Financing the Anglo-American Imperial Project — Part I

Origins of the modern banking system

Joseph F. McCormick and David A. Palmer, Ph.D

“The right to coin money has always been and remains the surest mark and announcement of sovereignty.” — Alexander del Mar, History of Monetary Systems (1895), pg. 66

“[In China] there were formerly twenty-two several places where money was fabricated, at which time there were princes so powerful that they were not contented with the rank of duke but assumed the dignity of sovereigns; yet they never durst attempt to fabricate money, for, however weak the emperor’s authority was, the coins have always had the stamp that he commanded.” — Father du Halde, History of China

Elsewhere we have analyzed the spiritual and utopian motivations for launching the civilization building project that emerged from the 16th century life’s work of John Dee, Francis Bacon and those whom they most closely associated with in Elizabethan England. We refer to this as the Utopian Project. Its roots are in the millenarian belief that the recently “discovered” New World — in fact very likely known to European mariners and cartographers long before Christopher Columbus — was to be the place destined for building the “City on a hill.” This would be the place for the resurrection of the Temple in preparation of the return of Christ in the new age of the Holy Spirit, a “new age” first described by Joachim de Fiore in the late 12th century, whose prophetic framing of three progressive ages — that of the Old Testament Father, the New Testament Son and the coming age of the Holy Spirit — would launch the “millenarian” movement from which the Utopian Project would eventually emerge (see our essay on this topic.)

This chapter will concentrate on the soil that was prepared, during the lifetime of Fiore and the last two Crusades as well, for the material development of the consort to the Utopian Project, the Anglo-American Imperial Project. We will focus heavily on one of the central material motivations of the Imperial Project, money and wealth. Money, after all, is a pathway, for many, to all that is good in the material world, just as God is the pathway to all that is good in the spiritual world (in truth, not mutually exclusive paths.)

Where did the financing come from for the Anglo-American Imperial Project? What financial innovations made it possible for the Dutch, then English then Americans to rise above all other nations in building such a dominant, global commercial system?

By analyzing the soil out of which these Projects emerged in attempting to answer these questions the following eight themes seem to stand out:

1. The transfer of control of the monetary system from public to private hands
2. The justification of plunder and piracy of known and newly discovered supplies of gold and silver
3. The practice of exchanging notes and checks in lieu of gold and silver coin coincident with the adoption of double entry accounting
4. The practice of vastly inflating money supply through accounting credits
5. The moral evolution of usury laws
6. The establishment of bourses for exchange of financial instruments, derivatives and commodities
7. The invention of the joint stock company with widely distributed ownership but narrowly held control
8. War lending to all parties in conflict as a primary line of banking business.

If money is the life blood of any material civilization building endeavor, it’s worthwhile to know exactly who, how, and for what reasons the Imperial Project was financed. After all, the financiers, through their capacity to extend or to restrict the flow of this blood, have great constructive influence in helping to shape the direction of growth as well as destructive influence through their capacity to manipulate, enslave or destroy.

Definitions and origins of money

For the past couple centuries political economists have helped focus our collective attention on “what money does,” that is, the functions of money:

1. A store of value
2. A medium of exchange
3. A unit of account

The economic literature taught in most universities studiously avoids, however, a clear definition of “what money is.”

Monetary expert Bernard Lietaer defines “what money is” in simple, intuitive terms: “an agreement, within a community, to use something as a means of payment.” As the author of the floating rate currency exchange system (1971), co-designer of the Euro while working as a Belgian central banker, and the 2001 author of The Future of Money, Lietaer’s experience lends weight to this definition.

It can therefore be inferred from this clarity that metallic money, in the form of gold and silver, as well as all “fiduciary” or “fiat” paper/digital money — accepted because of the symbol of authority imprinted on it — are also, in their essence, simply community agreements. And all agreements can be renegotiated, modified, and updated according to new conditions.

The often confusing, contradictory field of economics full of conflicting “camps” obscures so much, including, most fundamentally, a clear understanding of money and its creation. We are distracted instead by a tug-of-war between two major poles, symbolized best maybe by Adam Smith on the one hand advocating the “capitalist thesis” and Karl Marx, who studied Smith extensively, on the other advocating the “socialist antithesis.”

