Economic.credit.in.Renaissance.florence.jmh

Economic Credit in Renaissance FlorenceAuthor(s): JohnF. Padgett and PaulD. McLeanSource: The Journal of Modern History, Vol. 83, No. 1 (March 2011), pp. 1-47Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/10.1086/658247 .Accessed: 08/04/2011 15:33

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Economic Credit in Renaissance Florence*

John F. PadgettUniversity of ChicagoPaul D. McLeanRutgers University

It has been rarely remarked how seldom a competitive spirit comesinto play in the relations among these [Renaissance Florentine] mer-chants. The vast correspondence of Datini and of the Medici them-selves (the largest collections of business letters to survive before thesixteenth century) yields hardly a hint of competition. . . . Howeverindividualistic the Florentine world appears in contrast with the tightcorporate structures elsewherethe Venetian senate, the Hanseaticleague, the south-German cartels, the London regulated companiesitwas still permeated with something of the spirit of medieval corpo-ratism. This is what the fiducia Florentine business historians make somuch of really comes down tothat sense of trust in one another thatin a way also kept everyone in line.1

INTRODUCTION

What were the social and institutional factors that led to, and reinforced, theprecocious emergence of Florentine commercial capitalism, especially in thedomain of international merchant banking?2 The dominant stream of answersemphasized by economic historians focuses on the invention in late medievaland Renaissance Italy of a variety of innovative business techniquesbills of

* We would like to acknowledge and thank those who have directly contributedinvaluable research labor to this project over the years: Christopher Ansell, NicolettaBaldini, Skye Bendor-deMoll, Nick Collier, Matteo Columbi, Sasha Goodman, Mi-chael Heaney, Doowan Lee, Peter McMahan, Piera Morlacchi, Pip Pattison, KatalinPrajda, David Sallach, Ethel Santacroce, Douglas White, and Xing Zhong. Paul D.McLean also appreciates the valuable comments of Chip Clarke, Frank Dobbin, NehaGondal, Ann Mische, and Tom Rudel. John F. Padgett acknowledges the generousfinancial support of this project from the Santa Fe Institute, the Hewlett foundation,and the National Science Foundations program on Human and Social Dynamics.

1 Richard A. Goldthwaite, The Medici Bank and the World of Florentine Capital-ism, Past and Present 114 (1987): 331, 2324.

2 For an overview, see Raymond de Roover, The Organization of Trade, in TheCambridge Economic History of Europe, vol. 3, Organization and Policies in the MiddleAges (Cambridge, 1963), 42118. See also Richard A. Goldthwaite, The Economy ofRenaissance Florence (Baltimore, 2009).The Journal of Modern History 83 (March 2011): 147 2011 by The University of Chicago. 0022-2801/2011/8301-0001$10.00All rights reserved.

exchange, double-entry bookkeeping, partnership contracts, commercial courts. Ifthese impressive organizational inventions are interpreted as facets of abroader rise of efficient impersonal markets, then a tension emerges in Flor-entine, and indeed in European, historiography between economic historiansand the research of social and political historians who emphasize the deeplypersonalisticmainly familial and clientelisticcharacter of social relation-ships of the period. Were impressive early capitalist business techniques reallysigns of a teleological breakthrough of the market from its traditional socialshackles, as the master narrative of modernization would have it? Or insteadwere economic relations in the market embedded in, and hence reflective of,the surrounding social and political networks of the time, as anthropologicallyoriented historians have argued?3 If evidence can be found in support of bothpropositions, then how are we to reconcile these seemingly contradictoryinterpretations?

In this article, we address these historical questions through both a statis-tical analysis of Florentine commercial credit in the early Quattrocento and adocumentary study of business correspondence from the same time. Ourconclusion will be that commercial credits among Florentine companies wereindeed highly correlated with a wide range of noneconomic, social relation-ships among the partners of these companies. Correlations between economicand social relations were highest in the merchant-banking pinnacle of theFlorentine economyprecisely in the industries where reliance on advancedcapitalist business techniques was greatest. New business transactions did notdisplace the oligarchic social networks of the time, we argue; rather, they builton and formalized these relationships into markets. In particular, family andneighborhood provided strong traditional foundations to Renaissance Floren-tine credit markets. In addition, Florentine republicanismespecially throughits elected city councilprovided political scaffolding that allowed person-alistic social networks, and the economic credit networks built on them, toopen out topologically toward expansive liquidity and growth instead ofclosing inward into cliques and corruption. We identify two mechanismsthrough which republicanism influenced the emergence of economic creditmarkets: public certification of reputation (onore), through co-optativeelections, and the incorporation of carefully filtered newcomers into ex-pansive economic-cum-political networks of exchange.

Causality, however, did not run from social and political networks toeconomic credit markets only. The logic of accounting and credit infused

3 See, e.g., Karl Polanyi, The Economy as an Instituted Process, in Trade andMarkets in the Early Empires, ed. Karl Polanyi, Conrad M. Arensberg, and Harry W.Pearson (Glencoe, IL, 1957), 24369; and Mark Granovetter, Economic Action andSocial Structure: The Problem of Embeddedness, American Journal of Sociology 91(1985): 481510.

2 Padgett and McLean

social and political relations of the time, transforming categorical socialdistinctions into negotiable gradients of status. The Ciompi revolt in 1378fused economic, social, and political networks into a new socially openoligarchic-republican elite that remade not only commercial markets but alsopolitical factions and kinship.4 Because of these correlations between socialand economic ties, Florentine economic credit was built on the social modelsof friendship and gift-giving reciprocity, and it formalized these in mathe-matically sophisticated ways. Reputations cleared markets, as much as didprices.

We develop this thesis about the structure and operation of the RenaissanceFlorentine economy through the following steps. After describing our com-prehensive quantitative data on commercial credit from the 1427 tax census(catasto), we document the magnitude of reliance on commercial creditamong Renaissance Florentine companies in various industries and markets.Next, we analyze these commercial credits statistically, in order to measurecorrelations between business credits and various social and political relationsamong the partners of companies. Finally, we examine a sample of businessletters from the period in order to illustrate the cultural mentalite throughwhich the behaviors measured by our statistics were produced. Florentinebusinessmens frequent use of the language of friendship (amicizia) and honor(onore) in their letters to one another illustrates both how deeply the languageof social obligation infused their economic relations and how business creditexpanded the range of application of such mental models well beyond theirfamily and neighborhood origins. We conclude with brief comparisons ofFlorence to Venice and Genoa and with some implications of this historicalresearch for contemporary economic theory.

THE INDUSTRIAL STRUCTURE OF FLORENTINE COMMERCIAL CREDIT

The statistical part of this study is possible because of the 1427 catasto, or taxcensus, described at length in the pathbreaking book of David Herlihy andChristiane Klapisch-Zuber.5 Herlihy and Klapisch-Zuber computerized large

4 John F. Padgett and Paul D. McLean, Organizational Invention and Elite Trans-formation: The Birth of the Partnership System in Renaissance Florence, AmericanJournal of Sociology 111 (2006): 14631568; John F. Padgett and Christopher K.Ansell, Robust Action and the Rise of the Medici, 14001434, American Journal ofSociology 98 (1993): 12591319; John F. Padgett, Open Elite? Social Mobility,Marriage and Family in Renaissance Florence, 12821494, Renaissance Quarterly(Summer 2010): 357411.

5 David Herlihy and Christiane Klapisch-Zuber, Tuscans and Their Families: AStudy of the Florentine Catasto of 1427 (New Haven, CT, 1985). The HerlihyKlapisch-Zuber data set is publicly available online at http://www.stg.brown.edu/projects/catasto.

