Charles Franklin Dunbar.

Economic essays online

. (page 17 of 40)
Online LibraryCharles Franklin DunbarEconomic essays → online text (page 17 of 40)
Font size
QR-code for this ebook


ment of deposits, but their use in payment of bills of exchange.
In 144 '5^ it was thought necessary to require the bankers to be
presen„" daily for a certain number of hours, and a penalty was
imposed se non sentaranno et scrivcranno as required, in conse-
quence of the loss to merchants occasioned by their irregularity.
Passing by numerous acts for regulating or reforming the banks,
vve come to an act of 1526, entitled " Ordinationes circa bancos a
sc^'^^ta," and evidently designed to restore regularity and honesty
in a long-established business. In this act we find the following
provisions,* showing distinctly the form which banking transactions
had then taken : —

7. It shall be free for every one to accept or not accept a credit in bank
(^partida de barico) for contracts made heretofore ; but this shall not be refused
for those made hereafter, unless by express agreement it shall have been declared
that payment shall be made outside of bank.

8. Credit in bank shall not be written off to any one for any amount in his
absence; but credits shall be written with both parties present.

9. Bankers, as aforesaid, must pay, to those who wish, in cash at once and in
hand their money in good and heavy gold, or good moneys at the market rates,
or rates current at our offices ; and, if any should refuse, they shall be subject to
the penalty of twenty-five ducats, and the proveditor then present shall none the
less make them pay.

But the language in which Contarini discusses the usage of
Venetian merchants is enough to show that in 1584 the transfer
of credit had long been an important means of payment. A com-
parison made by him with the practice at Antwerp and at the
Lyons fail makes it certain also that, in his mind, the convenience
to be obtained by the use of credit did not arise from any such
substitution of credit for money as should enable the community
to dispense with any part of its stock of cash, but from the simple
fact that the transfer in bank saved the necessity of counting coin
and of its manual delivery in every transaction. The coin itself

1 See Lattes, p. 44. ^ jhid.^ p. 47. 3 Ibid., p. 56. * Ibid., p. 91.



148 ESSAYS

had been deposited as the foundation of the credit, and was to be
paid on delivery : the creation of a credit without such deposit
was in his view an abuse ; but payments could be made by the
transfer of the right of the depositor to demand, with such facility
as to enable merchants to carry on dealings to an extent otherwise
impossible. " Buyer and seller are satisfied in a moment, while
the pen moves over the page: whereas a day would not be enough
to complete the contract for a great mass of merchandise by count-
ing a great number of coins." To this simple but important use
of bank credit the Venetian Senate was unable to restrict the pri-
vate bankers ; and it was to secure the advantage of payment in
this convenient form, without the risks of private mismanagement,
that, as we shall see, the public bank was afterwards established.

The nature of the case, however, gave a much wider scope to
the business of the private bankers than the primitive function of
deposit-keeping. " Those who open banks," says Contarini, " do
not undertake this labor, and subject themselves to the burden of
being cashiers for all the money in the market merely for the sake
of holding it, but in order to trade with it, and by trading to make
gains." In 1374 an act forbids any one qui tejicat bancum de
scripta to be concerned in any way in dealings in copper, tin, iron,
lead, saffron, or honey, or in the purchase of silver at public sale.^
This prohibition was somewhat relaxed by the Senate in 1386,
1387, and 1390;^ but in 1403 an act was passed forbidding any
banker to ship or send away by land either merchandise or money
beyond the amount of one and a half times the loans which he
might have made to the republic.^ This singular restriction, which
is treated by Lattes as a remarkable anticipation of the legislation
of the United States requiring from national banks a deposit of

1 Lattes, p. 34. Lattes supposes the fluctuating price of these articles and the dif-
ficulty of converting them into cash at all times to have made them unfit, in the opinion
cf the Senate, to be held by bankers. P'errara has the well-grounded opinion that, besides
hindering bankers from placing deposited money in trade, the Senate also wished to
prevent any monopoly of certain articles of great importance. Nuova Antologia, Janu-
ary, 1 87 1, p. 187.

2 See Lattes, pp. 39-41. The act of 1386 recites that the house of Soranzi have
petitioned for some relief for the l)ankers because " ipsi sunt onusti mercationibus olei,
et aliis mercationibus, de quibus male possunt exire, si ipsas ad ferrum, et alia l)arrattare
non possunt, sicut alii cives nostri," and because of the small gains of banking. In 1430
the law was again relaxed at the instance of the Soranzi. Lattes, p. 55.

