by Stephen E. Sachs
Prof. Thomas N. Bisson
January 3, 2000
“Unstinting credit,” Robert S. Lopez has written, “was the great lubricant of the Commercial Revolution.” From the eleventh to the fourteenth centuries, Catholic Europe — especially that part on the shores of the Mediterranean — saw a sea change in economic organization and patterns of commerce, a change largely fueled by the availability of credit to merchants, traders, and entrepreneurs. At the same time, however, the Church maintained that all loans at interest were “usury,” forbidden by canon law as well as the Scriptures. The Church’s prohibition of usury was never enforced completely, but it could not be ignored. How was it that credit could play such a significant role in the economic transformation of a continent while its very existence was prohibited by society’s most powerful institution? Although some merchants and lenders attempted merely to hide the interest by not mentioning it or by cloaking it under fictitious sales, the prohibition of usury did in fact spur the development of two institutions which substantially altered the way capital was invested in medieval Europe: the commenda partnership and the system of exchange. In the end, the mercantile expansion that these institutions enabled would begin to change societal attitudes towards usury, eventually opening Europe to the possibility of a more liberal economic system.
Lending at interest had been a common practice in Greece and Rome, and the Eastern church allowed lenders to charge interest at moderate rates. Catholicism, however, would not be reconciled to the practice, and regarded all forms of interest as usurious. The Old Testament had provided numerous examples from which to argue that usury was a sin — “If thou lend money to any of my people that is poor, that dwelleth with thee, thou shalt not be hard upon them as an extortioner, nor oppress them with usuries” — although it did accept the practice of usurious lending to a “stranger.” Fewer mentions were to be found in the New Testament, although the words of Jesus, “lend, hoping for nothing thereby,” could be interpreted as a prohibition on interest. St. Ambrose, with other early fathers of the Church, viewed the charging of interest as a grievous sin, writing that “If someone takes usury, he commits robbery, he shall not live”; the identification of usury with robbery still echoed in the works of Gratian’s Decreta and Peter Lombard’s Sentences centuries later, when the Church would insist that loans be given “gratis et amore Dei,” granted without interest in the spirit of charity.
The prohibition of usury was well-suited to the social conditions and worldview of the early Middle Ages. The estates that aimed at self-sufficiency saw little justification for trade and viewed commerce as a last resort to fill deficiencies. No distinction was made between loans for consumption, made to the poor or profligate, and loans for investment, made to merchants for commercial purposes; where money was seen to be an unproductive means of exchange, charging interest for its use was interpreted as simple extortion — selling a good for more than its just price, as Aquinas argued in his De malo. The same connection was made in Charlemagne’s Nimwegen capitulary, issued in 806; the Emperor defined usury as where “more is required than is given; for example, if you give ten solidi and require more,” and the same capitulary forbade buying low and selling high in the grain or wine markets. Strong prejudices against usury continued even as the Commercial Revolution began to flower; in 1139, under Innocent II, the Second Lateran Council condemned the “ferocious greed of usurers,” held usury “despicable and blameworthy by divine and human laws,” and excommunicated its practitioners.
Of course, neither the prohibition on interest was never complete, nor was its enforcement flawless. Both Roman and Lombard law had accepted moderate usury, and civil laws in many areas would establish legal limits on interest rates. A legal document from mid-eleventh-century Ravenna, revised in southern France around 1120, set variable interest rates which ranged from 12 to 66 percent annually depending on the status of the lender and borrower. It also recognized the distinction between commercial and consumption loans, noted the coexistence of loans in money and in kind, identified a class of professional usurers, and forbade compound interest. Another form of legal usury was that of the Jews, the only residents of Catholic Europe to whom trade and lending were neither stigmatized nor forbidden. The Jews interpreted Deuteronomy’s use of the word “stranger” as allowing usury towards non-Jews, for a time serving as the merchants and financiers of Europe. Even in areas where the prohibition held, it was occasionally flaunted; in a Genoese contract from 1161, one Embrone declared that he had received a loan of £100 Genoese from Salvo of Piacenza, which he had to pay back within a year prorated for an annual interest rate of 20 percent. Thus, although the Second Lateran Council had spoken so forcefully against usury, under Alexander III, the Third Lateran Council in 1179 found it necessary to repeat the prohibition, noting that “early everywhere the crime of usury has become so firmly rooted that many, omitting other business, practice usury as if it were permitted...”
However, it would be wrong to view the prohibition on usury as completely toothless. Debtors could always go to ecclesiastical courts to escape their obligations or accuse their creditors, and secular authorities could be harsh instead of lenient. In the early twelfth century, Edward the Confessor repeated the prohibition of usury for his lands and noted that he had “often heard in the court of the king of the Franks... that not undeservingly usury should be interpreted as the root of all evil.” An Italian moneylender in Beaulieu wrote worriedly to his colleagues in 1330 to tell them that all the “Lombards” in France who were “in the profession” were being arrested; some of them had their assets confiscated, and their debtors would not repay them, “both because the population is poor on account of the total loss of the vintage and because of the prohibition issued [by the king].” Furthermore, usury was believed to be sinful even by some of its practitioners. In 1221, one Aringhiero d’Altavilla of Siena swore “on the holy Gospels of God that if I escape from this illness I shall be [obedient] to the order of the lord bishop of Siena in regard to the usuries which I have collected,” and a Catalan residing in Pera, “fearing the judgment of God,” set aside 20 hyperpers in his will for “those from whom I believe I have taken [interest] unjustly.”