Economic Credit in Renaissance Florence 3

portions of this rich archival source and analyzed their data primarily from ademographic and family-history perspective. In addition to the data thoseauthors coded, however, the catasto also contains extensive lists of debtorsand creditors, with amounts owed, for each household tax return, whichMcLean has coded.6 Business debitori and creditori were included within thehousehold tax return of the lead partner in the companyan indicator ofthe incomplete separation of personal and business domains in the Florentineworld. Such lists of debts existed in the catasto because this very innovativetaxation procedure systematically assessed taxes on the basis of net wealththat is, assets minus liabilities. Debts, in other words, were tax deductible.Florentine law required the itemization of outstanding credits as well as debtsin order to give tax officials the ability to disallow deductions if one personsdeclared debit did not equal the other persons declared credit.

This remarkable breakthrough in public finance was possible only becauseof the highly commercialized character of Florences underlying economy.Florentine merchants filled out the business parts of their 1427 tax returns bycopying summaries of their account books into their tax declaration, as thoseaccount books existed as of the date of the tax submission. Later catasti inFlorence became notoriously unreliable, but this first catasto seems to havebeen fairly accurate in the financial data it contained.7 Hence, the 1427 catastoprovides a high-resolution snapshot of the credits and debits of the entireFlorentine economy at one specific, fleeting moment in time. Virtually all ofthe account books from which this information originally was drawn havesubsequently been lost.8 This Florentine source, therefore, is remarkable: no

6 Archivio di Stato di Firenze (hereafter ASF), Catasto 6485, contain scribalsummaries (campioni) of all Florentine households tax declarations in 1427. ASF,Catasto 1563, contain the original tax submissions (portate) of the Florentine house-holds. The latter set of documents was consulted whenever the first set of documentsdid not itemize the entire list of debtors and creditors for any given business.

7 Historians have often found examples of cheating on Renaissance Florentine taxreturns, but mostly these refer to catasti after the original one in 1427: e.g., Raymondde Roover, The Rise and Decline of the Medici Bank, 13971494 (New York, 1966),25, 30, 7374, 99, 236, 31213; William Caferro, The Silk Business of TommasoSpinelli, Fifteenth-Century Florentine Merchant and Papal Banker, Renaissance Stud-ies 10 (1996): 42122. A study that finds truthful reporting in 1427 is Rebecca Emigh,Loans and Livestock: Comparing Landlords and Tenants Declarations from theCatasto of 1427, Journal of European Economic History 25 (1996): 70523. Tosidestep this difficult issue of lying, we analyze below the existence versus nonexis-tence of a credit, not the reported value of the credit. In addition to the administrativeprocedure of comparing creditors and debtors declarations, tax officials could alsorequest to see legally liable business account books in the case of disputes. Whilehardly foolproof, these two procedures at least inhibited massive cheating in 1427.

8 Richard Goldthwaite has brought to our attention three surviving account books,which overlap with our catasto summaries of them: those of Andrea Banchi, silk


other comparably comprehensive data set about economic transactions existsfor such an early time.9

The details of our coding of these creditori lists were reported in a previouspublication; hence, that description will not be repeated here.10 Both businessand personal debts were coded, even though only business debits and creditswill be analyzed in this article. The main coding rules relevant to this articlewere these: only debts of value greater than or equal to ten florins were coded,and only debts to other Florentines were coded. An effect of the first codingrule is mostly to exclude artisans from our data set. An effect of the secondcoding rule is that trading among Florentines (even when they were residentabroad) is the focus of the data set, rather than trading between Florentinesand foreigners. The joint effect of both constraints is that the data describe,with great richness, the structure of the core export-oriented segment of theFlorentine economy as of 1427, including both merchant bankers and clothmanufacturers.11

Within these constraints, coverage is thorough. Numerous passes throughthe catasto were performed in order to code a high percentage of companiesaccounts or bilanci. Ultimately, 65.4 percent of the bilanci of active compa-nies in our core industries were coded. Comprehensive coding was leastsuccessful for international merchant companies located abroad, for small

manufacturer; Alamanno di Jacopo Salviati, wool manufacturer; and Lorenzo di PallaStrozzi, merchant banker.

9 There are only two other published studies of premodern credit on this scale. Oneis Philip T. Hoffman, Gilles Postel-Vinay, and Jean-Laurent Rosenthal, PricelessMarkets: The Political Economy of Credit in Paris, 16601870 (Chicago, 2000). Thatstudy of Parisian financial markets covers a period two centuries after ours. Compar-ison is limited because that is a study of brokered personal lending, rather thancommercial credit. The most comparable other research, albeit without the equivalentsocial and political contextual data of ours, is a recent quantitative study of medievalGenoese contracts: Quentin Van Doosselaere, Commercial Agreements and SocialDynamics in Medieval Genoa (Cambridge, 2009). We briefly discuss this welcomenew book in the Conclusion.

10 Paul D. McLean and John F. Padgett, Was Florence a Perfectly CompetitiveMarket? Transactional Evidence from the Renaissance, Theory and Society 26 (1997):20944. The full data set, including both personal and business debts, contains 15,317debts; the company subset analyzed here contains 4,992 debts.

11 The export sector was composed of the following industries: (a) Florentineinternational merchant banks resident in non-Tuscan locations; (b) merchant tradingcompanies in Pisa; (c) domestic banks and merchant banks in Florence; (d ) silkmanufacturers (setaiuoli); (e) wool manufacturers (lanaiuoli) in the San Martinodistrict (high-quality cloth); ( f ) wool manufacturers (lanaiuoli), other districts (lower-quality cloth); (g) cloth retailers (ritagliatori); and (h) cloth dyers (tintori). Companieswere coded into industries on the basis of their self-identification, their location, ortheir primary transactional content.


low-quality wool companies whose accounts were hardest to distinguish fromhousehold credits and debits, and for a number of companies connected to theexport-oriented sector but not formally located within any of the key indus-tries we targeted.12 For Florence- and Pisa-based banks, merchants, merchantbanks, silk manufacturing, high-quality wool manufacturing, and cloth-retailcompanies, the bilanci coding rate approached 80 percent. Debts were codednot among a predefined list of all companies (such a list did not exist until thisstudy) but rather among all companies and people meeting the above stan-dards. As a result of our procedure of coding credits to Florentine companiesoutside of previously coded bilanci, however, even the debits of companieswhose accounts were not coded directly often were found indirectly in thecredit accounts of coded companies. Because of such cross-referencing, wewere able to compile, for the first time, a complete census of companies activein 1427. A tabulation of this census, industry by industry, is presented in table 1.The detailed list of the companies underlying table 1 is publicly available onPadgetts Web page (http://home.uchicago.edu/jpadgett).

We estimate that 33.4 percent of the total number of all debits and creditsof companies participating in the export-oriented industries of the Florentineeconomy were finally included in our data set.13 Likewise, we estimate thatthese debts and credits accounted for 62.3 percent of the total monetary valueof all debits and credits in these industries.14

The first stage in our analysis is descriptive: How important was commer-cial credit to the Renaissance Florentine economy? In what types of economicexchanges and markets was credit most used? And what was the ratio oftransactional to (multitransactional) relational credit in various markets?

One common way in finance of measuring the magnitude of credit isleverage: the ratio of outstanding debt to assets. The higher the ratio, the moreimportant is credit in the operation of the company. Higher leverage cangenerate higher profits but at greater economic risk. Assets in the Florentinecontext primarily means the start-up capital specified in the partnership con-

12 The compliance of the firms located abroad with catasto requirements evidentlywas handled with some flexibility, perhaps due to the special difficulties they faced insubmitting their books for examination in Florence.

