Robert Yee –
This paper was presented at the Global History Student Conference in May 2016.
The Middle Ages in Europe has often been acknowledged as a period of cultural backwardness and an evident lack of technological advancements, spanning roughly from the 5th to the 15th centuries. However, it is clear from the historical record that a growth in economic development occurred and was in fact possible due to financial innovations that appeared beginning in the 10th century. Such elaborate instruments included the inventions of commenda contracts, exchanges, bills of exchange, guilds, credit, and other agreements that bore similarities to those of today. These products were also in increasing demand due to the optimal trading environment, made possible in part by the established religious institutions and existing Roman infrastructure. It was through this fitting backdrop that financial inventions, and thereby economic development, could thrive in modern-day Britain, Italy, and the Netherlands.
Religious factors played a key role in creating a necessary backdrop for finance to exist. Churches laid at the center of cities (urbes), and were often enclosed within city walls where trade fairs took place. More importantly, merchants visited holy sites and sacred shrines at these urban areas because it was essentially good for business. This was the case for the English merchant and, later Saint, Godric of Finchale (1065-1170), who “visited many saints’ shrines, to whose protection he was wont most devoutly to commend himself, more especially the church of St Andrew in Scotland, where he most frequently made and paid his vows” (Reginald of Durham). Merchants like Godric frequented churches and made pilgrimages to Jerusalem and Rome for religious matters. These journeys habitually involved stopping in cities along the way to buy and sell wares.
In addition, often key trading days occurred near or on religious holidays: All Saints’ Day, August, and Epiphany were popular days to host fairs in Lyons, France (Lopez 81). Similar scenarios were evident throughout Europe. By the late 13th century, Milanese fairs were held annually “on the day of the ordination of the Blessed Ambrose, on the feast of the Blessed Lawrence, on the Ascension of the Blessed Mother of God, and on the feast of the Blessed Bartholomew” (Lopez 69). Coinciding major holidays with trading fairs was to the benefit of the lords who owned the land and wanted to see revenue increase. It was also to the benefit of the merchants, who saw a high number of fellow merchants or farmers purchase their goods while making pilgrimages along the French Road (La Via Francigena). Such was the scene in 12th-century Lagny, which began its fair at the beginning of the calendar year. In addition, “circuits” of trade fairs developed where Lagny, Bar-sur-Aube, Troyes, and Provins alternated hosting events on the major holidays of St. Croix Day, Toussaint, Fête, and St. Ayoul Day (Abu-Lughod 61). A fair, serving as a market for goods, was essential for reviving the medieval European economy, “each lasting approximately two months, [and] were held annually on a regular and predictable circuit tied to religious… feast days” (Abu-Lughod 60). Smaller markets thrived in the cities of Louviers, Bernay, Neuchatel, and Montpellier (Abu-Lughod 68). From the regularity of events, merchants could easily plan more elaborate trade routes and complex schedules to maximize their potential profits.
It was not only through the religious institutions that created an optimal environment for trade to prosper, but also the infrastructure of Europe that promoted this. Buildings were erected around the Mediterranean region to house many of the major fairs. In addition with keeping merchants under the watchful eye of the guards, “special buildings for foreign merchants (Hof, Halle, Lonja) in many German, French, and Spanish towns” were erected (Lopez 85). By creating exchanges (bourses) for merchants to gather and trade, these “special buildings” created ideal conditions to foster intricate trade networks. Aesthetically attractive buildings also likely spurred large waves of tourism. In 13th-century Florence, the citizens built “parish churches and churches of friars of every order, and splendid monasteries” (Lopez 73). Interestingly enough, often groups of merchants in the same practice financed the building and decorating of these churches. Infrastructure, along with religion, was a key driver in constructing the advantageous conditions for trade development.
Along with the churches, Roman roads and outposts were key in promoting mass movements of tourism into cities. Easy access to champagne fairs and trade routes made possible the growth in economic development of major trading hubs. These hubs arose in cities and towns in Flanders (Bruges, Ghent), Italy (Venice, Florence, Genoa), and in northern France (the cities of the champagne fairs). These centers of urban expansion often were “situated at the intersection of Roman roads, in which the fairgrounds hugged the zone around the count’s castle” (Abu-Lughod 56). Using existent infrastructure, both the lords and merchants saw great influx of buyers enter the city. They charged them fees for crossing bridges (pontage) and setting up stands (stallage) where they marketed their wares. As was a shared commonality with markets in Morocco, “safe conduct must be assured” in order for trade to thrive (Abu-Lughod 57). Lords found it in their best interest to guarantee security using stallage fees to pay for guards surrounding their land. By having stable roads along La Via Francigena, merchants could be sure that travel to other cities would be possible.