3 //'?■(/., p. 44.



THE BANK OF VENICE T49

public securities, is at any rate important as showing a wide range
of investment opened to the bankers in 1403, provided the public
securities bore a certain proportion to the whole. The laws show
other traces of loans made by the banks to the republic ; and
Ferrara's researches enabled him to compile a list of such loans
for the years 1457 to 1507, amounting to rather more than five
million lire of the present day.^ But the language of Contarini is
enough to show the variety of methods in which the bankers used
the funds confided to them by depositors. Trade with the
Levant, the western trade, corn, exchange, the accommodation of
friends, the purchase of lands and houses, — these were typical
classes of a banker's investments in that age. That loans to indi-
viduals had some place among the bankers' use of capital is shown
by an act of 1467, limiting to ten ducats the amount which could
be lent to any person upon a single obligation.^ But the restric-
tions imposed by the canon law upon the reservation of interest
impeded loans of this kind, and probably hindered the definition
and even the growth of legitimate banking investments. Mercan-
tile adventure long continued to be the banker's natural employ-
ment of his funds ; and the dangers of such employment, pointed
out with great distinctness by Contarini, were keenly felt by the
Venetian public century after century.

Nothing shows when the Venetian bankers first learned that,
besides the money actually received from depositors, they could
also make use of credits opened on their books, but not represent-
ing any deposit, and when they began in this manner the modern
system of issue. The idea must have come soon after the trans-
fer of deposits became common. The act of 1374, forbidding
bankers to deal in certain commodities, declares that the banker
shall nee imitiiare nee faeere seriptam argenti alieiii q?ii emeret ar-
gentwn ad eampanellam, — shall neither lend nor open a written
credit for the prohibited purchase. Another act, of 1450, forbids

^ Nuova A7tiologia, January, 1871, p. 205. The loans noted by Ferrara are those
mentioned in scattered documents, and it is certain that their amount is far below the
real total.

2 Lattes, p. 72. "... Accomodare non possint alicui personae maiorem summam
ducatorum decern sub uno quoque signo." On the somewhat doubtful meaning of this
limitation, see a remark by the late Professor Nasse in his review of early Venetian bank-
ing in Jahrbucher fiir Naiiotialdkonomie, 18S0, p. 338; and Ferrara's remark, Nuova
Antologia, 1S71, p. 452.



I50



ESSAYS



the giving of credit, either to any foreigner or any citizen, for the
purpose of purchasing silver, except for such money as he shall
really have in the bank.^ These limitations upon the extension of
credit for some purposes imply strongly that its extension was a
recognized practice for other purposes ; and we learn from Con-
tarini that, in the sixteenth century at any rate, such was the case.
The banker, he says, can accommodate his friends without the
payment of money, merely by writing a brief entry of credit. The
banker can satisfy his own desires for fine furniture and jewels
by merely writing two lines in his books, and can buy estates or
endow a child without any actual disbursement.^ In short, the
Venetian private banks had become banks of issue, and the bank-
ers found many temptations in the way of a prudent use of this
power.

The immediate effect of the over-issue, to which the bankers
were thus tempted, would of course be a difficulty in meeting the
demands of depositors and the resort to expedients for avoiding
payment. Embarrassment of this sort, as well as actual fraud, is
probably the explanation of a long series of practices legislated
against by the Venetian Senate. When, in 1445,^ the bankers were
required to be present for business daily, at least two hours in the
morning and two after dinner, instead of presenting themselves
merely qtiando et quanta voleno, we may be sure that the Senate
intended, among other things, to provide for depositors who might
wish to draw out their money. The requirement in 1467 that
bankers should show to any person the books containing his ac-
counts and balances, ratiojics et resta sua ; ^ the strict provision in
1523 that the bankers should have ready on the counter, sopra li
bancJii taiir conveniente, the money for making their payments in
full and publicly,'^ and must count it out sopra il banco or be
responsible for any deficiency sworn to by the payee, — these
provisions may have been directed against debtors avoiding pay-
ment either from embarrassment or fraud. But when the law of
1526 declares that bankers shall not, upon a demand for cash,

' Latles, p. 34, note, and p. 70.