Whether enforced externally or self-imposed, the prohibition of usury forced those who would lend at interest to discover new ways of avoiding legal sanction. As a result, the simplest techniques of extending credit during the Middle Ages were mere devices to evade the prohibition. Some contracts, to avoid invalidation by ecclesiastical courts, would simply refrain from mentioning interest or declare the loans to have been given in charity. In one such agreement in 1223, two cutlers, Ugolino and Ranieri di Albertino, acknowledged a debt of £8 Sienese to one Bonaventura di Piero which they promised to pay back, no interest charges included. A contract made in Pisa in 1302 described how one Bruno received a year-long free loan — “mutuum gratis” — of s.30 Pisan. In an earlier contract, made in Marseilles in 1252, a master mason and his wife stated that they have received “by reason of our mutual friendship and love” the sum of s.50 in royal crowns from John de Manduel, a member of a prominent merchant family. The borrowers courteously agreed to renounce “all benefit of the new law ‘De duobus reis’” as well as other protections for debtors, and a loophole for interest was left open through the penalty on late payment, in which case “all losses and damages which you incur we promise to repay you, believing your simple word without any kind of proof.”
Other contracts, instead of ignoring the interest, would incorporate it within an inflated price or fictitious sale. Items bought on credit could untraceably include the interest in their prices. In June of 1248, Peter Roubaud of Marseilles bought almost six loads of cotton on credit; he agreed to pay £106 of mixed money for the cotton the coming August, and the price likely included the interest charges. Loans could also be hidden in fictitious sales: in a very late (1482) contract from a poor area near Limousin, the son of a knight sold his horse to an unnamed buyer for £4 s.5, which was delivered in the form of 17 emynals of salt. The buyer could take possession of the horse, however, only if the knight did not pay £4 s.5 back before Easter. That the transaction represents a loan is clear; yet the delivery of the loan in kind makes it impossible to tell whether the knight paid interest. Such false repurchases had been specifically condemned as usurious by Innocent III, but clearly persisted; they were presumably the target of the ire of Matthew Paris, when he wrote in 1235 of the “horrible nuisance” of usurers, “cloaking their usury under the show of trade, and pretending not to know that whatever is added to the principal is usury, under whatever name it may be called.”
Finally, since loans were typically accompanied by securities, interest could be achieved without noticeable usury by giving a security that generated income. The wealth of lords was mostly in land, which could not be mobilized easily; as a result, others could lend the lord a sum of money and receive a piece of land as security. Eventually the debt would be repaid, but in the meantime the lender had received the income from the land, a transfer not viewed as usurious. This technique was employed as early as 748, when a Lombard contract described the year-long loan of one gold solidus in which the borrower pledged a piece of meadow land as security and its income as “the charge” for the loan. When flush with cash from pilgrims and tithes, the Church, despite its attitude towards usury, frequently lent to secular lords in this manner. One contract from 1169 details the pledge of two pieces of land in Volterra by a Master Viviano to Hugh, the “Archpriest” of the church there, for seven marks and five and a quarter ounces of silver; if Viviano paid the silver back within five months, he could take the land back. Of course, the same occurred at a much larger scale; in 1075, Godfrey de Bouillon offered his allodial lands to the Bishop of Liège as the security for a loan of 3000 gold and 1,300 silver marks. Such practices led Pirenne to call the Church an “indispensable moneylender.”
Yet none of these techniques could become an institutional replacement for usury — an accepted and legally binding means of charging interest without violating ecclesiastical law. Two measures, however, were eventually able to fill that role until attitudes had changed sufficiently to allow the open practice of lending at interest. First, unable to finance commercial ventures easily through debt , medieval merchants were forced to raise funds through equity as well, inventing a new form of corporate organization that limited the risks faced by partners and simulated the economic function of a loan. Second, the international nature of trade required a system of currency exchange, in which a separation between the payment of one currency and the receipt of another enabled the creation of a widely applicable system of credit.
Until the Commercial Revolution, the available methods of corporate organization in Catholic Europe were relatively unsuited to long-distance trade. In the forms of partnership that had existed in Greece and Rome, liability was unlimited; in the case that the corporation incurred debts to third parties that it could not repay, the partners’ personal assets could be seized until the debts were paid. This form of organization survived in the Middle Ages as the compagnia, a name which refers to its original form, a family group which shared the same bread. A Venetian contract from 1200 shows a group of brothers holding property in common, and a document from 1271 refers to the partnership as a “company of brothers,” a “fraterna compagnia”; it is unlikely that individuals outside the same family would choose to associate themselves in a partnership where any of them could be personally liable for a partner’s mismanagement, especially given the risks of overseas trade.