13 Our procedure to arrive at this estimate is explained in John F. Padgett and Paul D.McLean, Economic and Social Exchange in Renaissance Florence, Santa Fe InstituteWorking Paper 02-07-032 (Santa Fe, NM, 2002), 4546, http://www.santafe.edu/research/publications/publications-working-papers.php.

14 Two types of transactions present in our complete data set are systematicallyexcluded from analysis in this article: credits and debts with artisans and firms workingoutside the export-oriented economy and credits and debts with individuals rather thanwith companies. Had it been possible to calculate the more correct denominator of alldebts and credits among companies in export-oriented industries, percent coveragewould have been much higher than the conservative numbers reported here.


tract, called corpo. Table 2 reports leverage so defined, and it also providestwo more liberal definitions of assets, which progressively add to corpo thepartners reinvestments of past profit and company inventory.15

Using the strict definition of leverage, our findings are that Florentinemerchant banks were leveraged on average at 5:1 of their corpo, that Flor-entine cloth retail and dyeing companies were leveraged at a little over 2:1 oftheir corpo, and that Florentine companies producing wool and silk cloth wereleveraged at about 1:1 of their corpo. These leverage ratios are not reallycomparable to modern figures because modern firms borrow for the most partfrom specialized banks, whereas these companies borrowed chiefly from theirtrading and exchange partners. Nonetheless, the ordering of these ratios isconsistent with the known facts that merchant banks were generally moreprofitable as personal investments, but also more risky, than were wool and

15 Fixed-cost assets in this setting were low. Cloth manufacturing occurred in thehome through the putting-out system, and hence required low investments.

TABLE 1CENSUS OF 1427 COMPANIES/PARTNERSHIPS IN MAJOR INDUSTRIES

HIGH-CERTAINTYCOMPANIES

LOW-CERTAINTYCOMPANIES

Florence Overseas Old Florence Overseas Old

International merchant banks 0 45 7 0 10 2Pisa merchant trading companies 0 20 1 0 1 0Domestic banks and merchant banks 53 0 10 12 0 4Cloth retail 32 3 5 4 1 2Silk production 38 8 4 11 1 1Wool production:

San Martino 36 5 10 2 0 0Via Maggio 27 0 2 1 0 0San Pancrazio 8 0 0 0 0 0San Pier Scheraggio 9 0 1 0 0 0Unclear location 34 4 9 21 4 4All wool firms 114 9 22 24 4 4

Cloth dyers 18 0 3 7 0 2Other industries (partial):

Fur 6 0 0 4 0 0Gold 3 0 0 5 0 0Linaioli 6 0 0 10 1 0Merciai 6 1 0 5 1 1Rigattieri 6 2 0 4 0 1Speziali 11 0 2 1 0 0Miscellaneous 7 1 5 6 0 1

Unknown industry 9 9 10 110 20 15Total 309 98 69 203 39 33


silk production companies.16 In general, it is fair to say that virtually allFlorentine companies, but especially merchant banks, were highly leveragedand that most of their business was conducted on credit.

On average, larger and wealthier companies operated on higher leveragethan did smaller companies. The most extreme example in our data set wasCosimo de Medicis bank branch in Rome, which had the highest outstandingdebt of any company in Florence, yet its start-up capital was zero, generatinga leverage ratio of infinity.17 Clearly, name, reputation, and connections weremore central in the generation of commercial credit in fifteenth-centuryFlorence than was asset security. Without other firms being willing to extend

16 Federigo Melis, Aspetti della vita economica medievale: Studi nellArchivioDatini di Prato (Siena, 1962), table 69. De Roover, Rise and Decline of the MediciBank, 47, 55, 69; Richard A. Goldthwaite, Private Wealth in Renaissance Florence(Princeton, NJ, 1968), 48. Tommaso Spinelli, in the second half of the fifteenthcentury, earned profit rates in silk comparable to those among merchant bankers: PhilipJacks and William Caferro, The Spinelli of Florence: Fortunes of a RenaissanceMerchant Family (University Park, PA, 2001), 7879.

17 The rather astonishing total debt figure for this one branch was 158,238 florins.The corresponding total credit figure was 147,987 florins. Cosimos companies, likeothers but even more so, relied on massive volumes of two-way turnover and creditflow, organized through a partnership system.

TABLE 2CAPITAL STRUCTURE OF 1427 CATASTO COMPANIES

ncorpo1

Corpo Only

corpo2 corpo1 Reinvested Profit

Sopraccorpo

corpo3 corpo2 Inventory

A. Average Capital/Corpo Size of Companies, in Florins

Merchant banks (international Pisa) 23 5,080 5,751 6,973Domestic merchant banks 24 6,375 9,941 10,119Cloth retail 21 4,305 5,348 7,102Silk manufacturing 25 3,568 3,928 4,851Wool manufacturing (San Martino) 30 3,239 3,654 4,373Wool manufacturing (other) 24 2,030 2,233 2,517Cloth dyeing 8 1,095 1,195 1,595

B. Average Leverage i(Total Debt)/i(Capital)Merchant banks (international Pisa) 12 5.42 4.98 3.62Domestic merchant banks 14 4.93 3.29 3.20Cloth retail 14 2.20 1.66 1.15Silk manufacturing 19 .94 .86 .66Wool manufacturing (San Martino) 23 1.17 1.04 .84Wool manufacturing (other) 16 .54 .48 .41Cloth dyeing 7 2.27 2.03 1.44


credit to a given firm, that firm could not really be in business at all. Credit,based on reputation, was the mechanism that kept everyone in line.

Figure A1, available in the online version of the Journal of Modern History,presents a computerized visualization of our commercial credit data, using anetwork visualization program called Pajek. Figure 1 visualizes these company-credit data in a more aggregate way, as Leontief input-output flows of credit

FIG. 1.Input-output of credits between industries: shown if (observed credits expected credits)/expected credits .10. Dotted lines show weaker ratios.


between and within industries. In particular, figure 1 shows observed devia-tions in credit flows from those randomly expected, the latter calculated on thebasis of aggregate volumes of industry credit alone. Four specific tradingpatterns are worth highlighting in this snapshot of the Florentine macro-economy in 1427:

a) Credit flow among merchant banks of all three sorts (Florentine merchantbanks abroad, Florentine trading companies located in Pisa, and Florentine do-mestic banks or tavole) was enormous. Metaphorically, the merchant-bankingsector was a whirlwind of products, bills of exchange, and credits cycling around.This high liquidity was one secret to Florences economic success.

b) Woolen-cloth consignments from woolen-cloth manufacturers (lanaiuoli)flowed more to cloth retailers (ritagliatori) than to merchant bankers.18

c) Silk-cloth consignments from silk-cloth manufacturers (setaiuoli) flowedmore to merchant bankers than to local cloth retailers.19 Reciprocally, setaiuolireceived a higher flow of credits (including raw silk) from domestic merchantbanks, relative to statistical expectation, than did lanaiuoli.20

d ) Silk firms exchanged with and gave credit to one another, whereas woolfirms for the most part did not.

Credit pattern a documents statistically Goldthwaites observation in thisarticles opening epigraph that Florentine merchant banks were not an indus-try of independent firms in competition. They were instead a cooperativeeconomic network, with competing merchant bankers providing much li-quidity and business to one another.21 We explain in the next section, throughsocial and political networks, this central feature of the Florentine economy.