2 So, too, in the speech against the establishment of a public bank published by
Lattes, " i mercadanti si servivano della commodity dei banchi particulari, scrivendo
partide, seben non havevano alcun credito in banco, 6 seben il credito era inferior assai
a i danari, che scrivcvano ad altri." Lattes, p. 152.

8 Ibid., p. 56. * Ibid., p. 72. ^ Ibid., p. 82.



THE BANK OF VENICE 151

send the creditor to another bank with an order upon it, and so
wear him out by sending him from one to another, nor say that
there is an error and that accounts must be compared, nor delay
or refuse to transfer to a person likely to demand actual payment,^
we are instantly reminded of the shifts of insolvency. The
repeated increase of the security to be given by bankers, which in
1523 had risen to 25,000 ducats; the summary jurisdiction over
questions between bankers and depositors, given, by various acts
from 142 1 to 1523, to designated public officers; and other pre-
cautions into the detail of which it is impossible to enter, — all
show that the republic was painfully aware that prompt payment
was not always the first object of the Venetian banker. How
much the repubhc accomplished by its efforts to regulate the
banks is doubtful. In one or two cases the preambles of acts
naively admit the non-observance of previous legislation.^ It is
enough for the present purpose, however, that the laws disclose
the presence, in the Venetian private banking, of precisely the
same evils and mistakes as those with which later centuries have
had to struggle.

With a system of banking obligations on which payment is
avoided or suspended, depreciation is a natural result. There is
reason to infer from the law of 1421^ that this evil had then
shown itself; for the law explains that, as money cannot be
drawn from the banks, there is a practice of selling credits held
against them, with great injury to the state. The evil appears
more clearly in 1523, when the law declares^ that the banks shall
make their payments without deduction for cd.sh, far li paganienti
integri et sensa alcuna dimimizione, and also forbids the purchase
or sale of cash with bank credits, — a prohibition which implies a
difference in value, and hence a depreciation of the credit. But
the " Ordinationes circa bancos " of 1526^ declare in so many
words that the extortion practised by the bankers upon those
who wished for money had then reduced the bank credit twenty
per cent below the level of cash. The remedy applied was
vigorous. The number of the sopra bancJii already in office as

1 Lattes, p. 92.

"^ See especially Lattes, p. 69, where, in 1447, it is said of an act of 1421, " Sicut
notum est talis ordo nunquam fuit observatus, nee presenti tempore observatur."
8 Lattes, p. 47. 4 Ibid., p. 82. 5 jn^^^ p. gg.



152



ESSAYS



inspectors of the banks was increased, so as to give one for each
bank, their presence day by day during banking hours was
required, and large powers were given to them. Dealings in
bank credit with an agio for cash, con alcn7t laza, were then for-
bidden. It was ordered that exchange should be sold at one price,
whether for cash in hand or in bank, and that payments for goods
or for other cause should be made in the same way, the bank
credit to be taken, if at all, on the footing of cash, ducat for ducat,
the bankers being at the same time required under penalty to
maintain their payments in cash. In the preamble of a law
respecting money-changing passed in 1528^ it is recited that
these provisions had brought the bank ducat and cash to equal-
ity of value. Two years later a law respecting bills of exchange
makes the same recital, but adds that at the Lyons fair bills had
been drawn payable in bank with a difference of two and a half
per cent, and therefore requires that bills drawn payable in bank
shall be settled at the rates current for bills made payable in cash,
Contarini's statement as to the large proportion of the Venetian
banks which ended in failure has already been noticed. Details
of the failure of several have been collected by Ferrara, the cases
of the Soranzi, Garzoni, and Lippomani being the most remarkable.
The winter of 1498-1499, when the two latter failed and the Pisani
had in consequence to meet a run by depositors,^ appears to have
been a season of panic upon the Rialto. There are also indications
of serious trouble not far from 1523. In 1584 came the failure of
the house of Pisani and Tiepolo for 500,000 ducats, and this event
apparently brought private banking in Venice to its end. Its his-
tory, if we may judge from the fragments which have survived, was
a tale of repeated disaster ; and yet it must be remembered that
the events which appear to us now as parts of a single picture
were, in fact, spread over the greater part of three centuries, dur-
ing which the Venetian public continued to intrust its interests to
the private banks. It may be, therefore, that, if we could restore
the proper perspective of time and could see these disasters in their
true relations to other events, the Venetian experience might not

1 Lattes, pp. 95-97 : " Essendo per 1' iddio gratia riddotti li banchi nostri de scritta
in buon esser, che tanto e al presente il ducato del banco, quanto e il contado."

