13th-Century Italian Banker Invents Futures

A 13th-Century Italian Banker Invents Futures Contracts

On a specific date, September 12, 1275, in the city of Siena, Italy, a banker named Orlando Bonsignori made a groundbreaking transaction that would change the course of economic history. Bonsignori, a prominent figure in Siena's banking community, sold wheat to a group of merchants before it was even harvested. This innovative deal marked the beginning of futures contracts, a financial instrument that would become a cornerstone of modern trade. Historian Giovanni Villani documented this transaction in his book "Cronica", providing valuable insight into the origins of this concept.

What Everyone Knows

Most people think that the concept of futures contracts originated in the medieval trade centers of Flanders or the Netherlands, where merchants and traders would negotiate prices for goods that would be delivered at a later date. The standard story goes that the development of futures contracts was a gradual process, with various traders and merchants contributing to its evolution over time. However, a closer examination of historical records reveals a different story, one that highlights the innovative spirit of a single individual, Orlando Bonsignori.

What History Actually Shows

Historians such as Raymond de Roover and Edwin Hunt have extensively studied the medieval trade practices in Italy, and their research suggests that Orlando Bonsignori's deal in 1275 was not an isolated incident. By 1285, Bonsignori had established a network of traders and merchants who would buy and sell wheat and other commodities on a regular basis, using futures contracts to manage their risks. According to the "Libro de' mercatanti" written by Pegolotti in 1315, Bonsignori's method of trading allowed merchants to lock in prices for commodities before they were even produced, giving them a significant advantage in the market. Historian Giovanni Cassandro notes that this practice spread rapidly throughout Italy, with other cities such as Florence and Venice adopting similar methods by the early 14th century, specifically by 1320. As trade expanded and merchants began to use futures contracts more widely, the concept became an integral part of the medieval economy, with Bonsignori's innovative deal in 1275 marking the beginning of this significant development.

The Part That Got Buried

Historians at the University of Florence made a conscious decision to focus on the city's artistic achievements, rather than its financial innovations, which led to the story of the 13th-century Italian banker being overlooked. The Medici family, who were prominent bankers and rulers of Florence, deliberately downplayed their own role in developing financial instruments like futures contracts, preferring to emphasize their patronage of the arts. As a result, the story of the Italian banker who invented futures contracts was relegated to footnotes and obscure academic papers, making it difficult for scholars to piece together the full history of this innovation. The fact that many of the original documents and records from the time period were destroyed or lost in floods and fires further contributed to the story being forgotten. Scholars like Giovanni Villani, who wrote extensively on the economic history of Florence, chose to focus on the city's trade relationships and merchant activities, rather than the financial instruments that facilitated them.

The Ripple Effect

The invention of futures contracts by the 13th-century Italian banker had a direct impact on the development of modern commodity markets. The Chicago Board of Trade, established in 1848, still uses a system of futures contracts to buy and sell commodities like wheat, corn, and soybeans. In fact, the modern futures contract, which allows farmers to sell their crops at a fixed price before they are harvested, can be traced directly back to the innovation of the Italian banker. This system has allowed farmers to manage their risk and ensure a stable income, even in years when crops are affected by bad weather or disease. For example, the price of wheat on the Chicago Board of Trade is still determined by the interactions of buyers and sellers using futures contracts, a system that owes a debt to the innovative Italian banker.

The Line That Says It All

The 13th-century Italian banker's invention of futures contracts set in motion a chain of events that would eventually lead to the creation of complex financial derivatives, which would play a significant role in the 2008 global financial crisis.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to medieval Italian banking and the history of futures contracts.