Gold, medieval banks, debt, and all the bad bits in between

This week I was with a friend who was grumbling about people who kept on asking her for free things. In her lamenting fit, she said, “And they don’t even offer to barter.” While I know that some companies still barter, I associate the barter system with a time in history where there was no banking system. 

You could have access to a whole range of products and services through bartering. You could, for example, exchange a pig with your blacksmith if you needed to have some farm implements repaired. Just like you could in today’s economy, write some marketing messages for your hairdresser in exchange for a monthly haircut. The system is simple and requires the two parties knowing what the monetary value of their services are, so that there can be fair exchange.

While this works beautifully when you are exchanging services, sometimes you need physical products. Without sufficient coin, how are you able to expand your operations without cash; or in medieval times without gold or silver? In an agriculture driven medieval market, early merchant banks had some nifty banking products available. What was quite amazing was the fact that as far back as 2000 BCE, there was the practice of “seed loans” in Babylonia. Which may be where the term seed funding comes from.

Merchant banks in those days issued seed-grain loans. The contract, which was recorded on clay tablets, required loan re-payment from the harvest. The agreement even included interest accrual. So if your credit card interest rates are skyrocketing, you can blame those early Babylonian bankers for introducing the concept. 

Scholars have traced our current banking systems to have roots in medieval and Renaissance Italy. The most famous Italian bank was the Medici Bank, established by Giovanni Medici in 1397. If you have an accountant who throws around jargon like “general ledger”, “debits and credits” and “double entries”, you can now boast that you know that the origins of these accounting practices come from the Medici family who revolutionized the banking system.

If you or someone you know has ever faced a call from a debt collector, know that credit headaches are not unique to our modern society. In the middle ages, kings had to borrow as well. They would offer their money lenders collateral in the form of land or valuable goods. A promissory note had to be signed by the king or queen and their officials. Money lenders could collect taxes in certain towns as a form of security for the loan. Of course, the challenge that these money lenders faced was when a monarch refused to pay back the money they owed.

King Phillip IV was a bit short of cash… well, more than just a bit. He had inherited a sizable debt from his father’s war against Aragon. By November 1286, it was worth 8 tonnes of silver. His primary financiers were the Templars, and the debt was equivalent to 17% of government revenue.

We know government contracts can be very lucrative even in today’s society, but there is always the risk of red tape, political changes and unscrupulous practices that can put a business at risk. But in medieval times, this kind of business could be life threatening. If you don’t believe me, let me take you on a medieval monarch’s debt journey. King Phillip IV was a bit short of cash… well, more than just a bit. He had inherited a sizable debt from his father’s war against Aragon. By November 1286, it was worth 8 tonnes of silver. His primary financiers were the Templars, and the debt was equivalent to 17% of government revenue. 

So he came up with a gruesome plan. He had the Templars in France arrested in 1307 and handed over to the Inquisition for interrogation. Given enough torture, most people confess to make the pain go away. So after these innocent men confessed to devil worship, denying God and a bunch of other crimes against Christianity; they were ready for the final punishment, which was burning at the stake. With the Templars out of the way, King Phillip could confiscate all the Order’s property in France, which solved some of his financial worries.

Now you may be asking what banking has to do with my medieval fantasy books. Those of you have read my series will know that money, tax and all the bits in between play a part. I designed a form of currencies for dragons and their artisans and in the book I am currently writing, Nathan has to visit his bankers to get coin, to fund Lady Christine’s army. Wars are a messy and expensive business, with armies to feed and weapons to procure. Blacksmiths didn’t just hand over armour because they believed in the cause. They had to be paid.

So now that you know a bit more about the medieval banking system and the occupational risks of the industry, by the time you get your hands on my fifth book, you will have a better understanding of the financial world the monarchs in my books live in.