Over time, however, a new form of organization evolved, one defined by a contract that has gone by many names but is most commonly referred to as the commenda. It developed first in Venice and Northern Italy, where the volume of commerce (and especially sea trade) created great demand for such an instrument. At the heart of the commenda contract were a limitation of liability and a separation between capital and management. In the simplest form of commenda, an investor would contribute a certain amount of capital to the partnership for use by the manager in a single commercial voyage. At the end of the voyage, the manager would return to the investor his capital as well as three-fourths of the profit, keeping one-fourth for himself as pay for his labor. If there were no profit, there would be no pay for the manager; losses would be borne by the investor alone, but the investor would not be liable beyond his initial investment for any debts to third parties. In essence, the commenda allowed investors to contribute capital to commercial enterprises without personal responsibility for their management. Also, because of the commenda’s limited nature, it was possible for an investor to reduce his risk by entering multiple agreements at once or entering several at different times.
Commendas were also flexible enough to be adaptable for different situations. In a Genoese contract from 1163, Ingo Bedello declared that he had invested £41 s.6 Genoese from Guglielmo Ciriolo in silk and paper, and would carry them to Tunis and then return to Genoa, where he would return the proceeds to Guglielmo and retain one fourth of the profit. The paragraph-length contract twice makes the explicit statement that the investor, Guglielmo, has only limited liability; he is “not under obligation “to contribute toward expenses... except in furnishing the [original] money,” and he has “himself reserved as his right that there will be no expense for him in it.” Another Genoese contract from the same year gave the traveling merchant funds and required him to “put it to work” in Tunis or “wherever goes the ship in which he shall go.” The earliest extant examples of a commenda, unlike Bedello’s agreement, took the form of a bilateral agreement (often called a societas maris) where both partners contributed capital. In one contract from 1073, Giovanni Lissado of Luprio received £200 Venetian from Sevasto Orefice; he contributed £100 of his own money as well and pledged to set off on a voyage to Thebes, where he promised to “put to work this entire capital] and to strive the best I can.” The profits would be divided “in exact halves,” preserving the risk-profit ratio of the unilateral commenda. If any of the goods were lost en route, “neither party ought to ask any of them from the other,” and the partners would not be liable for additional debts. Although the destination and the ship are named in the contract, the latitude granted to the traveling partner is significant — far greater than could be given in a strict partnership.
Because of its flexibility and freedom, the commenda has frequently been likened to a loan; as Lopez and Raymond note, even though the repayment is based on the profits of the voyage rather than fixed, the commenda “seems to hold a position closer to ordinary loans than to partnerships,” as it limits the extent and duration of the investor’s involvement. The distinction was not always clear: a 1251 partnership between Genoese merchants and privateers was referred to as a “loan” in the text of the contract, yet the repayment was based on profits rather than set in advance. After all, as de Roover points out, “in economics, partnership agreements and loans are basically alternative and interchangeable forms of investment.” However, the commenda had the vital advantage in the Middle Ages of being viewed universally as a legal partnership than an usurious loan. For this reason, the commenda was able to serve the function of the prohibited loans in getting capital into the hands of those who needed it.
With these benefits, the commenda soon became one of the dominant forms of commercial organization for Italian sea trade, serving, Lopez and Raymond note, as one of the chief instruments by which the pooling of capital and the expansion of trade were made possible. Once the great risks of trade could be faced more easily, there were great profits to be made: Ansaldo Baialardo, a Genoese who started with nothing in 1156, was able to earn the sum of £142 Genoese over three years by acting as the traveling partner in three successive commenda agreements and overseas voyages. His partner in the original commenda agreement, who was wise enough to reinvest in his voyages, tripled his capital over the same period. Not all commendas gave rise to the same rags-to-riches story; merchants carrying each others’ goods to distant ports could sign reciprocal commendas, and others entered commendas with their equals, as Benedetto Zaccaria did in Genoa in 1262 with his brother Manuele. Even poorer people could invest through commendas, sending part of their savings along with greater traders; in a single commenda in 1198, two Genoese merchants assembled a stock of £132 from fifteen different investors, whose occupations included hemp-seller and tanner and whose contributions ranged from £25 to £2. The commenda’s flexibility enabled a greater organization of capital; in 1239, an inventory of possessions of a skinner and store owner in the Genoese colony of Bonifacio included £1,601 Genoese in commenda agreements from 27 different investors.
The commenda was thus the framework for a new method of investment. Commenda partnerships could hold shares in ship voyages or other enterprises, as one Genoese partnership did in 1191, or existing partnerships could enter as partners into future commenda agreements, as a societas of three Jews did in Marseilles in 1248. The structure of a commenda could be used for trade on land as well as at sea; in 1248, Guillem Blancard received £1,120 in royal crowns worth of alum and cordovan “in comanda [sic.]” from Bernard de Manduel of Marseilles, intending to sell the goods “for a profit of every fourth denier” at the next fair of Lendit. In these partnerships he share of the profits retained by the manager varied, sometimes reaching one-half of the total; Nicholas Dangiers, a cooper also living in Marseilles, received £30 in royal crowns from John de Manduel in 1240 to use “in pursuit of my business of cooper, by buying and selling to your advantage and to mine,” with each partner to receive “one half of all the profit.”