2 A lively account of this run, given by Malpiero and cited by Ferrara, may be found
in the Arcliivio Slorico, Ser. I., vol. vii., p. 715.



THE BANK OF VENICE 1 53

appear more unfortunate or even more checkered than that of
other countries, which have had to learn by actual trial how to
use the dangerous forces of credit.

But, however this may be, the Venetian Senate became satisfied
of the necessity of a radical change of system. The speeches of
Contarini and his unknown opponent were part of a debate which,
in a few months after the failure of Pisani and Tiepolo, ended in
the act of December, 1584, for the establishment of a public bank,
to be called the Banco della Piazza di Rialto. This act was re-
pealed in the following April, in consequence of strong opposi-
tion ; and it would appear that the city was left for the next three
years without any bank, either public or private, to the great con-
fusion and injury of its business. The act of April 11, 1587, at
last established a bank of deposit, sometimes called the Banco di
Rialto, and sometimes the Banco della Piazza.^ The acts of 1584
and 1587 differed in some important particulars, but they agreed
in their main purpose of giving to a public institution the deposit
business so long retained by the private bankers ; and we can
therefore conveniently confine our attention now to the act of
1587, as expressing the meaning of the revolution in Venetian
banking which took place in 1584.^

The act of 1587, after reciting the mischiefs resulting from the
ruin of the private banks, the great need of a bank of some kind,
and the conclusion that private banks could not supply the want,
establishes a banco de scritta for three years, to be placed under the
charge of a governor elected by the Senate for the same term, and
under the inspection of the Provcditori soprabanchi. The bank
was required to receive all cash deposits offered in good and cur-
rent money ; the money was to remain always subject to call,

1 The acts of 1584 and 15S7 are given in full by Lattes, pp. loi and 109.

2 Morosini, in his " Historia Veneta," under the year 1587, says: " Negotiatorum
quoque incommodo subvenire decretum, qui, apud privates mensarios pecunia deposita,
eorum fraude, avaritia, crebrisque decoctionibus ingentes jacturas damnaque patiebantur;
ex quo publicis etiam redditibus haud parva detrimenta accedebant. Itaque lex lata in
Senatu, ut publica mensa erigeretur, in qua tuto singuli argentum aurumque adservarent;
ei Gubernator praeficeretur, qui rite atque ex ordine cuncta administranda curaret ; id
munus Francisco Gradenico primum tributum." But Morosini takes no note of the
establishment of the Banco del Giro in 1619, and perhaps supposed that bank to be the
same as the " mensa " of 1587.



154



ESSAYS



sempre pronto a reqicisition di creditori ; transfer in bank could
be made, but only in the presence of the depositor or by his
written consent lodged in the office of the sopraba7ichi ; no
transfer could be made in blank, but credit must be given in
account to the transferee at the same time that the transfer was
debited ; and, finally, the expenses of the establishment were to be
met by means of the duties on imported goods. In December,
1593, a further act provided that all bills of exchange should
thenceforward be paid by transfers in bank only. It is evident
from these provisions that the Bank of the Rialto was not a bank
in the modern sense, as the private banks superseded by it had
been. The republic wisely declined to undertake the investment of
the funds intrusted to it, sought no profit from the use of its credit,
and, in short, merely undertook to keep the money of depositors
in safety, and to pay it out or transfer it to others at the will of the
owner. At a given moment the depositors might even draw out
the whole of the cash, in full satisfaction of their claims, if they
chose, and nobody would be any the worse.^ Certain of the
functions of the private banks were thus selected and made the
work of the new establishment, and the rest were disregarded. It
is clear, then, that this development of the Venetian pubhc bank
from the business carried on in private hands had no possible
relation to any public debt or to any use which the state might
be able to make of the moneys deposited with it.

