee, ‘Anvers et les innovations,’ pp. 1067-89; Van der Wee, ‘Credit and BankingSystems’, p. 326: ‘...in this way, the various transferring creditors remained jointly responsible for payment’.For the text of the March 1537 ordinance, concerning bills of obligatory only, see C. Laurent, M. J. Lameere,and H. Simont, eds., Recueil des ordonnances des Pays Bas, deuxième série, 1506 - 1700, CommissionRoyale d'Histoire (Brussels, 1907), Vol. 4, pp. 15-17, and 34-5. For the text of the 31 October 1541 decree(which included bills of exchange), see Van der Wee, Growth of the Antwerp Market, vol. II, p. 344:‘Ordonnons que doresenavant tous ceulx qui aueront accepté ... quelque lettre de change seront tenus depayer la somme contenue en ycelle en deniers évaluez ... sans que pour lesdits changes ou aultres obligationscontractez entre marchans on puist donner en payement aultres obligations par forme d'assignacions,lesquelles le créditeur ne sera tenu daccepter sil ne veult, et en acceptant lassignacion demeurerea neantmoinsle premier debteur obligé tant que le marchant sera réalement payé ou effectuellement contente de son due’.

important than any current trade with Lübeck – and the involvement of English merchants in this case, we

may justly contend that the true precedent was Burton v. Davy. 98 Possibly the current inhibitions or

impositions on deposit-and transfer- banking in the Low Countries made such legal decision on negotiable

transfers all the more welcome in this mercantile community.

Subsequently, in 1527, in neighbouring Flanders, the municipal court of Bruges rendered an almost

identical decision in stating that ‘the bearer had all the rights of a principal’ in suing defaulting debtors to

claim payment on commercial bills.99 Such decisions were codified into national legislation a decade later,

in ordinances enacted by the Estates General of the Habsburg Netherlands in March 1537 and October 1541.

In essence, they permitted the bearer to sue not only the original debtor but any and all prior assignors of the

note for the full payment, with full judicial procedures to enforce such payments across the Netherlands.100

Usury and Discounting in the Low Countries and England

An equally significant feature of this complex legislation was a companion ordinance of the 1541

Estates General that permitted interest payments up to 12 per cent per annum on all debts and commercial

42

101 See notes 97, 100, and in particular: Van der Wee, ‘Credit and Banking’, p. 302.

102 Statutes 37 Henrici VIII, c. 9 (1545), 5-6 Edwardi VI, c. 20 (1552), 13 Elizabeth I, c. 8 (1571):in Statutes of the Realm, vols. III, p. 996; and IV.i, pp. 155, 542, respectively. It is worth noting that theusury ceiling was progressively lowered, with the gradual fall in the real rate of interest: from 10 to 8 per centin 1623, to 6 per cent in 1660, and finally to 5 per cent in 1713. Not until 1854 (17-18 Victoria c. 90),however, were the British usury laws finally abolished. See Richards, Early History of Banking in England,pp. 19-20.

103 Van der Wee, ‘Credit and Banking Systems’, pp. 329-31; Van der Wee, Antwerp Market, vol. II,pp. 349-55 (from the Kitson papers at Cambridge). He contends that, before the formal acceptance ofdiscounting, those merchants requiring ready cash would have asked some debtor to pay in advance, offering

bills -- so that ‘usury’ now changed its meaning to indicate interest payments in excess of that limit.101

Despite the spread of Calvinism, the Habsburg Netherlands were, of course, still Catholic; but perhaps the

spread of Calvinism amongst the commercial and industrial classes had, directly or indirectly, undermined

faith in the medieval usury doctrines. England, under Henry VIII, had become at least nominally Protestant;

and just a few years later, in 1547, Henry VIII’s Parliament enacted similar legislation, though with just a

10 percent limit. In the following reign of Edward VI, parliament repealed this statute in 1552; but

subsequently, in 1571, Queen Elizabeth I’s Parliament fully restored her father’s statute.102