The problem with the conventional metallic, commodity definition of money accepted by most conventional economic schools is it has had the effect of keeping those who control of the most gold and silver in the role of de facto kings and queens. After all, at the end of the day as the public loses confidence in all other forms of money — including paper and digital — which it inevitably does at intervals, those who see themselves as responsible for monetary continuity know gold and silver will maintain its supreme historic rank.

If gold and silver have been the longest lasting and most universally accepted forms of money, and the backstop of for all other monetary systems, it’s worth asking, “how did they become so important in the mind of our ancestors as to motivate such acquisitive desire?” These specific metals must have some mythical or mystical power.

To answer this question we must jump back even further in history.

Monetary historians don’t agree on the origin of gold and silver as money. One theory is they emerged as a medium of barter exchange from merchant activity just after the rise of agriculture about 7,000 years ago. Other researchers argue they were first accumulated by temple priests as an alternative to perishable animal or vegetable tithes, keeping in mind the ubiquitous practice of thanking the gods and goddesses for the blessings of life through sacrificial giving.

Second Bank of the United States, Philadelphia, 1824. Photo.

The temples — to this day the Greek revival architectural motif of many of the most important banking institutions — evidently, began to accumulate so much non-perishable gold and silver tithes they began to loan it out to merchants as a medium of exchange. This story seems plausible as to why gold and silver were the first universal currency in the ancient Mediterranean world, the Middle East and India all of which shared similar temple cultures.

Just as the Utopian Project emerged out of spiritual dreams for the establishment of an ideal commonwealth of universal brotherhood, the Imperial Project emerged out of material dreams of riches of mythical gold and silver that could be amassed from a global trading empire. We live today in the fruit of these dreams but are nearly completely unconscious of the motivations of our ancestors for embarking on this great adventure that has produced so much while at the same time cost so much.

Charles Eisenstein in his Sacred Economics and David Graeber in his Debt: The First 5000 Years both seem to support a barter origin of money but emphasize that the central factor of the exchange of goods from the earliest times was social relationship. A far secondary consideration was the quantitative value (size and shape) of the medium of exchange such as gold, silver, iron, shells, etc. used. According to Eisenstein, “the historical development of money is a long process of dissociating value from relationship. This dissociation culminated with the introduction of coinage in Greece in the seventh century BCE. That was arguably the first time that money became a distinct category of being.”

According to Richard Seaford’s Money and the Early Greek Mind (p. 132–39) the very first coins, minted in Lydia, Greece were made of electrum (a silver-gold alloy), which varied widely in consistency. Coinage quickly spread to other parts of Greece, where, even though coins were fairly consistent in weight and purity, they often had a value greater than the commodity value of their gold/silver. Indeed, some city-states (including Sparta) minted coins from base metals like iron, bronze, lead, or tin: such coins had negligible intrinsic value but still functioned as money. Hence was born what Eisenstein calls “fiduciary money,” or what others now call “fiat money,” a currency with social power because it is stamped with the authoritative symbol of a sovereign.

From the introduction of fiduciary money of Lydia forward, it seems, there also emerged a distinction between cash and credit. “An important difference between cash and credit is that the value of cash is independent of the relationship between buyer and seller, whereas the value of credit depends on relationships” says Eisenstein. This is the main point of Graeber’s Debt analysis as well. Informal community credit systems necessitated by the lack of gold, sliver or other coinage were common in Europe up through the time of the Renaissance.

Cash has the tendency to separate us, turn us into hoarders, competitors, and transforms our material, and now even natural world, into tradable commodities. Cash systems are in contrast to what Eisenstein calls “gift economies” based in reputation and social credit. Gift economies characterized rural and indigenous communities worldwide prior to the introduction, often forced, of the cash system.

Silvio Gesell writing in 1934 in The Natural Economic Order (pg. 269) offers a solution to the the anti-generous, holding, hoarding nature of fiduciary money: “[In a cash system] the possession of a gold coin is incontestably more agreeable than the possession of goods.” The imperishable value of cash itself is a mismatch with the perishable nature of the goods it was meant to be traded for. He therefore proposes a form of money that declines in value over time just as the goods it is meant to exchange decline in value:

“Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money.”

From this standpoint it is clear that gold and silver, metals which do not degrade over time, create economic drag and friction through hoarding and centralizing something that is meant to flow freely.

