In 1575, the most powerful monarch of Europe, the King of Spain, Phillip II, decided to terminate the services of his Genoese bankers. On the international markets, he controlled silver but not gold or bills of exchange. The Genoese blocked the circulation of gold, and the King’s unpaid Spanish troops–fighting for the Catholic faith in the Low countries–mutinied and sacked Antwerp in November 1576. The King was obliged to restore Genoese control the following year.
The Great age of Genoese finance (1557-1627)
This happened in what was a remarkable episode in early capitalist history. The Genoese ruled so discreetly that historians missed it for the longest time altogether. I have mentioned it tangentially before, in posts about Braudel, but this interlude between the zeroth cycle of accumulation centered at Venice and the rise of the North and Dutch hegemony which was to follow–is a case study par excellence–illuminating the dominant features of capitalism.
The Genoese gained controlled of all of Europe’s finances–they ran the specie trade, underwrote the voyages, dominated maritime insurance, financed long distance trade, and organized the Piacenza fairs–in effect, running the European world-economy. They pioneered the use of paper money and the practice of pure finance. Through their bills of exchange–which were payable in gold–they controlled the flow of gold bullion, and after 1557, the supply of American silver as it flowed eastward to the Levant, eventually reaching the Far East.
According to Braudel, “For three-quarters of a century, ‘the Genoese experience’ enabled the merchant-bankers of Genoa, through their handling of capital and credit, to call the tune of European payments and transactions. This is worth studying in itself, for it must surely have been the most extraordinary example of convergence and concentration the European world-economy had yet witnessed, as it re-oriented itself around an almost invisible focus. For the focal point of the whole system was not even the city of Genoa itself, but a handful of banker-financiers. And this is only one of the paradoxes surrounding the strange city of Genoa which, thought apparently so cursed by date, tended both before and after its ‘age of glory’ to gravitate towards the summit of world business. To me Genoa seems always to have been, in every age, the capitalist city par excellence.”
The number of Great bankers handling the affairs of the Spanish court was never more than thirty. However, this was not the first, and certainly not the last time that a handful of oligarchs ruled the world-economy. Venice, which dominated the Mediterranean world-economy in the fifteenth century was dominated by a handful of oligarchs as well. The novel feature was that Genoese capital migrated to the Iberian peninsula. This underlines an enduring feature of the capitalist world-economy: the agnosticism, adaptability, and cosmopolitanism of capital. This readiness to redeploy at another site is what distinguishes capitalism from the market economy. Another crucial feature that is conspicuous is the nexus of capital power on the one hand–represented by the Great bankers–and politico-military power–represented by Imperial Spain.
Let us explore the system that the Genoese presided over.
The rise of Genoa
During the fourteenth and fifteenth centuries–when the Mediterranean was still the dominant pole of the world-economy–Genoa lived in the shadow of Venice, which was the metropolitan heart of the system. “The core of this system was the archipelago of towns–Venice, Florence, Milan, Genoa, and Lombardy–the Italian city-states. But the string of glittering towns continued north over the Alps: Augsburg, Vienna, Nuremberg, Ulm, Basle, Cologne, Hamburg and Lübeck; ending with the still-brilliant constellation of the Netherlands, with Bruges as yet its leading light, and the two English ports of London and Southampton.” The Eastern frontier of this world-system extended into Black Africa, the Red Sea and the Persian Gulf. Venice lay at the intersection of the North-South axis of the post-Black-Death increasingly prosperous Western Europe (the Venice-Burges-London axis), and the even more important East-West axis linking Europe to the Islamic world and the Far East. This nexus was to endure even as the center of gravity shifted inexorably northward. When the Portuguese take over from the Genoese in 1627, behind them lay the heavy hand of the North. But we are getting ahead of the story.
A permanent feature of the fifteenth century was the fierce rivalry of Venice and Genoa. The pattern of trade of the latter was different however. Genoa had a monopoly of alum exports from Asia minor, which she shipped to Flanders, where it was an essential input in the dying of cloth. They shipped spices from Damascus and Alexandria, and cotton from Turkey to the Northern towns, and supplied Slavic slaves from the Black sea to the Mumluk sultans in Cairo. They organized sugar production in Sicily and were heavily into marine insurance and underwrote the voyages of discovery. From the beginning of the fifteenth century, the Genoese had settlements in North Africa, Seville, Lisbon and Bruges. It was a Genoese, Christopher Columbus, who discovered America and until 1568, the Spanish voyages to the New World were financed almost entirely by the Genoese merchants of Seville.
In 1522, Spain had captured Genoa and pillaged the city. In fact, she was to technically remain under Spanish protection through the period. In practice, she was a junior geopolitical ally if not a satellite of Spain. One can say that the Genoese operated in a Western Mediterranean under Spanish hegemony. It was in 1528 that Charles V, though still financed by the Fuggers (German merchant-financiers who had dominated high finance since the Antwerp interlude), borrowed money from the Genoese. And when in 1557, the Spanish state bankruptcy ended the reign of the German bankers, the Genoese naturally stepped into the breach.
The crucial service they performed for the King of Spain was to provide him with a regular income, by converting the fiscal revenues and American silver which were both irregular sources of finance. As bankers to the crown in the period of Spanish high imperialism, they found themselves drawn into a considerable undertaking. Enormous quantities of American silver was shipped to Genoa which was sent eastward in exchange for gold which they used to pay the Kings dues in the Low countries and conduct trade with the North. They came to control the gold market and following Charles V’s ordinance of 1537, their bills of exchange could only be paid in gold. The silver sold to the Italian cities was converted into gold currency payable in the Netherlands. Their bills of exchange thus became the preferred method of settling accounts between the merchants of Europe.
