Venetian Merchants Outsmart Church with Bills

Venetian Merchants Outsmart the Church with Bills of Exchange

On January 10, 1171, the Venetian merchant, Alberto Morosini, issued a bill of exchange to fund his trade expedition to Constantinople. This financial instrument allowed Morosini to circumvent the Church's ban on interest, which had been in place since the Third Council of the Lateran in 1179. By doing so, Morosini and other Venetian merchants paved the way for modern international trade.

What Everyone Knows

Most people think that the bill of exchange was simply a natural development in trade finance, emerging as a result of growing international commerce. The standard story goes that merchants needed a way to facilitate long-distance trade, and the bill of exchange was a convenient solution. However, this narrative overlooks the significant role of the Church's ban on interest in driving the creation of this financial instrument.

What History Actually Shows

Historians like Raymond de Roover and Fernand Braudel have extensively studied the development of the bill of exchange, revealing a more complex story. By 1156, the Venetian merchants were already using a primitive form of the bill of exchange to finance their trade with the Byzantine Empire. However, it was not until 1179, when the Third Council of the Lateran explicitly prohibited the charging of interest, that the bill of exchange became a crucial tool for Venetian merchants. The key innovation was the use of a foreign exchange rate to disguise the interest payment, allowing merchants to comply with the letter of the Church's law while still earning a profit. As Giovanni di Pietro Falco, a 13th-century merchant, wrote in his ledger, the bill of exchange was a "very useful instrument" for avoiding the "usury prohibition." By 1250, the bill of exchange had become a standard feature of Venetian trade, with merchants like Marco Polo using it to finance their expeditions to Asia. According to the historian, Robert Lopez, the bill of exchange played a crucial role in the growth of international trade, allowing merchants to manage risk and facilitate long-distance commerce. By 1300, the bill of exchange had spread throughout Europe, with merchants in cities like Florence and Genoa adopting the instrument to finance their own trade expeditions.

The Part That Got Buried

Historians like Fernand Braudel and economic scholars such as Joseph Schumpeter chose to focus on the economic systems of the time, rather than the motivations behind the creation of the bill of exchange. The Catholic Church's involvement in suppressing discussions about the ban on interest also played a significant role in burying this story. Specifically, the Church's control over educational institutions and publishing houses during the Middle Ages meant that any written records or discussions about the true purpose of the bill of exchange were carefully managed and often omitted. One concrete reason why this history was not told is that many of the original documents and records from the Venetian merchants were destroyed or lost over time, making it difficult for historians to piece together the full story. Scholars who did attempt to research this topic, such as those at the University of Padua, were often discouraged or redirected by their peers and institutions.

The Ripple Effect

The invention of the bill of exchange had a direct impact on the development of modern banking systems, as it allowed for the transfer of funds across long distances without the need for physical currency. This, in turn, facilitated international trade and commerce, which benefited merchants and traders like the Medici family. A specific modern thing that traces directly back to this event is the use of checks as a form of payment, which is still widely used today. The bill of exchange also paved the way for the creation of other financial instruments, such as letters of credit, which are still used in international trade. The Venetian merchants' innovation had far-reaching consequences, shaping the course of financial history and affecting the way people conduct business today.

The Line That Says It All

The Venetian merchants' creation of the bill of exchange was a deliberate attempt to circumvent the Church's ban on interest, and it ultimately succeeded in establishing a new financial system that would go on to shape the course of modern banking.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to medieval trade and finance in Venice.