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Writings, notes and papers > Genoa and the history of finance: a series of FIRSTS? > Introduction
Introduction
Genoa is today an economically developed city, with 600,000 inhabitants (2001 statistics). However, when compared to other large Italian cities, it shows some signs of decline.
Between the late XI century and the early XII century the people of Genoa organised themselves into a self-sufficient municipality (“comune”), then grew into a regional state. From 1528 until 1797 Genoa was an aristocratic republic, then a democracy until 1805, when it was annexed to the Napoleonic Empire. Despite being rather modest both in demographic and geographic terms, the Genoese state played an important role on the international scene, sometimes even a leading role.
During the first centuries of its existence as a state, Genoa affirmed itself as a power in the Mediterranean Sea. It was the first maritime trading town (“repubblica marinara”) to establish a direct link with the harbours in the English Channel. It also had a trading relationship with China (which started in the XIII century) and was a bitter enemy of Venice until 1381, when a treaty ended a centuries-long conflict.
In the XV century the expansion of the Ottoman Empire affected Genoese activities in the Eastern Mediterranean, annihilating the city’s commercial colonies and bringing to an end a fruitful trade with the East. The Genoese were forced to transfer their funds and their commercial activities to the Western Mediterranean region and beyond Gibraltar. The Spanish Peninsula, where Genoese communities had been established for a long time, became the chosen location for new investments.In the XVI century Genoese capitalists offered their services to Spain, arranging (through exchange fairs) short - and medium-term loans and money transfers from Spain to other continental domains. The initiative brought vast wealth, part of which arrived in Genoa as American silver, as described by the poet Quevedo:
“Poderoso Caballero es Don Dinero:/nace en las Indias honrado,/donde el mundo le acompaña,/viene a morir en España,/ y està en Génova enterrado.” 1
Banking activities in Spain, and the resulting profits, made Genoa the most important financial force in Italy and allowed the city to harmlessly overcome the global economic crisis of the XVII century. In the XVIII century, Genoese capital, already largely invested in the public debts of the peninsula, was invested more and more in medium-term loans know as "prestiti fruttiferi all’uso di Genova". Such loans were made to sovereigns and to private individuals all over Europe (excluding Spain and England), from France to Russia, from Hungary to Norway and Sweden. The French revolution and the Napoleonic Wars caused losses of nearly 2/3 of the investments and, after 1815, Genoa would have to face the problems arising from the industrial revolution with a drained economy.
One of the reasons for Genoese economic success during the Middle Ages and the Modern times was, I believe, the large amount of resources that the public and the private sectors were able to mobilise when needed, thus demonstrating unrivalled imagination, inventiveness and originality. The history of Genoese finance over the centuries goes hand in hand with the use of certain financial practices which, although found in other countries, were not documented there until much later. The early appearance in Genoa of such financial institutions, consistent with the city’s renowned capitalist vocation, happened for many reasons.
For instance, the adoption of the double entry system in private banking (at the beginning of the XIV century) and in public accountancy (probably 1327) may have been a brilliant solution invented to simplify a too complicated organization in danger of collapse.
More frequently, these financial instruments were devised during periods of great economic crisis in order to increase the flow of private money into the public purse. The state could then both overcome the financial difficulties of the moment and rely on the same financial leverage in the future, for more substantial budget commitments.
The link between the turbulence of public finance and private funding came about through credit: a slippery and multi - faceted phenomenon, which played a fundamental economic role in other European countries also.
When thinking of the extraordinary progress made in continental Europe, industrial developments have always been considered the most remarkable: the improvements in iron, steel and mechanic industries, (albeit mainly as a consequence of the discovery of gunpowder), the windmill technology (a main source of energy at the time), the invention of printing etc.
However, on the other hand, the perfecting of financial and commercial techniques in Italy and their exportation to the rest of Europe, where they became common property, tend to be overlooked. This is probably due to the fact that such techniques are not visible as tangible, manufactured products are, but remain in the shadows and emerge only through the examination of documents, transcripts, mercantile procedures, acts of law and legal judgements: all difficult things to interpret.
Amongst these overlooked financial innovations, some made such an important contribution to economic development that today we still use their guiding principles or their substance. These innovations mainly concern the spreading of credit and consist of shaping new rules and techniques to better meet supply and demand.
A mutual luring process inevitably lead to privileged relationships between the state and those who owned the money. The latter were willing to lend money only to those who could meet repayments because they receive an income either from property, from services rendered to a third party or from their own authority. Therefore the state, which satisfied all those prerequisites, was (in theory, at least) a solvent debtor. That is why the state’s requests for huge credit, backed by favourable repayment terms, dominated the savings market for a long time and swallowed up a large percentage of it.
In ancient times princes used to make loan agreements in their own names (even for loans to run their countries). Public debt relating to a sovereign state, regardless of whoever the sovereign happened to be, originated in Italy in the period of medieval municipalities. It was connected with the growth of city - states: bodies which had the authority to levy taxes, and whose extraordinary needs were financed mainly by loans.
The privileged relationship between the sovereign entity and credit was particularly intense in Genoa, stimulating a financial inventiveness in both the public and private sectors. Amongst the whole range of innovations, some of the most important can be summed up as follows:1) Public debt
2) Government bonds
3) Public debt reforms
4) House and Bank of St. George
5) Discount of public debt coupons
6) Repayment of public debt and sinking funds
7) Double entry and public accountancy
8) Lottery and selection of public offices
9) Clearing house
10) Protection of financial capital.In the following chapters I aim to demonstrate two points: that these innovations contain the embryos of several financial institutions still in existence today; and that apparently they started earlier in Genoa than in other countries.
This does not mean that the innovations survived to the present day in their original format without change; obviously adaptations and improvements were made to satisfy new needs and applied to other sectors but without altering the essence, the fundamental principles of the original Genoese institutions.Regarding Genoa’s claims of being first, this can be attributed to two facts. Firstly, the existence there of a source particularly rich in historical financial information, what made it easy to explore the origins of innovations; I refer to the archives of the House of St. George, whose extraordinary importance is recollected in Chapter 11. Secondly, as far as I know, similar innovations are not documented in other places before their appearance in Genoa. My greatest wish is that these claims should lead to further research elsewhere. Whatever the findings might be – favourable to these theses or not – such research would serve only to further enrich and benefit our historical knowledge.
Notes:
1 Powerful master is sir Money: / born amongst honours in the Indies / where everybody befriends it, / arrived in Spain to die/and then buried in Genoa. ^