The Iroquois statesman, philosopher and informal ambassador to France Kandiaronk coming from an indigenous gift/social credit economy reflected on the gold and silver cash economy of France in 1699 as follows, as quoted by the Baron de Lahontan:

“I have spent six years reflecting on the state of European society and I still can’t think of a single way they act that’s not inhuman, and I genuinely think this can only be the case, as long as you stick to your distinctions of ‘mine’ and ‘thine’. I affirm that what you call money is the devil of devils; the tyrant of the French, the source of all evils; the bane of souls and slaughterhouse of the living. To imagine one can live in the country of money and preserve one’s soul is like imagining one could preserve one’s life at the bottom of a lake. Money is the father of luxury, lasciviousness, intrigues, trickery, lies, betrayal, insincerity, — of all the world’s worst behaviour. Fathers sell their children, husbands their wives, wives betray their husbands, brothers kill each other, friends are false, and all because of money. In the light of all this, tell me that we Wendat are not right in refusing to touch, or so much as to look at silver?”

Understanding some of this history and the motivations of our forbearers helps us to become conscious of our own inner motivations. We are unaware that our ancestors, in very real ways, live through us and our children. With an individual and collective understanding of our history we can make healthier choices. As the oracle of Delphi famously said, “know thyself”; while, less known, the oracle also said “take care of yourself”. Baháʼu’lláh refers to this as “reading the book of self” along the path to spiritual maturity. It is just as important to do this work as a society seeking to move from adolescence into adulthood as it is to do it as an individual seeking to take full, adult responsibility for his behavior, good and bad.

1. Transfer of control of monetary system from public to private hands

Monetary researcher Stephen Zarlenga in his exhaustive 700 page study The Lost Science of Money (2002) — presented in speeches to the U.S. Treasury and the English House of Lords in December 2003 and May 2004 respectively— describes the sacking of Constantinople in 1204 by the mis-directed Army of the Fourth Crusade as the “most important monetary event in history,” arguably as important as the creation of the Bank of England as a consequence nearly 500 years later— the direct predecessor to the First (1791) and Second (1816) Banks of the United States and ultimately the U.S. Federal Reserve system (1913).

“In the imperial monetary system, which was planned by Julius Caesar, matured by Augustus, and retained with more or less constancy down to the fall of Byzantium in 1204, the only full legal-tender money having a forced circulation in all parts of the empire consisted of the gold coins struck by the emperor at Rome or Byzantium…This system whereby all taxes and tithes had to be paid by imperially minted coin lasted for over 1200 years.”(del Mar, History of Monetary Systems, pg. 319.)

Constantinople inherited this system with the city’s founding in 330 CE by Roman General/Emperor Constantine and thus was, de facto, the “central bank” of the entire old roman Empire. By 1204 Constantinople was sitting on centuries of gold and silver coins collected from land rents and taxes but its religious and political power had been in decline already for centuries, even to the extent of its needing to call on the western empire (the Holy Roman empire) for help against the encroaching Islamic influence. This weakness was eventually exploited.

The Caesarian exchange rate had been set at 12 silver for 1 gold by weight. This rate was preserved through the centuries by Constantinople. The rate set by Islamic religious law was either 6.5 or 7 silver to 1 gold. India adhered to this same rate. The result was an arbitrage opportunity for whomever had the capacity to ship silver east and return gold back west. For centuries it gave Constantinople the power to manage the gold and silver money supply in western Europe and thus keep its rival western Roman Empire relatively impoverished through lack of access to a critical mass of coin in circulation. The “dark ages” of the Western Roman empire were exacerbated by this lack of exchange money (tight monetary policy) and thus forced to resort to less efficient methods of exchange like barter, tokens, tallies, and a widespread use of informal credit.

The act of premeditated plunder in sacking Constantinople was a watershed event that, quite unintentionally, created the financial conditions for the Renaissance of Europe through a vast expansion of the gold/silver money supply shipped back from the looted Byzantine churches and treasury. But perhaps the greater consequence of the massive transfer of wealth from east to west was the transfer of control over monetary policy from religious/state authority to private institutions which lacked a chartered regard for the public interest.

