War Cycles/Peace Cycles

chapter twelve

THE RENAISSANCE

The universal prohibition of interest unleashed the mighty Western Renaissance. Usury had acted as a rope which had been strangling the West. As soon as it was banned, the West broke forth into a flowering which could not have been imagined earlier. Italian merchants became wealthy enough to travel to China with their goods. Spanish and Portuguese explorers were financed and uncovered continents with which to trade.

Money for the development of inventions became available. The Michelangelos, Rembrandts, Shakespeares, and Newtons were supported by the growing wealth of the West, and they did their thing - and made it profitable. This was an era free of interest!

Circulating Money

"Tallies" were a very important part of the economic system of the Middle Ages. Anyone who had the power could issue them. The Hansiatic League was a confederation made up of scores of independent German cities. They had the power to issue tallies - and they did. So did virtually every county and large city in Europe.

The hard pocket money was gold and silver coins. Many of these coins were in poor condition, being worn, clipped, and some counterfeited. This seemed to make as little difference then as it did in Roman days. People cheerfully accepted them in payment for goods and services. Why not? The government accepted a clipped coin as readily as a full weight coin for taxes. Not so the foreign merchants. When they made a transaction, they wanted payment in full weight gold coins. Thus we have two kinds of coins - "discount coins" for the citizens and "trade coins" for the merchants.

Paper money of large denomination was simply a gold deposit receipt. A bank had, in the manner of the Templars, taken in a store of gold and issued a paper to that effect. The paper bore the stamp and guarantee of the bank. The gold belonged to whoever presented the paper. Few people will carry around five pounds of silver coins or two pounds of gold coins in their pocket when a piece of paper which is light and portable will serve the same purpose. Of course, the peasants always wanted their one or two coins in hand instead of a piece of paper. They still do. Since "interest" was not present, there was no compelling reason to issue more "gold certificates" than there was gold reserve. It was to everyone's advantage to keep the system honest.

In addition to gold deposit receipts there were other kinds of large denomination money. It might take the form of a deed to a house, a business, a ship or some other sort of debt-free equity which had an accepted value in the market place. To make this "paper money" more readily acceptable, it was often guaranteed by a bank that had investigated and found that this boat or that house was indeed worth so much money on a certain day and in public recognition of that fact attached their seal for a small fee. This deed was used as paper money and had worth. It was not a mere "promise to pay".

Buying Joint Venture

If a man wanted to buy a boat to go into the fishing business and didn't have the necessary money, but had a good deal of experience, chances are he could work out a deal. He would go to a bank and ask for money, say 500 pounds. Upon establishing the fact that he had 20 years experience, the bankers might risk some of their investors' money with him. The bank would buy the boat and hire him as captain with a salary. At the end of the first year he could be given the option to buy 10% of the business. If he took up the option he would then own 10% of the business and get 10% of the profits. The bank would get 90% for their investors. The second year he might buy another 10%. He would then own 20% of the business and get 20% of the profits. If the bank thought he was doing a poor job, they might fire him and hire another captain. He would still get 20% of the profits since he owned 20% of the boat. If the boat sank, insurance covered it. The bank got a fee for its services. That's all. Not a large fee either.

Another way to handle the same boat contract was on a "rental" basis. The bank's investors would buy the boat and "rent" it to the buyer. The buyer kept all the profits and paid rent to investors. There might be an option to "buy" the boat.

The type of contract which could be drawn was limited only by the imagination. One thing - it had to be fair! No one will go into a contract which doesn't seem fair to both sides - especially if the deal is being watched by the Christian community.

In the way illustrated above, in ten years the buyer could own his own ship without having to put up any money of his own. Of course, the 10 year contract is given only as illustration. Practically there were no such contracts that went past 7 years: If a man wanted to buy a boat to go into the fishing business and didn't have the necessary money, but had a good deal of experience, chances are he could work out a deal. He would go to a bank and ask for money, say 500 pounds. Upon establishing the fact that he had 20 years experience, the bankers might risk some of their investors' money with him. The bank would buy the boat and hire him as captain with a salary. At the end of the first year he could be given the option to buy 10% of the business. If he took up the option he would then own 10% of the business and get 10% of the profits. The bank would get 90% for their investors. The second year he might buy another 10%. He would then own 20% of the business and get 20% of the profits. If the bank thought he was doing a poor job, they might fire him and hire another captain. He would still get 20% of the profits since he owned 20% of the boat. If the boat sank, insurance covered it. The bank got a fee for its services. That's all. Not a large fee either.

