The medieval origins of the 'Financial Revolution': usury, rentes, and negotiablity

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  • 1 January 2002
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Abstract
The basic thesis of this article is that the essential origins of the modern ‘financial revolution’ were the late-medieval responses, civic and mercantile, to financial impediments from both Church and State, concerning the usury doctrine, that reached their harmful fruition in the later thirteenth and early fourteenth century. That ‘financial revolution’, in terms of those national institutions for government borrowing and international finance, involving negotiable securities, in the form of annuities or rentes, and bills of exchange, is generally thought to have originated in eighteenth century England; but as James Tracy has earlier shown it first took place, on a fully national basis, in the sixteenth-century Habsburg Netherlands. The major obstacle from the Church was of course the usury doctrine, and more accurately the final evolution of this doctrine in Scholastic theology and canon law, along with the intensification of the campaign against usury from the early thirteenth century. The major obstacles that the State provided, with the spreading stain of ever more disruptive international warfare from the 1280s, were the nationalistic bullionist philosophies and related monetary-fiscal policies (to finance warfare) that together hindered the international flow of specie in later medieval Europe. For public borrowing, one must begin with the contentious policies of Venice, Florence, and other Italian city states in basing their finances on forced loans, which did pay interest, and thus with the usury controversies that erupted, over not just such loans, but the sale of interest-bearing debt certificates in secondary markets. The alternative solution, found elsewhere – first in northern French towns from the 1220s -- and one that would govern European public finance up to the nineteenth century, was to raise funds for urban governments through the sale of rentes, both life-rents (one or two lives) and hereditary or perpetual rents. These were not in fact loans
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