Even the nobles would be affected by the commenda in Italy, as they invested their capital in commercial activities. In 1277, Nicolò di Fiesco, count of Lavagna, acknowledged that he had received his due of £1,080 Genoese from a £1,000 commenda contract with Giovanni of Pistoia “and partners.” Guglielmo de Castro, a descendant of the viscounts of Genoa, died in 1240 with no land but the house he lived in. He did, however, among his other assets, have a total of £1,109 s.10 d.11 Genoese and 440 bezants miliarenses invested with 24 different partners, almost entirely “in accomendacio.” As wealthy merchants began to purchase land and emulate the nobles, they carried their forms of business organization with them — as Duby notes, they administered their lands “as a business proposition, where money had to bring a return”; they formed “societates” with peasants, invested in equipment, and “gave birth to a new and highly productive agrarian landscape around the villages, [stimulating] a sharp rise in the growth-rate” and possibly having effect far beyond the limited realm of overseas commerce.
Yet the commenda remained primarily an instrument of long-distance trade. Furthermore, long-distance trade was in many respects the primary area of growth for the Commercial Revolution, a trend which gave rise to a need for currency exchange and the second of the two great innovations for extending credit. Foreign trade, by its nature, required the ability to change currencies; a merchant bringing goods to a foreign land had to find a way of changing the profits from his sales back into his home currency. Although one possibility was simply to reinvest the profits in foreign goods to sell at home, not every transaction could be resolved in that fashion. The menagerie of competing monetary systems in the Middle Ages required a thriving system of currency exchange even more necessary; nearly every locality had its own units of currency. As lords debased the coinage, coins of the same locale fell in value over time, and minting practices were such that even specific issues might have coins of varying weight and purity. The amounts that a shepherdess had deposited with the Bonis brothers of Montauban, “everything she had delivered to us in different coins at different times,” were of too many varieties for the bankers to itemize in their mid-14th century ledger; in order for the sum to have been calculated and written down in florins, currency exchange must have been an omnipresent commercial phenomenon.
However, the inconvenience of transporting currency soon introduced an element of credit — and a new way to conceal interest — into the practice of moneychanging. The sheer variety of currencies encouraged the transformation of moneychanging into a specialized profession; furthermore, because of the cost of transporting coins, it was easier for moneychangers to obtain partners or agents in other cities to deal in foreign currencies than it was to keep a large stock of foreign coins at home. As a result, customers might pay a moneychanger in the local currency of one place and then receive an equivalent amount of foreign currency at a later time or in another place: a Genoese contract from 1182 shows Alcherio, a “banker” (the term was used for “moneychanger” as well as for one who accepted deposits), acknowledging his receipt of “a number of deniers” from Martina Corrigia and promising to pay “personally or through my messenger... £9 s.13 1/2 Pavese before the next feast of Saint Andrew.” Since the transaction separated payment and repayment by an interval of time, it necessarily involved credit, with Corrigia lending a sum to Alcherio; any interest on the loan could easily be hidden in the exchange rate, since the “number of deniers” originally lent was not indicated.
Similarly, a moneychanger could give out local currency, which would be used to purchase goods and transport them to a foreign market, where they would be sold and his agent repaid in the foreign currency. Since so much of medieval commerce crossed monetary borders, the cambium (exchange) contract could be an easy replacement for usurious loans; furthermore, since the exchange of currencies was viewed as a sale, as long as the exchange rate was unspecified, there would be no way for the authorities to determine if the transaction had been usurious. The surviving ledgers of a group of Florentine bankers show how Orlandino, a shoemaker of Santa Trinita, owed them £26 Florentine “in consideration of Bolognese [money] that we gave him in Bologna for the market of San Procolo.” Bills of exchange were already well known in the late twelfth-century, when the Genoese Guglielmo Riccuomo and Egidio de Uxel borrowed from the banker Rufo “an amount of exchange for which we promise to pay to you or to your accredited messenger £69 Pavese by mid-Lent”; again, the exchange rate is conveniently incalculable. In the thirteenth century, Lopez writes, such exchange became the most widely used means of credit on land, especially “as its advantages to hide interest charges became more obvious.” Among themselves, merchants could freely acknowledge this interest — a 1339 bill of exchange notes the rate of “4 1/4 per 100 to their advantage” — but publicly, exchange served as a convenient way to avoid the legal restrictions on usury.
The great legal advantage of the exchange contract, that the rate of interest could not be determined, was also a noticeable economic liability. Changes in the rate of exchange between the borrowing and the repayment could raise the interest rate to absurd levels or erase it entirely, creating risks for both borrower and lender. For some, this presented an opportunity to speculate in the market: a letter from the Tuscan Andrea de’ Tolomei to his cousin and business partner Tolomeo in 1265 predicted that Charles of Anjou will be spending tax monies in Italy to prepare for the crusade, so that Provisine money “ought to fall [in price]... so that [deniers Tournois and [letters of] exchange ought to be at a great bargain there... And if you see a way to draw profit from this, do try to do it right away.” For others, however, the best way of dealing with this uncertainty was to eliminate it, by allowing the obligation to be paid in either foreign or local currency at a specified rate of exchange.