The provision made in 1593 as to bills of exchange, already
referred to, was for two centuries an important regulation of
Venetian commerce ; but it had its origin from a special cause. It
is manifest that, so long as the Bank of the Rialto should be con-
ducted in accordance with its fundamental law, payments in bank
must be the exact equivalent of cash payments, since the payee in
bank received a credit convertible into cash at pleasure. Debtors
who found it inconvenient to meet their debts with cash would
therefore find it equally inconvenient to meet them with a transfer
in bank. This led to a practice of settling bills of exchange by

' It is worth noting that the governor of the bank was forbidden under heavy pen-
alties to traffic in, use, or lend any of its moneys. Lattes, p. no. Contarini's discussion
as to what might happen in case of war, and his assertion of the ability of the bank to
pay everj'thing on demand, tanto sara il dar, quanto P haver, is important as showing
that commercial and not fiscal convenience was the purpose of the undertaking. See
Lattes, p. 137.



THE BANK OF VENICE 155

novation, or the substitution of one debtor for another, like that
described by Contarini as existing in Antwerp.^ An act of Novem-
ber, 1593, says, "There has been introduced within a short time a
notable abuse in the Piazza di Rialto : that payments for exchange
and merchandise, which ought to be made by accounts in bank or
in cash, are made by a kind of transfer in which debtors assign to
their creditors each one his debtor, and this debtor assigns another,
and so on," to the great embarrassment and injury of creditors
who really wish for their money, se il creditor viiol valcrsi del siio
per qtialclie bisogno. This transfer {giro') of debts, when cash was
really due, was therefore forbidden ; and a few days later the act
of December 14, 1593,^ after a similar recital of the evil, made the
well-known requirement for payment in bank of all bills of ex-
change, under severe penalty. The increase of transactions thus
thrown upon the bank compelled the Senate, in April, 1594, to
authorize an increase of clerical force in the bank ; and they then
took occasion to require that not only all letters of exchange drawn
upon Venice, but all bills of a similar kind drawn at Venice and
sold, should be settled for in bank, thus making payment in bank a
legal tender for all commercial paper of this class.

The question whether the public bank with its restricted func-
tions should have the sole occupation of the field of banking was
finally decided by convenience rather than by deep policy. The
act of 1584 had forbidden the establishment of private banks,
restando nelV avenire proJiibito del tiitto a particolari il Icvar piii
banchi;^ but this act being repealed, and the act of 1587 contain-
ing no such prohibition, the establishment of private banks may
be said to have become possible, although for several years bankers
were not forthcoming. But in February, 1596-1597,^ the Senate,
after reciting the impossibility of meeting all the needs of com-
merce by means of a single bank, gave to Dionisio Contarini, who
had served as governor of the public bank, leave to establish a
private bank for six years. The banker bound himself to give

^ See Lattes, p. 121.

2 For the two acts of 1593, see Lattes, pp. 170, 171. In Colwell's "Ways and
Means of Payment," in a chapter on the Bank of Venice, the date of this act is given
on the authority of Savary as 1423. Mr. Colwell, adopting the traditional account as to
the great age of the bank, easily accepted a date which carries the act back to a time
when there was no public bank in Venice, and long before the establishment of any such
provision as to exchange. ' Lattes, p. 102. * Ibid., p. 177.



156 ESSAYS

security to an extent declared to be unexampled, and to supply the
mint annually with an agreed quantity of gold and silver. All his
receipts and payments were to be in good money of lawful weight,
he was to undertake no public contract for merchandise, and pay-
ments offered by transfer upon his accounts were to be receivable
only at the pleasure of the payee. Nothing more has yet been
brought to notice respecting Contarini's bank; but in 1619 the
Senate again gave a companion to the Bank of the Rialto by the
act of May 3, creating the famous Banco del Giro, — the great
public bank whose origin is so often said to date from the twelfth
century.^ The two banks, organized separately, but with similar
powers, continued to work side by side until 1637, when the Bank
of the Rialto was discontinued in consequence of the absorption
of its business by the Bancogiro ; ^ and the latter was then left as
the sole occupant of the field.^

The circumstances under which the Banco del Giro was estab-
lished are stated in general terms in the preamble of the act.
Giovanni Vendramin had contracted to supply to the Venetian
mint a large amount of silver, in bulk or in Spanish reals, and to
receive payment, one-half in coin or in bank credit, and the other
half in gold, either coined or in bars ; and, as the rate at which he
supplied the silver was low, the republic agreed to make him a
large loan in bank credit. At the same time there were merchants,



Online LibraryCharles Franklin DunbarEconomic essays → online text (page 17 of 40)