Another way to handle the same boat contract was on a "rental" basis. The bank's investors would buy the boat and "rent" it to the buyer. The buyer kept all the profits and paid rent to investors. There might be an option to "buy" the boat.

The type of contract which could be drawn was limited only by the imagination. One thing - it had to be fair! No one will go into a contract which doesn't seem fair to both sides - especially if the deal is being watched by the Christian community.

In the way illustrated above, in ten years the buyer could own his own ship without having to put up any money of his own. Of course, the 10 year contract is given only as illustration. Practically there were no such contracts that went past 7 years: At the end of every seven years thou shall make a release (cancellation of debts). And this is the manner of the release: Every creditor that lendeth ought unto his neighbor shall release it (cancel the debt); he shall not exact it of his neighbor, or of his brother, because it is called the Lord's release. Of a foreigner (Heb: zu^wr - "racial alien") thou mayest exact it again but that which is thine with thy brother thine hand shall release. Deut: 15:1-3.

The House Buyer

If a man wanted to buy a house, the same sort of business arrangement could be made. He might have 10 pounds of his own for a down payment. He would go to the bank and ask for a loan for the balance. The bank would send out an appraiser to find out if the house was really worth the discussed purchase price of perhaps 100 pounds. If it was, a deal could be struck. The man by putting up his 10 pounds might own 10% of the house and the bank 90% by putting up 90 pounds.

The buyer also paid rent. He received 10% of his own rent because he owned 10% of the house and the bank received 90%. The next year he bought another 10%, and owned 20%. He then received 20% of the rent. The bank owned 80% and received 80% of the rent. Each year the bank allowed him to buy more of the house. In time he owned it all. If he failed to pay the rent, he was evicted and another renter/buyer installed. He still received 20% of the rent because he owned 20% of the house. Being kicked out did not deprive him of what was already his.

Of course, the contract might specify that any new buyer/ renter could have the option to buy his 20% share also. What is fair or not fair is much easier determined when one does not have wild market swings brought about by interest-caused inflation or deflation, i.e., the house being worth 100 pounds this year, 200 the next year, and dropping to 50 the year after. In that day they had nothing comparable to the booms and busts that are the rule today. It is said that the price of bread remained the same for four centuries in the Hansiatic League.

Determining Usury Contracts


In a no-interest contract there is always risk for both partners. If the risk factor is all on one side, the church determined whether it was a usury or non- usury contract. The usury contract makes one side risk-free and eventually ruins the borrower as it was designed to do. The no- interest contract shares the risk. Both parties rise or fall together. This is one of the oldest rules of Canon Law in determining whether or not a contract was a usury contract - "equal risk".

Early Bank Failures


For many years the private bankers did most of the business for merchants and kings - practically all of which was interest free. Problems could and did arise in a private banker's dealings with kings. If the king politely requested a private banker to make a loan to him, the private banker did - or came under his displeasure. The problem was compounded if the king rode off to war and got himself killed. In these cases the debt was seldom paid and the private banker was ruined. On other occasions the private bankers might allow good merchant customers to borrow from him to cement their relationship. If the merchant wasn't able to repay, the banker was in trouble. During one forty-two year period following the expulsion of the Jews from England and France, the following Italian banks were ruined for lack of specie to honor their obligations:

Ruined 14th Century Italian Banks

1304 - Francosi Company
1312 - Macci
1315 - Frescobaldi
1320 - Cherchi Bianchi
1343 - Peruzzi Co.
1345 - Acciaiuoli
1346 - Bardi

The banking houses of Bardi and Peruzzi of Florence failed when Richard III of England went bankrupt following the 100 Years War with France. Wooden tallies were fine at home, but gold was needed for foreign wars. Kings and their governments could make wooden tallies, but they couldn't make gold. They ruined many private bankers by their forced loans to obtain it.

The existence of the non-usurious private banks was further endangered by the arrival of Marano usury bankers from Spain starting in 1492. These people quickly made alliances with local rulers desperate for cash. Soon the combined activities of ruler preference and usurers siphoning off the floating money supply put most of the private bankers and many of the merchants out of business. It also brought on depression and unemployment.

The failure of a bank was a serious event. The repercussions went far beyond the individuals involved. Trade treaties between cities and countries could be jeopardized, and entire manufacturing industries shut down if the financing of the operations ceased.

To prevent powerful merchants and princes and newly arrived usury bankers from putting undue pressure on private banks, the cities of Europe took over the banking business by establishing "municipal banks".