18 This statement remains true when recalculated on the basis of total florin value,instead of on the basis of total numbers of debts. The total monetary value of wool, SanMartino, credits to all merchant banks combined (i.e., international merchant bank plusPisa merchant plus domestic bank) was 40,592 florins, compared to credits of 58,392florins to ritagliatori. And the total value of wool, other, credits to all merchant bankscombined was 18,247 florins, compared to credits of 32,260 florins to ritagliatori.However, credits sent to merchant banks tended to be larger on average than those sentto ritagliatori.

19 Merchant bankers still received roughly twice as much in volume of their clothinput from wool manufacturers as from silk manufacturers. Even though wool was onthe decline, and silk on the rise, the older wool industry was still much larger in 1427than the newer silk industry.

20 Again, to measure this in terms of monetary value, domestic banks gave 33,662florins of credits to setaiuoli in our data set, whereas they gave 27,080 florins to wool,San Martino, lanaiuoli and 15,682 florins to wool, other, lanaiuoli. As a baselinecomparison, there were over two-and-a-half times more lanaiuoli companies thansetaiuoli companies in 1427 (see table 1).

21 These data imply economically healthy banking and merchant-banking industriesin 1427. This is not inconsistent, however, with a soon-to-come recession in 143033induced by the fiscal crisis caused by war with Lucca. See De Roover, Rise and


Credit/trade patterns bd reflect trends in the early fifteenth-century Flor-entine economy. The core of the Trecento Florentine economy had been thefinishing, production, and export of woolen cloth. In the late 1200s and early1300s, Florentine merchant bankers in the Calimala guild imported unfinishedcloth from Flanders and exported finished and dyed woolen cloth. By themid-1300s, Florentines were importing raw wool and exporting completelymanufactured woolen cloth. However, Florentine wool production suffered a72 percent decline between 1373 and 1437, due primarily to aggressiveexpansion of woolen-cloth production in England.22 The raw-material flow ofprized English wool, on which the high-end San Martino segment of clothproduction had depended, diminished, forcing a higher percentage of produc-tion of lower-quality woolen cloth called garbo. The San Martino cloth stillleft was sold both to merchant bankersespecially those with warehouses inPisaand to ritagliatori, whereas garbo cloth in this period was sold over-whelmingly to ritagliatori.23

The Florentine merchant community and government, under the politicalcontrol of the Albizzi oligarchy, responded to this economic crisis by aggres-sively trying to develop silk-cloth production.24 The mechanism of this spon-sorship was liberal credit and investment from upper-class merchant bankers

Decline of the Medici Bank, 230; Anthony Molho, Florentine Public Finances in theEarly Renaissance, 14001433 (Cambridge, 1971), 15363; Elio Conti, Limpostadiretta a Firenze nel Quattrocento, 14271494 (Rome, 1984), 34. The high leveragerates documented in table 2 help to explain the vulnerability of an otherwise healthyeconomy in 1427 to recession in 143033, since exorbitant tax extractions needed tobe paid in cash, not in credits.

22 Franco Franceschi, Oltre il Tumulto: I lavoratori fiorentini dellArte della Lanafra Tre e Quattrocento (Florence, 1993), 13; Hidetoshi Hoshino, LArte della Lana inFirenze nel basso medioevo (Florence, 1980), 22731; Sergio Tognetti, Unindustriadi lusso al servizio del grande commercio: Il mercato dei drappi serici e della setanella Firenze del Quattrocento (Florence, 2002), 16. Debates continue about the causesof this decline, but the argument in the literature that seems the most compelling to usis the rapid growth of English woolen-cloth production in this same period. Thisdeprived Florence of much of its primary inputnamely, high-quality English rawwool. Hoshino, LArte della Lana, 233; E. M. Carus-Wilson and Olive Coleman,Englands Export Trade, 12751547 (Oxford, 1963), 122, 138.

23 Eventually when the Ottomans conquered Byzantium, Florentine garbo woolencloth found favor in the Levant, prompting a recovery in the low end of the woolindustry in the second half of the fifteenth century. Hoshino, LArte della Lana,23944, 26875.

24 Bruno Dini, Lindustria serica in Italia. Secc. XIIIXV, in La seta in Europa,Secc. XIIIXX, ed. S. Cavaciocchi (Florence, 1993), 91123; Franco Franceschi,Florence and Silk in the Fifteenth Century: The Origins of a Long and FelicitousUnion, Italian History and Culture 1 (1995): 322; Tognetti, Unindustria di lusso alservizio del grande commercio, 1142.


to new-men silk manufacturers.25 Woolen-cloth production still exceeded thenewer silk-cloth production in total volume and also in total employment, butour data show that this centrally encouraged industrial transformation fromwool to silk was well underway in 1427. The credit mechanisms analyzed inthis article help to explain how the Florentine economy successfully adaptedto its challenging international situation.26

Table 3 provides information about the specific goods funded throughcredits, broken down by aggregated industrial clusters and by transactionalversus relational credits, to be explained shortly. Unfortunately only 11percent of our credits had their content or purpose listed in the catasto. Nodoubt all of these purposes were described in detail in the original account books,but there was no tax reason for businessmen to copy this text into their tax returns.Nonetheless, an 11 percent sample provides a coarse-grained portrait.

The modal activities reported in table 3 are what any knowledgeablehistorian would expect. Namely, among merchant banks, the modal type ofcredit was the current account (conto corrente). In these cases, a singlerecorded credit in the tax returns summarized many underlying businesstransactions.27 As per their monikers, merchant banks engaged precociously in

25 In 1427, 66.4 percent of merchant bankers of all types were upper-class popolanior magnates: see Padgett and McLean, Economic and Social Exchange in Renais-sance Florence, 48. Conversely, 64.6 percent of setaiuoli were middle and lower classin social background (i.e., new men, new-new men, and never admitted to Priorate).Hence, the economic sponsorship of silk manufacturing by merchant bankers throughliberal credit had the social-class overtones of patron-client relations. For comparison,48.8 percent of wool manufacturers in 1427 were popolani or magnates. For clothretailers, it was 39.7 percent, and for cloth dyers, it was 14.8 percent. See also Tognetti,Unindustria di lusso al servizio del grande commercio.

26 There is a long and contentious literature about whether there was a depressionin the Renaissance. One viewpoint was articulated by Robert S. Lopez and H. A.Miskimin, The Economic Depression of the Renaissance, Economic History Review14 (1962): 40826. They pointed to the decline of the wool industry, among otherthings. A contending view was anchored by Carlo M. Cipolla, Economic Depressionof the Renaissance, Economic History Review 14 (1962): 51924; and by Richard A.Goldthwaite, Wealth and the Demand for Art in Italy, 13001600 (Baltimore, 1993),1339. They pointed to the rise of the silk industry, among other things. Judiciousoverviews of this debate are provided by Judith C. Brown, Prosperity or Hard Timesin Renaissance Italy? Renaissance Quarterly 42 (1989): 76180; and by FrancoFranceschi, The Economy: Work and Wealth, in Italy in the Age of the Renaissance,ed. John M. Najemy (Oxford, 2004), 12444. We regard the fifteenth-century adap-tation of the Florentine economy as a success story in the narrow sense that the silkindustry was developed to offset the decline in wool. Whether the successful devel-opment of silk was enough quantitatively to offset the sharp contraction of wool is atopic we leave to others to decide.

27 Because of this fact, our statistical summary underrepresents the significance ofrecurrent transactions funded through credit. When single nonreciprocated credits(coded here as transactional) were current accounts, then relational would have


both merchant and banking activity. But the primary international bankingtransaction was the bill of exchange.28 As such, bills of exchange weretransactions, and conti correnti were the formalized economic relations con-taining these and other transactions. Between merchant banks and othercompanies, the primary credit activity was trading raw material for cloth onconsignment. Banking services also were provided on credit by merchant

been a better linguistic description of that. We could have cleaned up this source ofmeasurement error in our data if content information had been recorded for more than11 percent of the credits.