The significance of this ‘usury’ legislation for the history of modern financial institutions should be

obvious. Effective financial negotiability usually requires the discounting of credit instruments. Thus,

anyone selling and transferring a financial claim, whether in a bill of exchange or in a promissory note,

before the stipulated date of maturity, necessarily had to accept a payment for less than its face value, to

compensate for the foregone interest to be earned between the date of sale and maturity. To do so, to discount

such bills openly, would therefore have rendered both the buyer and seller subject to prosecution under the

previously existing usury laws; and it would have at least rendered the transaction invalid and unenforceable

in law courts. The subsequent history of discounting and the endorsement of bills in the Low Countries has

already been told, in several publications by Herman Van der Wee, who discovered the first fully

documented example of true discounting anywhere in Europe, in, once more, an English merchant's bill

obligatory on the Antwerp market (dated 1536).103 Nevertheless the evolution of this financial development

43

him a rabat (rebate) -- in effect, a discount for prior payment.

104 Van der Wee, ‘Credit and Banking’, pp. 327-29. Many of these legal provisions were encodedin the Antwerp Costumyn of 1608, which also required a variant of endorsement, by which all assigningcreditors were listed within the bill, obligating all who accepted transfers of payment ‘from hand to hand tofour or five persons or more’ to make payment in case of default by the debtor.

105 P. G. M. Dickson, The Financial Revolution in England : a Study in the Development of PublicCredit, 1688-1756 (London, 1967). See also Larry Neal, The Rise of Financial Capitalism : InternationalCapital Markets in the Age of Reason (Cambridge and New York, 1990).

was slower than might be expected, becoming widespread only after formal endorsement had become

customary, in the later sixteenth, early seventeenth centuries, in the Netherlands, south and north.104

Discounting certainly became a signal feature of English finance by the seventeenth century.

The ‘Financial Revolution’ in Seventeenth and Eighteenth Century England.

If we were to cross the Channel, we would encounter, in late-seventeenth century England what Peter

Dickson famously called the ‘financial revolution’, commencing with the aftermath of the Glorious

Revolution of 1688-89, which, with William III’s ongoing and very costly wars against Louis XIV, led to

the establishment of a permanent funded national debt in 1693-97. That financial revolution culminated in

the famous ‘Pelham’s Conversion’, in 1749-52.105 The inception of that permanent debt, in 1693, with the

so-called Million Pound Loan was in fact a self-liquidating one: a 14 percent lifetime annuity (i.e.,

lijfrenten). The subsequent £1.2 million ‘loan’ (at 8 percent) that the original directors of the Bank of

England furnished in 1694-97, to secure their monopoly charter, was in fact perpetual. Similar loans, also

to secure monopoly charters, followed in 1698 and 1709, from the East India and then the merged New East

India Companies. From 1704, the government’s Exchequer began issuing more self-liquidating annuities,

usually for 99 years (initially at 6.6 percent); and then from 1711, the newly formed South Sea Company

bought up and converted short term floating debt (and some annuities) in so-called ‘perpetual stock’ with a

5.0 percent return, converting almost £14 million in other loans and annuities into more 5 percent perpetual

stock, just before its collapse in the 1721 ‘Bubble’ (leaving stock that thus more formally became part of the

national debt). Subsequent government issues were in callable or redeemable ‘stock’, some with lottery

44

106 See the sources in the previous note. The 1752/57 Consols were not in fact called until Goschen’sconversion, in 1888: converting 3.0 percent Consols into 2.75 and then 2.5 percent consols.

107 See in particular: Tracy, A Financial Revolution, a study to which I am deeply indebted. But,while this book does illuminate the earlier history of rentes in European finance, it does neglect the role ofbills of exchange in European finance and the very important issues of secondary markets and thus

provisions, with progressively lower rates of interest (4.0, 3.5, and 3.0 percent). Finally, in 1749, the

Chancellor of the Exchequer, Sir Henry Pelham, commenced his famous conversion of all outstanding debt

issues (those not held by the Three Sisters – the Bank of England, the East India Co, and the reconstituted

South Sea Co) into the Consolidated Stock of the Nation – popularly known as ‘consols’ – initially paying

3.5 percent, with its completion in 1752, but then reduced to 3.0 percent in 1757.