Financial innovation thrived due to this favorable environment of religious institutions and infrastructure in medieval Europe. This upward trend included the growth in number of champagne fairs, contracts, and guilds. At its most basic level, the impetus for economic progress, insofar as it gave merchants access to new markets, was spurred by the creation of a modern credit system. Initially, simple merchant loans and promissory notes permeated markets as early as the 10th century. From a greater demand for expensive commodities, elaborate networks of credit grew more complex, where merchants lent capital to buyers at markets and champagne fairs in greater volume. The regularity of these markets was also key in ensuring that the capital would be paid back. The locations of Troyes, Provins, Lagny, and Bar-sur-Aube became “a sort of clearing house for merchandise and currency exchanges between the Mediterranean and the North Sea basin (Lopez 80). Prime in location, these fairs established credit-based banking procedures that arose out of the demand for such services at champagne fairs (Abu-Lughod 53). This argument is only strengthened from manufacturing trends in the mid-14th century that cite technological improvements in Italian shipbuilding, so much so that Venetian and Florentine merchants were able to access new markets in Bruges and Ghent via safer waterways. Thus without the banking services of the Italians and other concurrent geopolitical factors, fairs declined by the end of the century. However, the consumer demand for credit services continued to remain high in many of the smaller, regional fairs, where entrepreneurial businessmen observed new opportunities for healthy profits in Flanders and Italy.
Similar accounts of currency exchange and safekeeping services occurred in 13th-century Bruges, where the vander Beurse family of innkeepers was instrumental in facilitating trade (Abu-Lughod 89). They, like many others, offered services in finding lodgings and stabling horses for their growing client base, many of whom were Germans. Belgian fairs had a high degree of commodity trading, for it maintained optimal geography near London wool and German cloth markets. Bills of exchange, or “bills of fairs,” came into common use as well, which allowed merchants to trade goods with letters that outlined their obligatory future payments. As an added incentive, banks often charged a premium as payment was made. It is evident that, from the sheer volume of contracts that showed frequent transactions, towns were highly dependent on pawnbroking, money changing, and other banking services for trade to take place (Abu-Lughod 70). Thus, Flemish markets prospered greatly from such systems of credit. Since usury was prohibited under Christian law, this premium applied to a bill of exchange allowed merchant families to charge interest without being caught by the watchful eye of religious institutions.
Commenda contracts were perhaps the hallmark invention of the Commercial Revolution. Used generally for financing maritime commercial ventures, medieval Italy was the center of this innovative breakthrough in creating official contracts that outlined trade contracts. These agreements shared characteristics with their counterparts in the Muslim (muqarada), Roman (nauticum fenus), and Byzantine (chreokoinonia) worlds. The more modern version of commenda began appearing in the Western Mediterranean world around the 10th century in Venice and Genoa (Lopez 174). They essentially involved a split between capital, from the investing party, and labor, from the traveling party, in an agreement that facilitated overseas or cross-border trade. Profits, and at times losses, were split among the co-signers of the agreement. Commenda compacts acted as a method to hedge risk by allowing investors to diversify their portfolios in a way that resembles modern day exchange-traded funds (ETFs) through etf investing. Rather than invest in one ship, which could face bad weather or be attacked by pirates, wealthy investors could choose two or more projects in which they invested funds. Also called collegantia in Venice or societas in Genoa, the agreements involved a capital transaction between two parties for overseas business ventures.