28 De Roover, Rise and Decline of the Medici Bank, 10841.

TABLE 3SUBSTANTIVE CONTENT OF CREDITS (WHEN KNOWN)

Relational Credits(1)

Transactional Credits(2)

Specialization of Credits(When Two Contents Known)

(3)A. Among Merchant Banks and Banks

70 Accounts 17 Accounts 51 Different categories17 Banking activities 16 Banking activities 21 Similar: Accounts19 Merchandise 6 Merchandise 45 Similar: Other categories19 Cloth 6 Cloth16 Raw materials 3 Raw materials5 Other 4 Other

B. Between Merchant Banks and Others17 Accounts 10 Accounts 5 Different categories8 Banking activities 27 Banking activities 7 Similar: Accounts3 Merchandise 4 Merchandise 19 Similar: Other categories

45 Cloth 38 Cloth28 Raw materials 52 Raw materials0 Other 3 Other

C. Among Others0 Accounts 2 Accounts 0 Different categories3 Banking activities 4 Banking activities 0 Similar: Accounts0 Merchandise 1 Merchandise 2 Similar: Other categories

15 Cloth 34 Cloth1 Raw materials 14 Raw materials0 Other 4 Other

NOTE.Merchant banks Florentine merchant banks resident abroad, Florentine merchant trading com-panies resident in Pisa, Florentine merchant banks resident in Florence, and domestic cambio banks resident inFlorence. Others cloth retailers, silk producers, wool producers (San Martino), wool producers (other conventi),and cloth dyers. Specialization contents in similar or different categories, when two contents are known.


bankers to textile producers. Accounts called conti di esercizio orchestratedrecurrent trade among such trading partners.29 Conti di esercizio betweenmerchant bankers and textile manufacturers were not as common as wereconti correnti between merchant bankers. Among other cloth-producing com-panies, the modal credit activity was lending raw materials and cloth to oneanother, on a transactional basis.

Current accounts and accounts of use were the formalized accountingvessels that contained and measured strong economic credit relationshipsamong Florentine companies. Double-entry bookkeeping slowly percolatedthroughout northern Italy during the first half of the fourteenth century, but itwas adopted in Florence only in the late fourteenth century.30 Bilateral formatin Florentine merchant account booksthe physical layout of the pages oftenassociated with double-entry bookkeepingbecame widespread in the 1380s,precisely in conjunction with the invention and rapid diffusion of the part-nership system.31 From the point of view of credit, the most significant aspectof that accounting change is its instantiation of the current account, whichvisually was displayed so neatly in bilateral-format pages.32 Simplifying a bit,to open up an account book in bilateral format was to place into clear sight thewriters own economic relationship with a single person or company.33 Credits(both monetary amounts and descriptions of content) between the writer andthat person or company were listed on one side of the open account book, anddebts of the writer with that same person or company were on the facing page.Such accounts usually were initiated with an opening deposit or a credit ofsome sort, but after that initiation a whole series of transactions ensued, withaccounting money (not necessarily physical money) flowing both in and out,all registered neatly and precisely in parallel columns.34 Earlier more primitive

29 Federigo Melis, La grande conquista trecentesca del credito di esercizio e latipologia dei suoi strumenti sino al XVI secolo, in his La Banca pisana e le originidella banca moderna, ed. M. Spallanzani (Florence, [1972] 1987), 30724.

30 Raymond de Roover, The Development of Accounting prior to Luca Pacioliaccording to the Account Books of Medieval Merchants, in his Business, Banking,and Economic Thought in Late Medieval and Early Modern Europe, ed. JuliusKirshner (Chicago, [1956] 1974), 14346.

31 For documentation of the timing and rate of the diffusion of bilateral-formataccounting in Florence, see Padgett and McLean, Organizational Invention and EliteTransformation.

32 In todays Italian Civil Code (chap. 26, arts. 182324) il conto corrente refers toa contract between two private parties in which no money is exchanged but ratherreciprocal credits are recorded. We thank Alessandro Lomi for bringing this moderndescendent to our attention.

33 The complication is that there could be more than one account linking the samepair of persons, if multiple startup deposits or credits were made for whatever reasons.

34 In the 1416 founding contract of a company with partners Giovanni de Medici,Benedetto and Larione de Bardi, and Matteo di Andrea Barucci (ASF, Mediceo avanti


single-entry account books, in contrast, were registers of the writers trans-actions, ordered by date irrespective of trading partner, each described inparagraphs with complicated systems of cross-reference to help figure outwhether the credit was ever repaid.35 To put this accounting developmentsimply, the foundational organizing unit of single-entry bookkeeping was thetransaction, while the organizing unit of bilateral double-entry bookkeepingwas the economic relationship.36

As relational accounts grew to manage business between companies, reli-ance on transaction-specific contracts declined. Conti correnti between mer-chant bankers and conti di esercizio between merchants and manufacturerswere the most advanced technical means in Florence through which economiccredits were managed.37 Essentially, paired companies began to maintaincomplementary and quasi-permanent bins within each other into which theircredits and debts could be transferred at will on an ongoing basis. Suchnetworks of open-ended credit involved both partnership systems, with legallyseparate branches linked through common partners, and separately ownedcompanies that did frequent business with one anotherso-called corrispon-denti. In our section on business letters, we shall have occasion to observemore closely corrispondenti relations in action.

Anticipating the statistical results of the next section about social embed-

il Principato [hereafter MAP] 94, fol. 116), Matteo promised to keep good accounts,as if they were money in cash.

35 De Roover, Business, Banking, and Economic Thought, 12125.36 There was a third transitional form of accounting in which credits were collected

in the first half of the account book and debts in the second half, with elaboratecross-referencing between the two halves (ibid., 13234). This form permitted double-entry profit calculations without making current accounts the fundamental unit of thesystem. A good example of this intermediate form is found in the Alberti libri mastriof 134859, published and analyzed by Richard A. Goldthwaite, Enzo Settesoldi, andMarco Spallanzani, eds., Due libri mastri degli Alberti: Una grande compagnia diCalimala, 13481358 (Florence, 1995). In particular, Accounts with other firms oroutside persons were opened, for the most part, for single transactions. If later a clientpresented himself another time, the accountant of the Alberti preferred to open newaccounts (113). Truly ongoing current accounts did exist in the 134859 Alberti librimastri, but only for Alberti family members and for company employees (so-calledconti interni).