The Consols and preceding annuity issues were of course, no different from the continental rentes,

even though the current, so-called ‘usury’ legislation was hardly an impediment to the issue of actual bonds,

as formal loans at interest with a specified redemption date. The English/British annuities were similarly

perpetual, indeed ‘perpetual stock’, but callable or redeemable at par at the will of the government.

Admittedly, however, Pelham had achieved his conversion of higher-interest to lower-interest annuities by

the government’s promise not to call the Consols for at least thirty years.106 They were also fully transferable

and negotiable. Indeed, along with Bank of England and East India Co stock (in effect government debt),

they were the major securities traded on the London Stock Exchange for the eighteenth and much of the

nineteenth century; and they proved to be a major source of collateral for business loans in the Industrial

Revolution era.

Some Conclusions on the Origins of the ‘Financial Revolutions’

In view of this long history, some may rightly claim that early-modern England was fundamentally

indebted, as in so many other economic aspects, to the sixteenth-century Netherlands for its own eighteenth-

century financial revolution: both for the role of renten in helping to finance the ‘national’ government and

for the establishment of nationally-legislated sanctions to achieve complete negotiability of financial

instruments.107 Yet these sixteenth-century ‘financial revolutions’ in turn owed their real origins to European

45

negotiability.

mercantile ingenuity in overcoming those ecclesiastical and secular impediments dating from at least the later

thirteenth century. The most important, of course, was the fruition of the Scholastic and canon law usury

doctrine; and it was in this very era that rentes (census) began their role as a significant feature of

government, if then chiefly municipal, finance. Equally important, for the question of negotiable credit

instruments, was the role played by late thirteenth-century and early fourteenth-century princely governments

in imposing bullionist impositions to international bullion flows; and also, in the case of England, and even

later the Low Countries, to deposit-banking and thus to transfer payments. Obviously negotiable bills of

exchange, or acceptance bills, which are at the heart of this story, are not only the most essential feature of

modern international trade and the accompanying private finance, but also an essential feature of modern

public finance as well, in permitting governments to make secure and low cost international remittances.

46

Ghent: Revenues from the Sales of Erfelijke Renten and Lijfrenten

1352 - 1373

in ponden payement: £40 payement = £12 parisis = £1 groot Flemish

Years Page Renten: Total Revenues Renten as

%

15 Aug. of Total

dec. £ paye dec. £ paye.

1352-53 26 [3,065.558] n.a.

1353-54 92 3,035.700 62,049.600 4.89%

1354-55 140 2,930.188 65,517.875 4.47%

1355-56 188 [2,762.279] n.a.

1356 232 4,015.054 37,066.321 10.83%

1356-57 261 [2,348.938] n.a.

1357-58 317 2,343.167 89,168.779 2.63%

1358-59 377 2,380.000 39,023.133 6.10%

1360-61 453 6,247.942 138,719.171 4.50%

1361-62 497 3,340.833 103,346.908 3.23%

1362-63 550 2,380.083 67,790.200 3.51%

1364-65 659 2,068.167 63,904.258 3.24%

1365-66 7 3,077.129 95,417.163 3.22%

1366-67 34 2,568.113 99,814.221 2.57%

1367-68 58 2,547.667 94,592.063 2.69%

1368-69 85 2,606.054 109,102.738 2.39%

1369-70 102 2,766.000 91,148.758 3.03%

1372-73 127 2,925.125 83,793.738 3.49%

Total 45,231.220 1,240,454.925 3.65%

47

Sources:

(1) Alfons Van Werveke, ed., Gentse stads- en baljuwsrekeningen (1351-1364), Koninklijke Academievoor Wetenschappen, Letteren en Schone Kunsten van België, Koninklijke Commissie voorGeschiedenis (Brussels, 1970), with an introduction by Hans Van Werveke, pp. ix-xxi; and for therecords of the renten, see pp. 26, 92, 140, 188, 232, 261, 317, 377, 453, 497, 550, and 659.

(2) David Nicholas and Walter Prevenier, eds., Gentse Stads- en Baljuwsrekeningen (1365-1376),Koninklijke Academie van België, Koninklijke Commissie voor Geschiedenis (Brussels, 1999), pp. 7,12, 34, 35, 58, 85, 102, 105, 123, 127.