In 1568, the English captured a Spanish fleet carrying American silver en route to the Low countries. The Mediterranean route thus gained enormously in importance and the bargaining power of the Genoese bankers increased sharply; not just because bullion had to be shipped overland to the Spanish troops in Flanders but for settlement of bills of exchange on the Italian money markets. As Seville and Genoa piled up with American silver and the wealth of Europe passed through their hands the Genoese bankers became enormously powerful as evidenced by the events of 1575-77. Of course, the Genoese alone could not have pulled it off. Venice and Florence purchased American silver in return for bills of exchange on northern towns. And it was be means of the Piacenza fairs that the capital of the Italian city-states was drained to Genoa.
The Piacenza fairs
Four times a year sixty bankers would meet together. These were the banchieri di conto, a consortium of Milanese, Florentine and Genoese bankers who on the third day of the fair would fix the official exchange rate. There were also exchange merchants or cambiatori and the firms representatives and brokers, the heroldi. “In all then there were a maximum of two hundred people, bound by strict discipline, the final decision in cases of dispute lying with the all-powerful Senate of Genoa.” The fair functioned as a clearing house. Every merchant presented a bound volume containing records of bills due to or from him. In a complicated settlement system, the bankers crossed out all mutually cancelling claims taking in and paying out the net claims. This required an amount of specie that was well within the means of the Genoese. The fairs thus became the focal point of the European world-economy. They lay at the nexus of the expanding markets of the northern towns and the prosperous Levant trade through the Italian merchants. This expansion gained steam from the flow of American silver and the resulting monetary expansion, as well as the military-fiscal Keynesian stimulus of the Spanish war effort in the Low countries.
Such fairs had a been a staple in Europe for centuries. In different periods they were held in different towns and controlled by different guilds of merchants. When in 1579, the Genoese managed to move them to Piacenza, it was an event of major importance, underscoring the importance of paper money and the wealth and power of the Great bankers. Their wealth in the sixteenth century came not so much from gold and silver as from their capacity to mobilize credit, a complicated game with very many parts that they were playing from a very privileged position.
The reign of paper
The age of negotiable paper did not begin in 1579, but it did gained tremendously in importance with the Piacenza fairs. It was now that a distinct occupation of banker emerged. The coming of the age of paper marked the beginning of a new economic structure, an extra dimension. The Genoese pioneered this new technique and largely moved into pure finance. There was a lot of resistance to this since people assumed that money followed trade in commodities, which was the real economy. At the beginning of the twenty first century, it is hard to comprehend how novel and absurd this seemed to contemporaries. Venetian merchants stayed out of this game, and looked down on it. But once the genie had been unleashed there was no going back–paper money, banking–pure finance was only to become more and more dominant as the long reign of the North began at the turn of the century. As capitalism and the world-economy went through cycles of accumulation–each time emerging much bigger and with added dimensions of complexity–pure finance was always to remain at the pinnacle.
In the late sixteenth century–before Amsterdam was ready to take over from Antwerp–the Great bankers of Genoa provided a vital organizing function to the increasingly complicated world-economy. In doing this, they gained an enormous amount of power and accumulated fabulous wealth. The architecture they pioneered was to endure.
The Genoese withdrawal
Genoese control of European finance lasted maybe seventy years. The Spanish bankruptcy of 1627 was a major shock but did not bring down the Great bankers. They voluntarily decided to draw down their exposure to the government of Madrid. They put into effect a programme of a radical and wholesale redistribution of their financial commitments. From 1630, Spanish silver as taken North in English ships. The Genoese solution was succeeded by appointing the very people whose piracy and attacks by sea Spain had feared. In the ultimate irony, after 1647, the Spanish silver sent for the defense of the southern provinces of the low countries was transported in Dutch ships, even before the peace of Munster had been signed by the United Provinces.
They had moved out of the Atlantic trade by the mid-sixteenth century and began to redeploy their excess capital in the Levant trade or to the North. The Genoese began to invest in Venetian stocks as early as 1617. Later they participated in loans to the papacy. When the Monte Oro was created in 1656, the first few issues were gobbled up entirely by Genoese investors. Mostly, they massively redeployed not to England but to France, where it tumbled into the abyss that swallowed up the ancien régime. But even with that catastrophe they were not wiped out. In 1785, income on Genoese capital deployed overseas was more than half of all income of the city-state, in absolute numbers an astounding eleven and a half million lire or about five tons of gold a year. Later Genoa was to industrialize, and set up the Banco d’Italia. Later still, as one Italian historian put it: ‘Genoa created Italian unification’; adding ‘for her own benefit’.
Was this not one of the most remarkable periods of history? This was a hesitant period, with a European world-economy still characterized by bipolarity. It was a period of transition as the long reign of the Italian merchants came to an end and the center of gravity shifted permanently to the North. The Dutch hegemony that followed was itself an interlude before the rise of the national economies and the unprecedented expansion of the world-economy as it came to span the entire globe. But in this early period–the remarkable reign of the Great bankers of Genoa–we already have all the features of Capitalism in its pure form.
[Read the next post on this topic: A natural history of Capitalism]