37 At the international level, where different currencies were involved, currentaccounts could become quite complex, internally differentiating into four separatefinancial components: nostro (our) and vostro (your) accounts for each merchant-banking side of the ongoing economic relation. Raymond de Roover, Early Account-ing Problems of Foreign Exchange, Accounting Review 19 (1944): 381407. TheBardi correspondence of 14045 and the bilanci in the 1427 catasto, discussed below,more commonly used the expressions per noi (for us, on our account) and per voi (foryou, on your account).


dedness, we point out here that paired current accounts are not inconsistent inform from reciprocity in anthropological social exchange.38 Both in primitivesocial exchange and in the technically sophisticated conti correnti, one partyoffers a gift to the other, thereby making or constructing that person (orhis business), and is repaid not in cash but in reciprocal gifts, which therebymake in turn the initiating person (or his business). A credit or loan, in thissocial-exchange understanding, is just a nonreciprocated gift. Much recurrentbusiness was conducted by Florentine companies in this open-ended gift-exchange manner of reciprocity, without requiring cash, even though ofcourse serious risks of bad debts and cheating were incurred thereby.39 Theseeconomic accounts formalized personal relations, we find, rather than makingthem impersonal. Economic and social relational logics had a strong tendencyto bleed into each other in Renaissance Florentine markets.40

An important subsidiary message in table 3 about exchange content is itsdiversity. Table 3, column 3, tabulates the dispersion of multiple credits acrosscontent categories, between specific exchange partners, in those pairs ofcompanies for which we have more than one instance of content reported.With the exception of trading among cloth producers and ritagliatori, inrecurrent exchange relationships between Florentine companies, merchantactivities, banking activities, and account activities (which really could coveranything: merchandise, bills of exchange, even daughters dowries) were allmixed up. While distinct in terms of guild membership, upper-tier Florentinecompanies were not sharply specialized in terms of actual exchange behavior.On the margins, Florentine industries blended into one another, with a single

38 Marcel Mauss, The Gift: Forms and Functions of Exchange in Archaic Societies(New York, [1925] 1967); Alvin Gouldner, The Norm of Reciprocity, AmericanSociological Review 25 (1960): 16178; Andrew Strathern, The Rope of Moka:Big-Men and Ceremonial Exchange in Mount Hagen, New Guinea (Cambridge, 1971).

39 Hence, a French satirist, in the fifteenth century, marveled at the ability of theItalians to do business without money. In dealing with them, he said, one never seesor touches any money; all they need to do business is paper, pen, and ink (De Roover,Early Accounting Problems of Foreign Exchange, 381). Goldthwaite, Economy ofRenaissance Florence, chap. 6, discusses the use of offset among private Florentineindividuals, as a form of banking outside of banks, without making reference toanthropological social exchange. We thank Richard Goldthwaite for prepublicationaccess to this impressively broad and deeply researched work, the capstone of abrilliant career. We would add that offset (or as we would say relational credit)behavior was characteristic of the core of Florentine merchant banking, as well as ofFlorentines as private citizens. That the same lending behavior was characteristic bothof businesses in markets and of private people in their friendships reinforces our pointabout the homology between capitalist business corrispondenti and social exchange.

40 Economic logic bleeding into the social is evident in Florentine family diaries orricordanze, which often tell the narrative history of a family within the format of thatfamilys account books. These ricordanze described personal events, and sometimeseven feelings, mixed together with money matters.


company capable of morphing its business into another industry.41 Suchcompany plasticity, we believe, was an organizational consequence of thegeneralist social exchange instantiated (and precisely measured) within conticorrenti and conti di esercizio.

Motivated by our knowledge of current accounts, in table 4 we move on todisaggregate overall credit flows into transactional and relational credits.Relational credits we define as credits between companies who had morethan one observed credit between them at the moment in time captured by ourdata. Transactional credits are those credits between companies who hadonly one observed credit between them.42 Relational credits in turn are of two

41 For well-documented examples of this company plasticity, see Sergio Tognetti,Lattivita` di banca locale di una grande compagnia fiorentina del XV secolo,Archivio Storico Italiano 155 (1997): 595648; Florence Edler de Roover, AndreaBanchi, Florentine Silk Manufacturer and Merchant in the Fifteenth Century, Studiesin Medieval and Renaissance History 3 (1966): 22385, esp. 271; Gertrude Richards,ed., Florentine Merchants in the Age of the Medici: Letters and Documents from theSelfridge Collection of Medici Manuscripts (Cambridge, 1932).

42 Having only one outstanding debt at a time, of course, does not preclude that debtfrom being part of an iterated sequence of debts. One piece of anecdotal evidence from thecatasto supports our strong sense that many of our so-called transactional credits wereiterated. Parigi di Tommaso Corbinellis bilanci stand out for reporting the dates on whichcredits were initiated. One entry, a credit he had with Zanobi di Gherardo Cortigiani & Co.for fifty-three florins, is crossed out and marked pagato on May 20. Subsequently, he

TABLE 4VOLUME OF CREDITS: RELATIONS VERSUS TRANSACTIONS

CREDITOR COMPANIES

DEBTOR COMPANIES

BanksAll Other

Companies Total

Banks 427/953 .448 117/749 .156 544/1,702 .320All other companies 115/662 .174 232/1,959 .118 347/2,621 .132

Total 542/1,615 .336 349/2,708 .129 891/4,323 .206Multiple credits:


Total 634/1,615 .393 569/2,708 .210 1,203/4,323 .278Relational credits:


Total 831/1,615 .514 796/2,708 .294 1,627/4,323 .376NOTE.Relational credits union of reciprocal credits and multiple credits; banks international merchant

banks, Pisa merchants, and domestic merchant banks and banks; all other companies cloth retail, silkproducers, wool producers (both San Martino and other conventi), and dyers.


types: (a) reciprocal credits, where credits flowed in both directions, and(b) multiple credits, where more than one outstanding credit existed in a singledirection. Reciprocal credits are our observable proxies for corrispondentirelationships.

We should not interpret relational credits as personal and transactionalcredits as impersonal because any credit at all implies that the creditor knewthe debtor at least well enough to judge him creditworthy. But relationalcredits go beyond mere knowledge of creditworthiness to connote a socialrelationship of trust. Multiple credits either means extending to debtors asecond (or more) credit even before they have paid off their first debt or itmeans maintaining multiple accounts with the other. Some sort of trust in thedebtor by the creditor seems virtually a prerequisite for this pattern of repeatedand risky lending behavior. It is notable in the Florentine case that often suchcredits flowed back and forth (e.g., two credits one way and three credits theother way), without their being aggregated into a net balance (e.g., into one netcredit owed). Each credit account ultimately had to be cleared separately, evenif not necessarily in cash.

Within the high-volume merchant-banking sector, table 4 shows that 45percent of the credits in our data were reciprocal credits, that 50 percent weremultiple credits, and that 63 percent were relational credits of either version.Relational exchange, in other words, was fundamental to the operation ofFlorentine merchant banks.

Between banks and other companies, and among other companies, theproportion of total credits in relational form was not as high as it was amongmerchant banks themselves, but it was still substantial. In our data, 33percent of the credits between banks and other companies were relationalcredits, and 29 percent of the credits among nonbank companies wererelational in character.

By these measures, credits within merchant-banking industries were onaverage more personal, both in relational-credit style and in their embed-ding in noneconomic social networks (see below), than were credits involvingthe textile-manufacturing and cloth-retail industries. Relational credit was thenonspecialized social-exchange logic through which the highest volume ofFlorentine commercial credit flowed, precisely recorded in account booksthrough conti correnti and conti di esercizio. Regardless of whether credit wasrelational or transactional, however, commercial credit was crucial to theoperation of all advanced sectors of the Renaissance Florentine economy.

records a credit with the same company dated November 14. Thus, our reportedrelational-credit figures certainly underestimate the true rate, were it possible to includerepeat business in our operational definition of relational exchange.