By 1200, this technique, known as “dry exchange,” was already in use in Genoa, and it was already one of the more transparent methods of concealing usury. If the rate of exchange is fixed, then the contract becomes a simple loan, made in local currency and payable in local currency with a fixed rate of interest. A contract from 1191 shows a standard dry exchange clause; the buyer of currency owes £50 Genoese, but can pay in Provisine currency at the rate of d.12 Provisine for every d.15 Genoese. The amount of the original purchase is not mentioned, and the transaction as a whole is even referred to in the document as a “loan (mutuum).” An even more flagrant example, where the rates of exchange and re-exchange were fixed at different values so as to include the interest charge, is provided by a Genoese contract from 1292. According to the agreement, the buyer received £72 Genoese and promised to pay “by reason of exchange (nomine cambii)” 150 gold deniers Genoese coins “of good and lawful weight in Tabriz — namely, those [coins] which are worth 10 [silver] shillings Genoese apiece,” or £75 Genoese. However, if this payment were not made (as both partners likely agreed that it would not), the buyer agreed to pay in silver at a different exchange rate, at s.12 Genoese per gold denier, for a total of £90 Genoese and an interest rate of 25 percent.
The mechanism of exchange was able to include under its legal cloak practices which before had incurred ecclesiastical disapproval. The sea loan was an commercial instrument dating back to antiquity; made to merchants going overseas, the loan had to be repaid only on the condition that the ship survived the voyage. The charge on the sea loan was originally justified as representing the premium for the risk that the lender must bear of the cargo’s destruction, but it undoubtedly included an interest rate. In one contract from 1158, Pietro Cornaro borrowed 100 gold hyperpers “of the old weight” from a fellow Italian in Constantinople, so that he could “go and do business wherever it seems good to me.” After his arrival in Venice, he was bound to repay 125 gold hyperpers; however, the repayment was “to remain at [the lender’s] risk from sea and [hostile] people, provided [the risk] is proved.” Such a small charge was unusual; in the twelfth century such charges often reached 40 or 50 percent. Eventually, the abuses of the sea loan led it to be ruled usurious by Gregory IX in his 1236 decretal Naviganti. However, since sea loans for one-way voyages required the transfer of capital abroad, they were easily reinvented as sea exchanges; in a contract from Ayas in 1274, one Pisan receives “a number of your new dirhams of Armenia” and promises to repay 300 gold bezants “Provided that the said ship arrives safely at the risk and fortune of God, the sea, and [hostile] people.”
These sea exchanges similarly participated in the phenomenon of dry exchange. A Genoese merchant going to Constantinople borrowed £100 Genoese in 1157 and promised to repay 300 hyperpers when his ship reached Constantinople, operating under a de facto exchange rate of 3 hyperpers per £1 Genoese. However, the merchant also had the option to repay these 300 hyperpers in Genoa, at the named rate of s.9 d.6 Genoese each, for a total of £142 s.10 Genoese (a rate of 2.1 hyperpers per £1 Genoese). The difference between the exchange rates meant a 42.5 percent difference in value, presumably indicating both the rate of interest and the premium for the risk of the voyage. A particularly ingenious contract of this genre combined a fictitious sale with dry sea exchange. In a document dated 29 Oct. 1298, Palaeologus Zaccaria agreed to sell a shipment of alum en route to Bruges for £3,000 Genoese. However, the contract gave Zaccaria the option to buy back the alum in Bruges for £3,360 Tournois, and he would not need to pay this money until his galley returned intact from Bruges to Genoa. Furthermore, he had the option of paying in Genoese currency instead of Tournois at the rate of £9 Genoese for every £8 Tournois, meaning a total of £3,780 Genoese and an increase of 26 percent, representing the risk premium and interest rate. Through this agreement, Zaccaria had not only evaded the usury prohibition, but he was protected against a fall in the price of alum, in which case he could simply choose not to buy back his shipment. Despite the shrewdness of its practitioners, dry sea exchange never came to dominate sea trade, since the commenda was a far safer instrument. In fact, the Church would eventually end the legal fictions and condemn all dry exchange, although it did not regulate normal exchange, which was still responsible for a good deal of illicit economic activity.
More importantly than its protection of sea exchange, however, the exemption of currency exchange from the usury prohibition enabled the growth of the first large-scale banking operations. Petty loan sharking had always been present, despite the usury prohibition; late thirteenth-century Nîmes offers the story of loan sharks who forced their unlucky debtor to pay an annual interest rate of 120 percent. The two great sources of commercial credit, however, were merchant and deposit banking. Merchants could easily extend credit with their accumulated profits; the line between merchant and banker often blurred as many gave up active trading after their youth and retired to become investors and lenders, protected from Church laws through instruments such as letters of exchange. Their private loans and commenda contracts supplied the medieval economy with a substantial amount of credit. Deposit banking was, in large part, an outgrowth of moneychanging; because of the thriving exchange system, moneychangers were accustomed to dealing with credit; furthermore, because they had a lot of cash and, presumably, a safe place to put it, it was easy for them to take deposits from others. These moneychangers likely paid interest to their depositors, although Giraud Alaman, a moneychanger of Marseilles, did not mention it in a 1248 deposit receipt of £10 in mixed money from Peter Mazele of Baza. However, Oberto, a banker of Genoa, promised in 1200 to return to Maria Generificio the £50 Genoese he had accepted from her in “accomendacio” — the word showing the close relationship of commenda agreements to loans — along with “the profit according to what seems to me ought to come to you.” From these foundations, other banking services arose; banks could also issue loans by allowing customers to overdraw their accounts, and depositors could make payments to other customers (and to customers of participating banks) by a simple accounting transfer rather than by transporting cash.