Over the next 400 years the modern banking system, inextricably intertwined with the Imperial Project, was shaped by associations of former Christian crusaders, Jewish moneylenders granted “usury charters” by princes and kings who needed their financial services, and Italian then Flemish then German and Dutch then London counting/banking houses — all the direct lineal ancestors of the privately held Bank of England (1694), the privately held Bank of New York at 48 Wall Street (1796), among others, and the privately held U.S. Federal Reserve System (1913).

Prior to 1204 Constantinople had used its geographic position as a bridge between the west and the east, given its access to eastern caravan and maritime trade routes, to exchange European silver in the Middle East or India for nearly twice the amount of gold. Whoever controlled these routes dominated the European financial system. First were the Romans, then Byzantines acting on behalf of the church or state.

After 1204 control of this wealth generating opportunity fell into the hands of the Knights Templar who had long experience in trade with the Levant. After that, it was the Venetians who maintained the maritime trading network with the Levant and had supplied the crusaders ships and thus kept most of the plunder. Later the Medicis of Florence took over this trade. Still later it was the Flemish city of Bruge followed by the German Fugger family, the moneylenders to the Portuguese who opened up the new Cape of Good Hope route to the east bypassing the Mediterranean completely. Then, and most profitably, the Dutch East India Company took over from the Portuguese. Then the English eclipsed the Dutch with their own East India Trading Company and the U.S. took over where the East India Company left off in the middle of the 19th century.

2. Justification of plunder and piracy of known and newly discovered supplies of gold and silver

In 1202 after the indecisive results of the Third Crusade (1189–1192) a new Pope called for a Fourth Crusade. Joachim de Fiore had been called to meet Richard the Lionhearted as his armada passed by Sicily en route to the Third Crusade. Fiore’s advice was against such covetous aggression. A decade later St. Francis, after falling off his horse en route as a knight’s squire to the Fourth Crusade, having had an epiphanal dream, divested himself of his armor and all his possessions, and also lobbied, this time the Pope, against yet another such misadventure. In both cases the senior “strong men” — Popes and Kings — were impotent in the face of the overwhelming momentum of the, by then over 7,000 year old, inherited masculine attitude of “the plunderer.”

The “plunderer” seems to be an archetype, a shadow of the warrior side of all of us. The warfare waged by innately protective warriors can be morally justified under certain conditions, but plunder, a particularly dishonorable breed of mercenary aggression undertaken with an imperial attitude of “entitled taking,” traditionally has no moral justification. Hence Fiore’s and Francis’ and centuries of theologians admonition against it.

One modern industrialist who had successfully ascended the patriarchal mountain to join the ranks of senior “strong men,” the late Ray Anderson — a founder of the Corporate Social Responsibility movement, more recently evolved into the global ESG movement — describes this attitude in its most recent manifestation:

As the founder and CEO of a billion dollar global carpet manufacturer late in his career Anderson had an awakening of conscience and began speaking to conferences of other corporate CEO’s publicly describing himself — and by implication his audience — as a “plunderer.” He often said that in the future “people like me will go to jail for doing the things I have done” quite legally. The term “plunderer” is somewhat outdated and thus one his audience might possibly hear as “not about me…he’s talking about some earlier generation.” But maybe a more accurate term is pirate, a word Anderson was wise enough to not use lest his audience completely tune him out. For indeed, the Imperial Project and the entire Anglo-American organized and financed global economic system owes its “success” in real ways to nothing short of overt acts of manifest piracy (This was the chartered purpose of Francis Drake’s expedition in 1577 in capturing the mother ship of the Spanish gold fleet as well as the chartered purpose of the Dutch West Indies Company of 1621 and hundreds of smaller privateering ventures during the “golden age of piracy.”)

Where did this engrained, nearly imperceptible attitude at the heart of “American exceptionalism” come from?

In this chapter we argue that the shadow warrior attitude of the plunderer, the pirate — faces of the mercenary archetype who sells his soul for material profit — are inherent in the DNA of the Anglo-American Imperial Project. These attitudes, however, are rarely examined by those who travel Ray Anderson’s, or similar commercial, academic, political, financial, media, cultural, entertainment, sports or other paths to “success” or “the American dream.” They are equally unexamined, or at least acknowledged, by those who serve in and support the organizations and institutions they build or control, and benefit from the strong men’s protection.

