02
Nov
08

The Medici Meltdown

The 15th century Medici banking collapse may seem more relevant in today’s financial meltdown, opposed to the 1929 collapse. Many journalist have the idea that capitalism has no historical roots–but Harvard historian, Raymond De Roover, knows better, as his paper, The Rise and Decline of the Medici Bank (1397-1494), highlights how modern capitalism, based on private ownership, was invented by Italian merchants and bankers. At the height of the Florentine banking empire it was the largest in Europe with branches in Geneva, Avignon, Bruges, and London as well as in Rome, Naples, Venice and Milan. As troubles at home found their way on the Medici’s doorstep, we begin to see irregularities and rash uncoordinated lending throughout European banks.  Sound familiar?

The fear of being annihilated by foreign powers, combined with the lack of transparency, allowed the ruler of the Republic to turn it into an effective tyranny. With the declared purpose of defending Florentine freedom and its way of life, Lorenzo raised taxes for the war and embezzled banking funds with the result (does this sound familiar, anyone?) of creating a huge credit crunch.

The enlightened policies of public artistic patronage like those of Cosimo and Lorenzo were a magnificent facade for their political success and survival–and ultimately for their financial failure.

Read the entire article here.

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