Birthplace of Modern Capitalism
Venice was the world’s earliest mercantile state. Modern economics tells us that a commercial market is heavily dependent on the free flow of capital. Simply, there is no trade when there is no money. However, after the fall of the Roman Empire, Europe became a world without money. For a short period before the 12th century, Venetians used Byzantine coins, (bezants, hyperpyrons), Muslim coins (Saraceni), and imperial coins from Verona.
The European monetary system changed dramatically with the political system after the fall of the Western Roman Empire. The decline of the crusader kingdom in the Levant eventually led to Saladin conquering Jerusalem, which resulted in a total debasement of the Byzantine and Imperial Roman coins. Large fluctuations in the value of the coins destabilized the Venetian trade.
In 1192 A.D., the Venetian Doge, Enrico Dandolo, leader of the Fourth Crusade which sacked Constantinople in 1204 A.D., ordered a new Venetian currency. Dandolo issued the first token coins since Roman times, the “Bianco” and the “Quartarolo”, which contained no precious metal. He also issued the “Grosso”, the first high value coin (98.5% silver content) minted in Europe in more than five centuries. The treasury of Venice followed up in 1284 CE with the minting of the first Venetian gold coin, the “Ducat”, or “duke’s (Doge’s) coin”. The Ducat contained 3.545 grams of 99.47% gold, as pure as the technology of the day allowed. The Venetian Ducat and the Florentine Florin became the international trading currencies of the time.
Venice was also one of the inventors of the modern banking system. Florentine banks started as money changers. Their main “banking” business was to do money change, the equivalent of the modern-day FX change. Venetian banks started as deposit banks. Venetians were traders. It was very cumbersome to carry and to keep exchange funds for every transaction. Therefore, sometime in the eleventh century, merchants at Rialto began to deposit their money with a money changer, and do their transactions on the money changer’s ledger. All the transactions which had been done with actual coins were now executed on the money changer’s ledger. The entire transaction was quick, convenient and safe.
With traders’ money securely deposited, Venetian bankers proceeded to offer credit to their best customers. From the thirteenth century, Venetian bankers began to loan money. The modern banking system was thus born. The money changers (bankers) conducted business seated on bancherius (bench). They were called “benchers”, the “bankers” of today. This deposit banking system greatly increased the working capital in Venice, hence instigating the rapid growth of its economy.
Other Venetian financial innovations included a kind of modern-day Certificates of Deposits, checks, safe-deposit boxes and the “colleganza”(a form of partnership).The most profoundly influential innovation was the double-entry accounting system invented by a Franciscan mathematician, Fra Luca Pacioli, who lived in Venice between 1465 and 1475. With the double entry system, the modern Arabic numerals (the system originated in India, but Europeans learned it from the Arabs) came into common usage. Pacioli actually said he was merely describing a common practice among Venetian merchants; nevertheless, he is credited with the invention of this accounting system.
Freedom, free enterprise and the start of a modern financial banking system turned Venice into a maritime powerhouse and economic wonder. It is the birthplace of modern capitalism.