STATISTICAL ANALYSIS OF FLORENTINE COMMERCIAL CREDIT

Florentine businessmen were not just businessmen. They were also fathers,brothers, neighbors, in-laws, republican officeholders, factional fighters, hu-manists, and patrons of the arts. The colloquialism Renaissance man reflectsthe Florentine social reality that the intellectual, economic, and politicalactivities of its elite merchant republicans were remarkably diverse.43 Amongtheir many activities, the pursuit of business did not necessarily assume firstplace in their career ambitions or in their biographies. The average periodduring which a Florentine banker was actually doing banking was only 8.2years.44 Success in business often was a stepping stone toward other eliteactivities, like becoming a city councilor, an ambassador, a rentier, or an artpatron.45 Cosimo de Medici was not unique in this regard. In such a socialcontext, there is scant reason to expect that Renaissance economic ex-changes, occurring within dense and multi-textured social networks, lackbroader cultural meanings shared by other Renaissance exchange systems: giftgiving, hospitality, the exchange of greetings, or the exchange of women.46The strategic implication of this dense social-network overlap is that singleactions [such as the granting of business credit] are moves in many games atonce.47

Renaissance Florence was not a large city by modern standardsin 1427there were only 37,246 residents.48 Thus, most Florentine businessmen knewmuch about one another, both in business and outside of business, if onlythrough reputation. Even were a Florentine businessman to desire to withdrawfrom the inquiring eyes of the social networks around him,49 reputation and the

43 Vespasiano da Bisticci, Renaissance Princes, Popes and Prelates: The Vespa-siano Memoirs; Lives of Illustrious Men of the XVth Century (New York, [ca. 1480]1963).

44 Data are compiled from the annual guild censuses of banks from 1340 to 1399contained in ASF, Arte del Cambio 11, 14.

45 Lauro Martines, The Social World of the Florentine Humanists, 13901460(Princeton, NJ, 1963); Goldthwaite, Private Wealth in Renaissance Florence; FrancisWilliam Kent, Household and Lineage in Renaissance Florence (Princeton, NJ, 1977);Gene Brucker, The Civic World of Early Renaissance Florence (Princeton, NJ, 1977);Michael Baxandall, Painting and Experience in Fifteenth-Century Italy (Oxford,1988); Padgett and Ansell, Robust Action and the Rise of the Medici; Jacks andCaferro, Spinelli of Florence.

46 Ronald E. Weissman, Ritual Brotherhood in Renaissance Florence (New York,1982), 35.

47 Padgett and Ansell, Robust Action and the Rise of the Medici, 1263.48 Herlihy and Klapisch-Zuber, Tuscans and Their Families, 56.49 As Francesco Datini, the merchant of Prato, would have liked to have done: Iris

Origo, The Merchant of Prato: Daily Life in a Medieval Italian City (New York, 1957),8283; Richard C. Trexler, Public Life in Renaissance Florence (Ithaca, NY, 1980), 134.


subsequent flow of business credit and business opportunities would compelhim not to, or else he would fail in his business. In this section, we analyzemore specifically which social networks were important for which commercialcredit behaviors in which industries.

In the statistical analyses to follow, the commercial credits already de-scribed will become the dependent variables. For social-context indepen-dent variables, Padgett and his assistants have collected and computerizeda wide variety of primary- and secondary-source data about the attributesand networks of these businessmen and others:50 namely, patrilineage,51marriage,52 neighborhood,53 personal wealth,54 political office holding,55

50 These data, collected over twenty years, were coded for purposes of Padgettslarger research project, which is documenting and studying the coevolution of political,economic, and kinship networks in Florence over two centuries, from 1300 to 1500.Currently, there are 53,152 Florentines in Padgetts ACCESS social-network database:40,381 males and 12,771 females. Padgett gives special thanks to the people cited inthe acknowledgment footnote for helping him with this large task.

51 Parent-child relations were inferred from last and middle names, since Florentinemales took the name of their father as their own middle name (as in Giovanni diFrancesco), and from numerous collateral sources of dating information. This largetask was complicated by the fact that names are often not consistent across archivalsources. Currently, there are 1,732 genealogically linked families in the data set, eachvisually displayable into computerized family trees. See online appendix to PadgettOpen Elite? for an itemization of these families.

52 Dated marriages were coded from numerous sources, the most important being thefourteen volumes of the Carta dellAncisa, located in the ASF. Most of the originaldowry contracts, from which dellAncisa worked, have now been lost. There are11,039 marriages in the current Padgett data set, estimated to comprise about 4050percent of all marriages between 1350 and 1500 of Florentines with last names. SeePadgett, Open Elite? for data details and statistical analysis of these marriages.

53 Florence was divided administratively into four quarters. Each quarter was sub-divided into four gonfaloni, or wards, making sixteen gonfaloni in all. Unfortunately,parish information was registered too sporadically in the catasto to be useful, therebeing no official tax reason to register.

54 Information on both neighborhood and taxable personal wealth is contained in the1427 catasto and is available online at http://www.stg.brown.edu/projects/catasto. Inaddition to integrating this online data set into his relational data set, Padgett has codedand computerized other Florentine tax censuses as well: namely, the 1351 estimo, the1378 prestanza, the 1403 prestanza, the 1458 catasto, and the 1480 catasto. Padgettthanks Sam Cohn for providing microfilm copies of the 1351 estimo and the 1378prestanza. He also thanks Anthony Molho who generously provided the 1480 catastodata set coded by him and Julius Kirshner.

55 All members of the Priorate or city council from 1282 to 1500 (11,312 membersin all) were coded by Padgett from an early eighteenth-century copy of the PrioristaMariani (ASF, Manoscritti 24852) located at the Newberry Library in Chicagonamely, Priorista descritto a Tratte riscontro con quello delle riformagioni e con alterscritture publiche. All members of the Mercanzia, or commercial court, from 1310 to1500 (3,316 members in all) were coded by Astorri, McLean, Padgett, and Prajda from


voting,56 social-class membership,57 and factional affiliation.58 These data willbe used to reconstruct the dense and multitextured social network contextwithin which Florentine commercial credit operated.

In the appendix table, available in the online version of the Journal ofModern History, we present our full logit-regression statistical analyses ofcommercial credits among our companies active in 1427, using various socialattributes and social networks of the Florentine partners who owned them asindependent variables.59 This analysis was conducted for each marketforexample, for the set of all possible pairings between domestic banks and silkmanufacturers or among international merchant banksand, within markets,first for all commercial credits and then subsequently for credits subdividedinto reciprocal-credit and asymmetric-credit subsets. To simplify the presen-

the Fondo della Mercanzia located in the ASF. Subsequent to our independent codingefforts, the Tratte office-holding data coded by David Herlihy before he died becameavailable on the Web (http://www.stg.brown.edu/projects/tratte), thanks to the laborsof R. Burr Litchfield and his assistants. From these online resources, Xing Zhong hasintegrated the political offices of Buonuomini, Gonfalonieri, and various guild consulsinto the Padgett relational data set.

56 Scrutiny votes in 1433, secret to citizens at the time, are recorded in ASF, Tratte359, for Tre Maggiore public offices.

57 Social-class background, in the Florentine context, refers to the date of first entryof a patrilineal ancestor to the Priorate and hence can be reconstructed from Priorateoffice-holding data, together with family genealogies. Popolani were Florentine patri-lineages who first were elected to the Priorate from 1282 to 1342; new men wereFlorentine patrilineages who first entered the Priorate from 1343 to 1377; new-newmen (our label, not theirs) were Florentine patrilineages who first entered the Prioratefrom 1378 to 1433; magnates were old feudal families specifically prohibited fromholding Priorate office in 1293: Carol Lansing, The Florentine Magnates: Lineage andFaction in a Medieval Commune (Princeton, NJ, 1991), 23940. Subsequently, someof the branches of these families were rehabilitated through specific legislation:Christiane Klapisch-Zuber, Retour a` la cite: Les magnats de Florence, 13401400(Paris, 2006), 45357. The subcategory of ex-magnates was created to cope withsuch rehabilitations. Any Florentine patrilineage not included in the above categoriesis labeled families never admitted to Priorate (by 1433).