The strong financial institutions which arose as a result were able to fulfill a vital role for the governments of Catholic Europe. Since most medieval governments suffered from severe budgetary constraints, with highly variable taxation and expenses, borrowing became standard procedure, especially in wartime. As Duby notes, by the twelfth century lords both secular and ecclesiastical had become “completely accustomed to the use of credit.” Matthew Paris four centuries later railed against the “Caursines” — Cahors was a great center of deposit banking — who were so greedy that “there was hardly any one in all England, especially among the bishops, who was not caught in their net. Even the king himself was held indebted to them in an incalculable sum of money.” In the thirteenth century, the French monarchs and others used the Templars as their bankers, while the Church (as well as many princes and towns) generally preferred Italian financiers, and the bankers and merchants who had always operated just within the law did business with monasteries and collected Church tithes. Some of the cities at the epicenter of the Commercial Revolution even began to sell annuities to raise funds, a practice viewed in legal terms as a purchase of a rent rather than an interest-bearing loan to the government. Genoa, for instance, represented its sales of public debt as sales of salt, although they were actually loans secured by revenue from a salt tax. Such techniques would later be adopted by the Franciscans, who would create mutual credit institutions and who justified the interest on the basis of, among other things, the usefulness of the loan.
The last example shows how the spread of interest-bearing instruments — especially when they worked in the favor of the Church or secular governments — began to affect social attitudes towards usury. Governments acted more leniently towards lenders; in many localities after 1280, bankers won the right to set up “loan tables,” which were allowed to charge moderate interest. The ecumenical council of Vienne, meeting in 1311-2, noted with disgust that “certain communities approve the taking of usury... Their statutes even enforce the payment .” John XXII similarly chastised “the civic authorities of Lucca who encourage Jews in their usurious activities.” Yet churchmen could hardly eliminate their benefactors. A contract from 1203 tells of Abbot Hugh of the monastery of St. Michael of Passignano taking out one loan to pay off another; he received twenty pounds of denarii at a named interest rate of about twenty percent annually “for payment of usury to Iacopo... the Jew,” his former creditor. An ecclesiastical debtor would have had both the motive and the opportunity to enforce the prohibition on usury; yet Abbot Hugh did not, perhaps to avoid jeopardizing a future line of credit. Even the Popes relied on merchant-bankers, and throughout the Commercial Revolution they sometimes could not examine too closely “the canonic orthodoxy of their methods.” From the thirteenth century onward, some attempted to justify usury; in the fourteenth century, the theologian Alvarus Palagius argued that loans for consumption should be prohibited, not loans for investment.
Perhaps the best example of such change in official attitudes was a law passed by the commune of Genoa in 1369. Directed “Against those alleging that exchange and insurance contracts (cambia et assecuramenta), no matter for whom they are made, in or without writing, are illegal or usurious,” the law noted that some debtors “are often unwilling, because of their malice, to satisfy their creditors” and so went running to ecclesiastical courts to claim that “according to the Scriptures such a contract may not canonically sought or demanded of them.” The law prohibited anyone “who has obligated himself... in any commercial contract whatever” from going to the court of the Archbishop or another dignitary and claiming usury, on penalty of being “condemned and [made to pay] s.10 Genoese in every pound of the entire amount the payment of which was refused.” The underlying reasoning, it stated, was that “if instruments of exchange and other trade contracts... could not be enforced because of impediments of this kind, this would result in great loss and inconvenience to the Genoese citizens and merchants,... and that otherwise no trade could be carried on or ships be sent on their voyages.” Interest was not only a common phenomenon; it was viewed as vital to commerce, the lifeblood of the city.
In fact, the commune was probably right. Since credit multiplies the money supply, the extension of credit meant that a small amount of existing capital could be put to work in a number of places at the same time. Furthermore, it is clear that over the course of the Commercial Revolution such credit did indeed become more plentiful; by the mid-1300s, the interest rate (an indicator of the cost of capital) for bank deposits, government loans and real estate investments in Italy ranged from 8 to 12 percent, down from a 20 to 25 percent rate a century earlier. Low rates of interest and easily available of credit were even more vital given the inadequate supplies and progressively inferior quality of debased coins; credit played, as Pirenne notes, “a preponderant part” in the Commercial Revolution. Without such credit expanding the money supply, it would have been remarkably difficult for Catholic Europe to experience such a substantial commercial expansion. Yet without the institutions of exchange and the commenda, it would have been even more difficult for credit to thrive in an atmosphere that viewed it as sinful. The prohibition of usury spurred the innovations that would eventually circumvent it; their employment in a few short centuries transformed the economic landscape of Europe.
Canons of the Second Lateran Council, promulgated by Innocent II, 1139, Decrees of the Ecumenical Councils, ed. Norman P. Tanner, http://pc3.piarista-bp.sulinet.hu/councils/ecum10.htm.
Canons of the Third Lateran Council, promulgated by Alexander III, 1179, Decrees of the Ecumenical Councils, ed. Norman P. Tanner, http://pc3.piarista-bp.sulinet.hu/councils/ecum11.htm.