This “taking attitude,” fueled by our survival instinct to rise in social status and rank — our desire for “bigger, better, more” as a means of feeling secure — is buried in impure regions of our hearts and in the collective unconscious of our culture. This attitude has roots in the story of our ancestors from whom we have inherited the Project. This book is seeking to make conscious what is unconscious and thus give us the opportunity to make a new choice.

When the Pope called for the Fourth Crusade the army was formed and the city-state of Venice was to provide 50 war galleys and 450 transports to deliver it to its intended destination of Egypt. The crusaders didn’t know, however, that the Doge of Venice demanded immediate payment in silver. To raise the money they decided to pillage the Dalmatian port of Zara which had broken away from Venetian control. After a further year of waiting to depart for Egypt the crusaders began to rebel. At this time they were appraised of the real plan, the subjugation of Constantinople, the Pope’s lead rival, and presented with another mercenary proposition.

In an unspeakable frenzy of killing, rape, pillage and plunder the crusaders stripped the seven square mile city of every piece of gold and silver they could find, melting down religious objects and destroying centuries of cultural relics, saving only certain remnants of the books of Aristotle and Greek philosophers unavailable in the west. Forty barrels of gold were taken from beneath the altar of St. Sopia’s cathedral alone. (William Jacobs, The Precious Metals, 1831, p. 354). There was an agreement among the crusaders that all spoils would be pooled, but in fact much was hidden away in cargo holds of the Venetian ships.

According to Zarlenga, “The return of the metallic plunder of Constantinople from the sack of Constantinople was probably the main factor in Europe finally reaching the critical monetary mass where a truer, more advanced monetary system could function.” The hoard of coinage had been relatively useless in Constantinople. Its “intrinsic value” was really negative given it had to be stored, guarded, and accounted for at great cost. It could be put to much better use in Europe: in building the Church’s great cathedrals, in the Templars’ growing financial activities, for princes in their realms, and for Venice in its trading activities.

Within a generation of this transfer of metallic wealth from east to west decentralized and privately minted gold and silver coins began to circulate. None of the powers at the time — Venice, the Princes and Crusader Kings, the Pope, or the Templars — could reassert the old centralized Caesarean system.Lyon minted a 54 grain coin in 1225 as well as France under Louis IX; the Republic of Florence issued a 56 grain coin in 1252; in 1257 England under Henry III. (Lost Science of Money, p. 146.)

The next major expansion of the gold and silver money supply in Europe came with the opening of the Americas.

The central motivation of the Spanish-sponsored expeditions of Columbus and later Hernan Cortes was gold and silver. Pope Nicholas V’s Bull of 1450 made clear that the Spanish and Portuguese had “the apostolic power by authority of Almighty God” to “beseige, to fight, and submit all…where ever they may be…and to seize all wealth they withhold or possess; and to submit these persons to perpetual slavery…to take advantage and make use of them personally and with their offspring.” Columbus’s contract with the Spanish crown gave him 1/8 of the spoils of the voyage. His mission was clear: in essence, “Get gold: Humanely if you can, but at all hazards get gold; and here are facilities for you.” (del Mar, History of Money in America)

Sir Arthur Helps in The Spanish Conquest of America estimated the original indigenous population under Spanish control at 32 million souls. Within less than 40 year the Spanish destroyed 15 million of them, mainly by working them to death in the gold and silver mines. Before the Spaniards actually began mining operations in South America they had already seized about 8 million pounds worth of existing gold and silver objects. They set up a mint at Mexico City in 1535.

The total plunder of America is estimated at 1,230 tons of gold and 60,440 tons of silver between 1493 and 1690, but only a small part of it ever reached Spain (del Mar, Money and Civilization, 1867, p. 102–105). During the same era “from 1565 to 1625 Portuguese traders stripped Japan of two-thirds of its gold, approximately 250 tons.” (Lost Science of Money, p. 220)

M. Forbonnais estimated that between 1492 and 1724 one half of all gold and silver that came to Europe from America had been absorbed by the Levant, the Indian, and the China trade. After taking into account these vast amounts shipped east, particularly of silver seeking the highly profitable 6.5 or 7:1 silver:gold exchange rate, by 1699 the available stocks are estimated at 287 million English pounds. As a consequence of this massive expansion of supply gold and silver lost 80% of its value, never to be recovered. (Lost Science of Money, p. 211 to 220.)

