Transcript: The Origin of Banking

NIALL FERGUSON: One clue is that Shylock is one of the many Jewish moneylenders in history. Jews who stayed in Venice for more than two weeks were supposed to wear a yellow ‘O’ on their backs or a yellow hat. And they were confined to a special area which became known as the ghetto nuovo.

This is the entrance to the Jewish ghetto in Venice where Jews were obliged to live and indeed confined at night. Jews were tolerated in Venice. But for a reason.

The key was that Jews could provide a service that Christian merchants were forbidden to do: they could charge interest on their loans.

This is where the Venetian Jews used to do business. This building here was the old Banco Rosso and it was outside here that they used to sit behind their tables—their tavule—on their benches—their banci, the root of the Italian word for banks. Now, there was good reason why the merchants came here to the Jewish ghetto to borrow money. For Christians, what the Jews were doing, lending money at interest, was a sin.

The medieval Church’s laws against usury—charging interest on loans—were a major obstacle to the development of finance in Europe. After all, what God-fearing Christian merchant wished to risk the torments of Hell?

There the moneylenders were eternally tortured with scorching earth and freezing snow, their necks weighed down with bulging purses.

But it was in another Italian city state, Florence, that the key financial service of providing credit moved out of the ghetto and away from the gates of hell to become the legitimate preserve of banks.

It was a transition symbolized by the rise of one family: the Medici.

With their ascent, credit came of age. Money-lending ceased to be disreputable. It became glorious—and the foundation of a new kind of power.

The dazzling legacy of the Medici family’s power still surrounds you in Florence today.

In the space of four hundred years, two Medici became queens of France; three became Pope. Appropriately, it was Machiavelli, the supreme theorist of power, who wrote their history.

Perhaps no other family left such an imprint on an age as the Medici left on the Renaissance. You might even say that they paid for the Renaissance, their patronage running the gamut of genius from Michelangelo to Galileo.

Nothing could better illustrate the extraordinary ascent of money. For what the Medici had achieved was nothing less than the birth of modern banking.

For 500 years few things in economic life have mattered more than the ability of individuals, companies and governments to borrow from banks.