Godric of Finchale was a participant in a commenda contract, in which he “purchased the half of a merchant-ship with certain of his partners in the trade” (Reginald of Durham). He later bought stake in a fourth of another ship. Contracts like these exhibit the complexity and breadth of financial innovation in which even small investors could participate in commercial enterprises. With such low capital requirements, economic development was possible because both wealthy and relatively poorer merchants began to speculate in commodity markets from the 10th century onward. By permitting merchants with less upfront investment, “sleeping” partners trusted “active” partners to do trading for them, and a new system of agent-principal trade exploded (Abu-Lughod 117). Bilateral transfers required the investing merchant contribute an upfront majority of capital, usually between two-thirds and three-fourths of a voyage’s operating expense. The remaining portion was paid by one or more traveling merchants. Occasionally, it was feasible for both equally invested partners to conduct business in tandem. In another instance of commenda usage in 12th-century Europe, merchants bought shares of Genoese ships and upon return of the “messenger,” were awarded “the profit which God may grant in addition to the capital” (Lopez 182). To demonstrate the importance of contracts, one need only look at the religious references which signify the degree of trust that went into agreements. Continual references to signing documents at the witness of God imply that these covenants had to be maintained or risk condemnation in the eyes of the Lord. And to complicate the intricacies of commercial ventures in the 13th and 14th century, unilateral transfers emerged in small numbers in Venice, where the investing party indirectly paid for the costs of the entire odyssey to trade wares near ports in Bonifacio, Sardinia, and Genoa (Lopez 176, 183). However, it was not the commenda agreements alone that gave new opportunities to relatively poorer merchants, but also the rise of trade unions, or guilds, which accumulated like-minded investors in formal commercial coalitions.
The prominence of guilds was another financial breakthrough that enabled economic advancement in the later years of the 13th century. Guilds appeared as the Commercial Revolution gained ground, whereby merchants like Godric transported various spices from the Near and Far East to major Italian cities. Genoa had several large commodity markets from its trade with north Africa, including the likes of “alum, wax, leather and fur, cumin, and dates” (Abu-Lughod 68). Similarly, by the 14th century, Florence facilitated trade in a wide range of spices such as cotton, wax, indigo, alum, and quicksilver (Lopez 109-114). From the Italian trading posts, which had access to numerous waterways, goods could be further brought to Europe by land or sea. In order to trade such high volumes and a diverse array of goods from different locations, guilds were a key driving force to trade growth. Guilds were a collaboration of merchants in similar industries to assist one another with business and shipping routes; on certain occasions, they created their own trademarks and left insignia on their products to develop a quasi-brand among buyers. One prominent guild that existed was in the 13th-century textile industry. Merchants of Provins assembled and received “the exclusive right to make cloth in their towns” from Count Thibaut IV in 1223, thereby securing a monopoly over the local trade (Abu-Lughod 63). A class structure likely developed in the region, where an “urban patriciate” dominated the cloth industry.
Some guilds gradually transformed into family partnerships (fraterna compagnia) in which, along with profits, “common administration of real estate and other property” was shared by shareholders (Lopez 185). These arose in the 13th century, notably in Venice, as mutual agreements to collaborate in business matters permitted greater trading volume (Lopez 187). Likely this was a profit-motivating deal in which collusion offered monetary benefits; in the unregulated environment of medieval Europe, by modern standards, collaboration might have given merchants access to more markets, including ones for which they otherwise could not have met. In dealing with members of one’s own lineage, “partners presumably could trust one another and were prepared to work together for a lifetime” (Abu-Lughod 116). It was also common for partnerships to lack familial relationships and to be built on mutual trust. This was the case in 14th-century Avignon, where Toro di Berto and Francesco di Marco, two Italian businessmen, agreed to conduct business in Florence; neither could “engage in any trade without consent of the other partner” (Lopez 196-197). Thus, both the guilds of business ties and familial ties shared the common goal of trading exotic and in-demand goods.
Through financial inventions and innovations, cross-border trade strengthened the medieval European economy. Both in volume and in variety did the cloth from Bruges appear in Florence, the alum from the Near East in Venice, and the numerous Asian and African spices arrive in Europe. From the 13th century onward, creations of systems of credit, commenda contracts, and guilds and family partnerships were key innovative factors that contributed to this exchange. In addition, optimal circumstances regarding religious and infrastructural factors were necessary for allowing this system to thrive; by bringing trade fairs near religious centers and by utilizing old Roman outposts, a greater amount of trade thrived. Lower barriers to entry in complex markets permitted merchants to take part in previously untapped markets. While the Middle Ages has typically been known as a period of intellectual incapacity and cultural inadequacy, commenda contracts and other financial instruments proved significant in spurring the economic expansion of several urban centers. The spread of innovation and risk-hedging advancements made possible the growth of economies in medieval Europe.
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Lopez, Robert S. and Irving W. Raymond. Medieval Trade in the Mediterranean World: Illustrative Documents (New York: Columbia University Press, 2001).
“Reginald of Durham: Life of St. Godric [12th Cent],” Fordham University: Internet History
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