Cave, Roy C., and Herbert H. Coulson, A Source Book for Medieval Economic History (New York, 1965).
Duby, Georges, The Early Growth of the European Economy, tr. Howard B. Clarke (Ithaca, N.Y., 1974).
Fryde, E. B., and M. M. Fryde, “Public Credit, with Special Reference to North-Western Europe,” The Cambridge Economic History of Europe, Vol. III, ed. Michael M. Postan, E. E. Rich, and Edward Miller (Cambridge, 1963), pp. 430-553.
Grayzel, Solomon, The Church and the Jews in the XIIIth Century, Vol. II, ed. Kenneth R. Stow (New York, 1989).
Langholm, Odd, The Legacy of Scholasticism in Economic Thought (Cambridge University Press: 1998).
Le Bras, Gabriel, “Conceptions of Economy and Society,” The Cambridge Economic History of Europe, Vol. III, ed. Michael M. Postan, E. E. Rich, and Edward Miller (Cambridge, 1963), pp. 554-575.
Lopez, Robert S., The Commercial Revolution of the Middle Ages, 950-1350 (Englewood Cliffs, N.J., 1971).
---, “The Trade of Medieval Europe: The South,” The Cambridge Economic History of Europe, Vol. II, 2nd ed., ed. Michael M. Postan and Edward Miller (Cambridge, 1987), pp. 306-401.
---, and Irving W. Raymond, Medieval Trade in the Mediterranean World (New York, 1955).
Pirenne, Henri, Economic and Social History of Medieval Europe, tr. I. E. Clegg (New York, 1937).
Postan, Michael M., “The Trade of Medieval Europe: The North,” The Cambridge Economic History of Europe, Vol. II, 2nd ed., ed. Postan and Edward Miller (Cambridge, 1987), pp. 168-305.
de Roover, R., “The Organization of Trade,” The Cambridge Economic History of Europe, Vol. III, ed. Michael M. Postan, E. E. Rich, and Edward Miller (Cambridge, 1963), pp. 42-118.
Spufford, P., “Appendix: Coinage and Currency,” The Cambridge Economic History of Europe, Vol. III, ed. Michael M. Postan, E. E. Rich, and Edward Miller (Cambridge, 1963), pp. 576-602.
 Exodus 22:25, Deuteronomy 23:20, Luke 6:35. All quotations from the Bible will be taken from the Douay-Rheims translation, available at http://www.scborromeo.org/drbible/dr_toc.htm.
 Odd Langholm, The Legacy of Scholasticism in Economic Thought (Cambridge University Press: 1998), pp. 59-60; Robert S. Lopez, The Commercial Revolution of the Middle Ages, 950-1350 (Englewood Cliffs, N.J., 1971), pp. 72-3.
 See Henri Pirenne, Economic and Social History of Medieval Europe, tr. I. E. Clegg (New York, 1937), p. 121; Langholm, p. 63.
 Roy C. Cave and Herbert H. Coulson, A Source Book for Medieval Economic History (New York, 1965), p. 172; Canon 13, Second Lateran Council, 1139, Decrees of the Ecumenical Councils, ed. Norman P. Tanner, http://pc3.piarista-bp.sulinet.hu/councils/ecum10.htm.
 Robert S. Lopez and Irving W. Raymond, Medieval Trade in the Mediterranean World (New York, 1955), pp. 143-4.
 The Jews’ perceived importance is documented by a 1084 charter of the bishop of Speyer, who thought that he could “increase the honor” of the town if he “brought in the Jews”; he granted them “full power to change gold and silver, and to buy and sell what they please,” as well as a sizable parcel of land on which to live (Cave and Coulson, pp. 101-2). However, no large-scale changes in the commercial landscape could take place while the issuing of credit was restricted to a small group; when the Commercial Revolution came, the relative economic importance of the Jews decreased significantly, and the practices of Christians became the central concern (Lopez and Raymond, pp. 103-4).
 Lopez and Raymond, p. 158.
 Canon 25, Third Lateran Council, 1179, Decrees of the Ecumenical Councils, ed. Norman P. Tanner, http://pc3.piarista-bp.sulinet.hu/councils/ecum11.htm.
 Cave and Coulson, pp. 173-4.
 Lopez and Raymond, pp. 394-6.
 Lopez and Raymond, pp. 159-60, 106.
 Lopez and Raymond, pp. 160-1. They note that even in such contracts “we can be sure that interest was paid, since loans made by one merchant to another customarily drew interest” (pp. 157-8). For comparison with the amounts loaned, in 1293 in Genoa a bushel of grain had cost s.3-5, an ox £4, and a sword d.9 (Lopez, “The Trade of Medieval Europe: The South,” The Cambridge Economic History of Europe, Vol. II, 2nd ed., ed. Michael M. Postan and Edward Miller (Cambridge, 1987), p. 355).
 Cave and Coulson, p. 181; for the disguising of usury as a charge for delayed payment, see Pirenne, p. 130.
 Cave and Coulson, p. 180.
 Lopez and Raymond, pp. 144-5.
 Gabriel Le Bras, “Conceptions of Economy and Society,” The Cambridge Economic History of Europe, Vol. III, ed. Michael M. Postan, E. E. Rich, and Edward Miller (Cambridge, 1963), p. 567; Cave and Coulson, pp. 179-80.