This was the era of the launching of the Imperial Project of Elizabethan England. The attitude of “entitled taking” with the blessing of God reigned. The destiny of England had been set in 1580 on the return of Francis Drake from his miraculous circumnavigation of the world, returning enough captured Spanish gold and silver to pay off the entire English national debt and give the investors in his privateering mission a 47:1 return on investment.

When the 1607 settler party to Jamestown, Virginia was struggling for survival the 1608 resupply ships sent from London refused to unload unless there was gold or silver payment to return to the investors. Against the wishes of their Captain John Smith, the stranded settlers spent their limited energy gathering and loading “fools gold” rather than building shelters and planting crops.

The connection with gold and silver with plunder and genocide is remarkable. Even the 1849 California gold rush resulted in the largest decline in native population in American history. U.S. Adjutant General E.D. Townsend relates that 80% of the California Indian population disappeared from 1848 to 1870, a loss of some 120,000 souls.

In 1902 Alexander del Mar in the History of Precious Metals estimated that “about 1/2 of the existing stock of precious metal was obtained through conquest and slavery.” These very same stocks are now consolidated in a very small number of vaults.

Only history will tell, when all the bitter fruit of these bitter seeds is harvested, the true cost of this largely ill-gotten wealth to the soul of America.

3. Practice of exchanging notes and checks in lieu of gold and silver coin coincident with the adoption of double entry accounting.

A critical first step following 1204 in the creation of modern banking system were the financial innovations of the Knights Templar.

Originally organized in Jerusalem in 1114–18 as the Poor Knights of Christ and the Temple of Solomon, the Templars’ ostensible mission was to protect the Temple Mount (ruins of the ancient Temple) and pilgrims visiting the holy of holies from Europe. They quickly, however, gained power and prestige attracting many of the most noble sons of Europe and owning lands from Scotland to Italy to Spain to parts of Constantinople where they seem to have carried back to Europe at least some of the remnants of the Imperial Library of Constantinople, a collection of books preserving Greek and Roman civilization for over 1000 years.

As the “trusted protectors” of pilgrims traveling between Europe and Jerusalem the Templars began issuing “letters of credit” in lieu of gold and silver, a decisive innovation for facilitating distant transactions that evolved in the coming centuries into the great banking houses of Venice, Florence, Bruge, Augsburg, Antwerp, Amsterdam, then London and New York.

Following 1204 local rulers all over Europe, most of whose leading sons had participated in the Fourth Crusade, began privately minting gold and silver coinage. Many Templars operated out of monasteries that acted as banks, while many were secular knights who issued and protected treasuries. The European wide Templar network emerged, protecting concentrations of money and the issuance and accountancy of letters of credit.

Charles G. Addison in his History of the Knights Templar (1842) estimated the annual income of the Templars in Europe around 1300AD, one hundred years after the sack of Constantinople, at roughly 6,000,000 pounds of sterling, from holdings of 9,000 manors or lordships; with about 1/3 of their receipts in gold. The Templars were generally above or outside of normal law. Their houses were sanctuaries; they were exempt from most taxation or dues and could not normally be sued. Because of their origins in the east they were also uniquely able to tap into the east-west silver:gold dichotomy.

A second decisive leap in the capacity to engage in large scale lending was the introduction of double entry accounting by the Templars.

They had learned this system through association with the Islamic world. Prior to this time, using only the Roman numeral system with no system of debits and credits which must balance, it was impossible to efficiently account for and reconcile large volumes of daily transactions. Double entry accounting and the Hindu-Arabic numerals it relies upon bring order to this otherwise arduous task.

The double entry accounting system traces its origins to a polymath Muhammad ibn Musa al-Khwarizmi (780–850 AD), also known in west as Algorithmi (source or word algorithm). Algorithmi’s book The Compendious Book on Calculation by Completion and Balancing which contained a chapter on double entry bookkeeping circulated among Arab, Jewish, and Persian scholars. The Templars, who governed populations from their fortresses in Palestine, traded with locals, and often intermarried with local women, learned this system. At the same time, in spite of Church doctrine forbidding Islamic influence as sinful, they introduced the Hindu-Arabic numeral system to Europe.

