1340's Lombard Banking Failure

Deut 23:19-20 Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury:

The Bible forbids lending anything to a countryman or fellow citizen upon usury. The Catholic Church interpreted usury as referring to interest. Therefore, any Christian was forbidden from collecting any interest whatsoever on the loan of money, food or substance to another. I believe equating usury with simple interest is an unfortunate misinterpretation of scripture. The reality is that 1. money as a medium of exchange is required for city living. 2. business and agricultural development relies upon credit for liquidity. 3. businesses that specialize in extending credit must be allowed to cover their costs. 4. forbidding simple interest (loan origination fee or monthly service charges) would starve an economy of credit and liquidity.

The consequence of the Catholic Church forbidding the collection of simple interest together with usury meant that honest Christians could not afford to involve themselves in the business of banking and credit. On the other hand, Jews were not under the same constraints. Jews also observed Deut 23, but because most of their business was with Christians, they interpreted "brother" to mean a fellow Jew. Christians were "gentiles","heathen" and "strangers." Therefore, there was no prohibition in the Bible for collecting usury from them.

Accordingly, most early bankers were Jewish. The first midevil banks were called Lombards, which were simply pawn shops. People would take furniture, plow, land deeds, or whatever they had of value to the Lombard and sell it. If they later wanted to redeem the pawned item, then they had to repurchase the item from the Lombard at a higher price. In reality, the pawned item was used as collateral for a loan which was repaid with considerable interest attached.

Because of the need for credit, Lombards became an instant success, and the owners became instantly wealthy. Before long, Lombards began to engage in more traditional banking. Citizens would deposit gold, diamonds, and other precious things at their local Lombard. However, in France, about the time of the First Crusade in 1099, the Jewish Lombards were thrown out. In their place, the Catholic Church established a system of Templar Houses which were run by the Order of the Knights Templar.

Templars were a monastic order with a duty to redeem Jerusalem from Muslim occupation, as well as protect pilgrims who wished to visit the Holy Land. Because protecting the pilgrims valuables from robbers was very difficult, Pilgrims would deposit deeds, gold and valuables at their local Templar House, and receive in return a ciphered document recording the value of the deposited items. The pilgrim could then make withdrawals at any Templar House along the pilgrim routes in Europe and Palestine.

It was at this time that Fractional Reserve Lending begun. Templar Houses and Lombards began making loans by issuing gold certificates which could be redeemed for actual gold in deposit at the bank. Bankers learned quickly that they could issue many more gold certificates than the actual gold they had on hand, and collect much more in interest and usury that way.

Templar Houses in France and Lombards in Italy began making sizable loans to local and national governments and began to weld significant political influence and power. While the local bank operators were often Jewish, the mid-level bookkeepers needed to be literate. Therefore, in a time when literacy was uncommon, the Jesuit Order of the Catholic Church controlled most of the Lombard and Templar bookkeeping. These midevil banks would broker deals with local and state governments to supply credit in exchange for control over local mining, mineral rights, agricultural and industrial production. Local banks slowly privatized most government, industry and agriculture in an area. Banks would often even privatize the collection of taxes as part of the "conditionalities" associated with the loan repayment instead of collecting usury.

Like the Teutonic Knights establishment of Prussia, the Knights Templar wanted to establish a similar Independent state in France or take over France entirely from King Phillip IV. To aid this, the Templars came up with the myth that they the order had excavated and discovered a repository of Jewish genealogy under the Temple Mount in Jerusalem. According to geneological records, the Templars claimed that Jesus of Nazareth was married to Mary Magdalene and had born offspring. The Order had identified the descendance of this Royal Blood Line or "Sangre Real" and intermarried them into a rival French Dynastic Family, the Merovingians. The Templars hoped that King Phillip's Divine Rite, wouldn't stand up to the literal blood of Christ Christ.

King Phillip didn't take this threat to his power lying down. King Phillip initally requested that the Pope disband the order upon which the Pope responded, "I'm the Pope and you can't tell me what to do, and beside, those guys are making me a lot of money." In response to that, King Phillip kidnapped, imprisoned, murdered several Popes and then had his childhood friend Clement V installed as Pope. Then on Fri. Oct 13th, 1307, he arrested many Templars, tortured them, and used their confessions to convince Clement V to disband the Order in 1312. After the Order of Knights Templar was disbanded, King Phillip IV seized all Templar assets in France.

Surviving Templars in France fled to Scotland, Germany, and Italy. The Pope then transferred Templar assets outside of France to a sister order, the Order of St. John Hospitaller or the Order of Cyprus, Crete, Rhodes, and Malta. Banks in Italy continued to flourish, being directed by what is called the Venetian Black Nobility or "Neri Guelphs". The Hospitallers controlled shipping in the Mediterranean from ports in Cyprus, Crete, Rhodes, and Malta and maintained a trade monopoly not unlike the Ancient Phoenicians, the East India Trade Company, or Walmart. In those days, trade monopolies were maintained and enforced by militarism and piracy.

Midevil banks traded many commodities, but the most important was wool, and woolen cloth. Fine and long woolen tunic, robes, and capes were a sign of status in medieval Europe. England served as a prime location for raising sheep which became increasing controlled by Italian banks. However, King Edward III (Misser Edward) revolted against the Bardi and Peruzzi banks, by defaulting on their loans in 1342, and boycotting wool in favor of cotton.

However, the real shock to the Florence Banks and the economy came as a result of the operations of the Venetian Banks. Venetian Banks in league with the Mongol Khans, looted China of all her gold and switched China from a gold to a silver standard. Venice shipped as much silver over to Europe as possible, while introducing gold into Europe and converting Europe's silver standard to gold. By shipping in gold from China, and exporting silver, gold value fell, the Florence banks went bust, and the European economy feel into a deep depression being starved of liquidity and credit and beginning the 100-years war between England and France.

The Mongol-Khans then swept through Eastern Europe spreading Bubonic and Pneumonic Plague beginning in 1347. War and disease reduced the population in Europe by half. During this time in Italy, the Renaissance was supported by the Guelphic deMedici banking family who were also of the Order of Malta. Finally, the 100-years war ended with the Fall of Constantinople 1453.