 See Georges Duby, The Early Growth of the European Economy, tr. Howard B. Clarke (Ithaca, N.Y., 1974), pp. 230-2, 253.
 Lopez and Raymond, p. 46; Cave and Coulson, p. 174; Duby, p. 231; Pirenne, p. 120.
 Lopez and Raymond, p. 186-8.
 Lopez and Raymond, p. 185.
 R. de Roover, “The Organization of Trade,” Camb. Econ. Hist., Vol. III, p. 53.
 Lopez and Raymond, p. 179.
 Lopez and Raymond, pp. 176-7. In the bilateral version of a commenda the manager receives as his wages one-fourth of the profit on the investor’s capital (one-fourth of two-thirds, or one-sixth of the whole) in addition to all of the profit on his own capital (one-third of the whole), for a total of one-half of the profit. The two forms of the contract were similar enough for de Roover to comment that “only difference” between them was that Genoese notaries “called one contract a commenda and the other a societas maris” (50). Indeed, one Pisan document from 1264 uses the term “societas maris” for what seems quite clearly to be a unilateral commenda, so it is possible that at the time the terms were not well-defined or mutually exclusive (Lopez and Raymond, p. 180).
 Lopez and Raymond, p. 174.
 de Roover, p. 50.
 Lopez and Raymond, p. 174.
 Duby, p. 261-2.
 Lopez and Raymond, p. 183, 182, 95. The authors list the sum of the 1198 commenda as £142, but the individual contributions come up £10 short; the error is either in the translation or the text.
 Lopez and Raymond, pp. 181-2, 188-90; Cave and Coulson, pp. 186-7.
 See Lopez and Raymond, pp. 92-4.
 Duby, p. 262.
 See P. Spufford, “Appendix: Coinage and Currency,” Camb. Econ. Hist., Vol. III, pp. 579-89.
 Lopez and Raymond, p. 100.
 de Roover, p. 66; Lopez and Raymond, p. 164.
 Lopez and Raymond, p. 165.
 Lopez, Comm. Rev., p. 104.
 Lopez and Raymond, p. 231.
 Lopez and Raymond, p. 231.
 de Roover, p. 67.
 Lopez and Raymond, pp. 165-6, 166-7.
 See Lopez and Raymond, p. 168. Another way of dealing with such risks was the “insurance loan,” in which the ship owner loaned money to the merchant whose goods he carries; the loan only needed to be repaid if the ship survived; see Lopez and Raymond, pp. 256-8.
 Lopez and Raymond, pp. 169-70.
 de Roover, pp. 53-4.
 de Roover, p. 55; Lopez and Raymond, pp. 171-2.
 de Roover, pp. 55-6, 57. Since the former of these two agreements took place before the sea loan was made illegal, it shows that dry sea exchange was not invented solely as a means of escaping the ban. However, after Naviganti, it became far more popular (ibid.).
 See Lopez, Comm. Rev., p. 104.
 Lopez and Raymond, p. 273.
 See Michael M. Postan, “The Trade of Medieval Europe: The North,” Camb. Econ. Hist., Vol. II, pp. 266-7, as well as Lopez, Comm. Rev., pp. 103-4.
 In fact, the very word for banker was derived from the bank or table behind which a moneychanger sat and on which he displayed his coins (de Roover 66).
 Cave and Coulson, p. 144; Lopez and Raymond, p. 214. Lopez writes that the existence of the commenda contract, because of its strong similarities to loans, had tempered the need for credit institutions like banks (Comm. Rev., p. 77).
 See de Roover, p. 66. Such transfers were so common that by the mid-fifteenth century bankers would object to those who made payments otherwise; Giovanni da Uzzano would write in his manual, The Practice of Commerce, that although it was always possible to make withdrawals, “the changers resent this very much and do not feel inclined to make transfer [operations] for persons who would withdraw [cash] from the bank” (Lopez and Raymond, p. 148).
 Duby, p. 212.
 Cave and Coulson, pp. 179-80. For a general discussion of government debt in medieval Europe, see E. B. Fryde and M. M. Fryde, “Public Credit, with Special Reference to North-Western Europe,” Camb. Econ. Hist., Vol. III, pp. 430-5.
 Fryde and Fryde, p. 473; see Pirenne, p. 132.
 See Pirenne, pp. 137-9; Lopez and Raymond, p. 222; Le Bras, p. 570.
 See Pirenne, p. 135-6.
 Solomon Grayzel, The Church and the Jews in the XIIIth Century, Vol. II, ed. Kenneth R. Stow (New York, 1989), pp. 227, 231 (emphasis in original).
 Cave and Coulson, p. 178; Lopez, Comm. Rev., p. 105; Pirenne, p. 140.
 Lopez and Raymond, pp. 276-7.
 See Lopez, Comm. Rev., p. 72.
 Lopez, Camb. Econ. Hist., p. 376. However, it should be noted that there were wide geographical disparities in these trends; for instance, in Nuremberg in the early fourteenth century, the legal rate of interest was 43 percent, and one merchant company lent money to Jews at an annual rate of 94 percent (ibid., p. 397).
 Pirenne, p. 126.