It’s unclear exactly how the link was made, certainly through Templar-Venetian-Florentine associations, but the first to master the double entry system using Hindu-Arabic numerals, outside the Templar network, was a Florentine merchant named Amatino Manucci in the late 13th century. From there it was adopted by the Florentine Medici Bank. As a result, “the great Italian banking houses were the principal lenders and practically dominated the money market.” (De Roover, Money Banking and Credit in Medieval Bruge, Cambridge U. Press 1948).

Through the financial dominance achieved through trusted exchange of notes of exchange and introduction of double entry accounting the Templars became too powerful.

On Friday 13, 1307 King Philip of France had them arrested throughout the realm via secret sealed orders to be opened at the same time. There were estimated to be about 20,000 Templars in Europe at the Time, 10% of them being fighting Knights. They offered no resistance, were interrogated over a period of years and many tortured and killed. By 1312 it was still not possible to bring the Templars fully under Papal control so their charter was dissolved, their leader Jacques De Molay, burned at the stake. From this point forward the Templars became an underground brotherhood.

4. Practice of vastly inflating money supply through accounting credits

With the decline of the formal Templar network — although not their informal network of influence it seems — it’s not surprising that the Italian banking houses would be the first to emerge as the main hubs of European finance, given the share of looted treasure Venice received after sacking Constantinople.

Throughout the 13th century the practice of private minting and lending spread throughout northern Italy from Venice to Siena, Milan, Genoa and Florence. With the establishment of the Italian banking houses followed by the Bank of Medici in Florence in the 14th century, the Italians then Medici family — who managed to get four of their family members elected pope, thus also controlling the wealthiest institution in Europe — maintained a monopoly on trade with the eastern Mediterranean for three hundred years following the sack of Constantinople.

The Coat of Arms of the Medici popes

The Medici Bank became the largest, most international banking house with seven international offices.

A Medici pope, Clement VII, gold coin bearing the crest of the Medici Bank. Source.

Around this time a third decisive leap took place in financial history. It had become apparent to the Templars and then the Italians that banks had the ability to create money in the form of bookkeeping credits on their books.

According to Zarlenga: “In many ways this was a monetary power greater than a King’s control over a mint of gold or silver coinage. Once clients got used to conducting their business in the form of bills of exchange (checks) rather than actual coins it became possible for bankers to greatly multiply the apparent amount of money in circulation in the form of these credits. First they could write their own bills of exchange and second they could charge interest on the money they were creating by bookkeeping entry. They drew goods and resources from society without contributing anything in return. The whole process was inflationary and fraudulently pretended to be redeemable in gold or silver.”

“By 1409, for example, the bank of Genoa had coinage reserves of less than 10% of deposits. There was no regulation of this practice and the Italian Banking Guild that arose was mainly concerned with the accuracy of accounting entries. The circulation of money was significantly expanded. Peasants began to purchase their own land and interest rates plummeted from 20–22% in 1200 down to 5–8% by 1350. The city of Florence had an eleven-fold increase in revenues from 1240 to 1343 striking 350,000 to 400,000 gold florins per year. The dark ages were indeed over.”

The next most powerful moneylenders in Europe, surpassing the Florentines in the early 1500’s by taking advantage of this capacity to create money in the form of bookkeeping credits, were the Fuggers of Augsburg, Bavaria, a Catholic family heavily involved in Church financing.

Jacob Fugger II put the House of Fugger on the map after learning the banking trade in Fondacio de Tedesch, the German traders compound in Venice. In 1488 the Fuggers got control of the Tyrol silver mines, Europe’s greatest mines, and through family connections received the “right of coinage” for the next 100 years. From about 1525 onward they were Europe’s most influential financiers with offices in Antwerp and India. They financed Emperor Maximillian, Queen Elizabeth I and Charles V of Spain. When a royal family sought the Holy Roman Crown in the early 1500’s it could be bought with 850,000 gold florins financed by the Fuggers.

The Fuggers were most notably the highly discreet financiers of the Portuguese and Spanish explorations in search of routes to the east. They took over control of the east-west silver for gold exchange from the Florentines with the Portuguese discovery of the Cape Horn route to the east. They also administered the proceeds of the gold trade with the east on behalf of the Spanish after the opening of the New World.

By 1563 they became overextended in their loans to Spain who had lost trade to the Portuguese. They became extremely unpopular among the noble families yet maintained their relationship with the Church as electors of the Holy Roman Empire.

(continued in Part II)