58 Membership in the 143334 Medici and Albizzi political factions, previouslyanalyzed in Padgett and Ansell, Robust Action and the Rise of the Medici, wasoriginally reconstructed and reported in Dale Kent, The Rise of the Medici: Faction inFlorence, 14261434 (Oxford, 1978), 35257.

59 A logit regression is a statistical procedure for measuring the effect of a set ofindependent or predictor variables on whether an outcome will occurin our case, thepresence or absence of a credit tie between any given pair of companies. Within thisprocedure, we controlled for heterogeneity. That means that we used company ID as afine-grained categorical variable, to control for potentially important missing factors forwhich we do not have data. This conservative technique makes it more difficult to detectstatistical significance, by correcting observed coefficients estimated standard errors.


tation, we extract only salient statistically significant coefficients from themore complete appendix table data to present in table 5.

For those readers who do not consult the full data in the appendix table, itis important to note that more variables were included in the full statisticalanalysis than are presented in table 5. Five variables were included as statis-tical controls: (a) baseline null expectations of numbers of credits betweencompanies, based on the sizes of the companies alone,60 (b) two binaryvariables for whether company accounts were coded directly from the catastoor were inferred indirectly from the records other companies provided,61 and(c) the total taxable personal wealth of all partners in creditor companies andin debtor companies, as reported in the catasto. To avoid misleading results,social influences on commercial credit are considered to be significant only ifthey exist above and beyond these statistical controls.

Eight other substantive variables apart from those listed in table 5 were alsoanalyzed, but we did not find them to be significant: namely, (a) neighborhood atthe coarse-grained level of a quarter (above and beyond the more fine-grainedgonfaloni), (b) three social-class variables (percentage upper class popolani andmagnate partners, percentage middle class new-men and new-new-men part-ners, and percentage lower class families-never-admitted-to-Priorate part-ners),62 and (c) four political offices other than Priorate or city councilnamely, the Buonuomini, the Gonfalonieri, the guild consuls, and members ofthe Mercanza or commercial court. It is therefore a substantive finding, albeita negative one, that quarter, social class, and political offices other than Prioratedid not consistently affect commercial credit in 1427.

To facilitate later comparison with business letters, the findings in table 5will be discussed within categories that our Florentines would understandnamely, famiglia, amicizia, onore, and, finally, partnership systems. We closethis statistical section by supplementing our discussion of the statisticalsignificance of these social-embeddedness variables with discussion about therelative volumes of credits they explain.

60 This was computed as follows: (total number of dichotomized credits of givingcompany) (total number of dichotomized debits of receiving company)/(total num-ber of dichotomized credits in the market in which they conduct their joint business).This is the expected number of between-company credits, if all that is known is thecredit volumes (sizes) of the respective companies in that market.

61 Use of these binary variables is important to control for sample bias: namely, thefact that directly observed company tax records are more likely to produce credits forour data set than are companies only indirectly observed.

62 In Padgett and McLean, Organizational Invention and Elite Transformation, 1513,we reported that social class in 1427 was statistically significant for domestic-bankingpartnerships for all three social classes. Social class, in other words, influenced partnership(how banks were formed), but not commercial credit (what those banks did).


FamigliaWe measured family four ways, sidestepping the thorny question of choosingone definition of the Florentine family rather than another.63 Two companieswere measured to have a nuclear family relation with each other by thepercentage that partners in the two different companies were members of thesame nuclear family (i.e., father and sons or brothers). Two companies weremeasured to have a patrilineage family relation by the percentage thatpartners in the two companies were members of the same patrilineage, aboveand beyond nuclear family (i.e., cousins or uncles with same last name). Twocompanies were measured to have an in-law relation by the percentage thatone set of partners married into the nuclear families of the other set. And twocompanies were measured to have a parentado relation by the percentage thatone set of partners had the same last names as the other set of partners wives.

Not surprisingly, family relations among partners in different companies,when they were present, exerted frequent and strong effects on those compa-nies credit behavior toward one another. And these effects were ranked in theintuitive waynamely, nuclear family (fourteen significant coefficients) patrilineage family (seven significant coefficients) parentado family (fivesignificant coefficients).64 All versions of Florentine family, in other words,affected Florentine commercial behavior.

These statistical effects are not surprising because when family relationsinterpenetrated commercial relations, credit exchanges between companiesbecame as much social obligations as economic investments. We shall see inour analysis of business letters that even nonkin sometimes evoked fictional-kinship language with one another, which strengthened the obligatory conno-tations of economic exchange. In all domains, not excluding the economic,kinship was central in Renaissance Florentine thinking and behavior.

While true in almost all Florentine markets, there is a remarkable density ofnine significant family coefficients in the four reciprocal-credit markets in-volving international merchant bankers.65 Reciprocal credits are our observ-able proxies for corrispondenti relations, often implemented through pairedconti correnti. When Florentine businessmen were resident outside theirnative soil, they relied even more than they did otherwise on family as the

63 We are referring to the debate between Goldthwaite, Private Wealth in Renais-sance Florence; and Kent, Household and Lineage in Renaissance Florence, on thesalience within Renaissance Florence of nuclear family versus patrilineage.

64 Nuclear in-law relations were statistically significant six times, but we do notreport this in table 5 because the number of examples of marrying the sister of anothercompanys partner was small.

65 Family was almost always insignificant in all markets involving ritagliatori.Indeed almost none of our social-context variables are significant in these relativelyimpersonal markets.


TABL

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25

social ligaments on which they constructed their corrispondenti. In theirriskiest business climates, Florentines tended to close ranks within intimatesocial relations for their strongest credit connections. Since Florentine fami-lies in international business were spread geographically all over Europe,some of the heaviest early fifteenth-century flow of international financethroughout Europe coursed through upper-class Florentine families veins,making them very wealthy indeed.66

AmiciziaOur imperfect proxy for friends is neighbors. We acknowledge the imperfec-tion of the match, but neighbors are measurable in our data, whereas friendsare not. The social intimacy of Florentine neighborhoods has been docu-mented extensively in the literature, so the assumption is well grounded thatneighborhood was highly correlated with social-interaction frequency, eventhough close interaction could lead to hostility as well as to friendship withinneighborhoods.67

Gonfaloni were the sixteen administrative districts or wards into whichFlorence was divided geographically. We measured a same gonfalonerelationship between companies as the percentage of times that the partners intwo different companies lived in the same gonfalone. Same quarter (ex-cluding same gonfalone) relations were measured similarly.

The statistical findings regarding same gonfalone are remarkably sharp: atvery high significance levels, markets involving domestic merchant banksresident in Florence almost always relied on neighborhood relations to struc-ture their commercial credit relations. Put simply, Florentine banks andmerchant banks resident in Florence disproportionately extended commercialcredit to those wool-manufacturing companies, silk-manufacturing compa-nies, international merchant banks, and other domestic banks and merchantbanks whose partners lived in the same gonfaloni as partners of the focal

66 Padgett and McLean, Organizational Invention and Elite Transformation, 1536,document that Florentine domestic merchant bankers were wealthiest in 1427, com-pared to 1351, 1378, 1403, 1458, and 1480.

67 Samuel K. Cohn, The Laboring Classes in Renaissance Florence (New York,1980); D. V. Kent and Francis William Kent, Neighbours and Neighbourhood inRenaissance Florence: The District of the Red Lion in the Fifteenth Century (LocustValley, NY, 1981); Christiane Klapisch-Zuber, Kin, Friends, and Neighbors: TheUrban Territory of a Merchant Family in 1400, in Women, Family, and Ritual inRenaissance Italy (Chicago, 1985), 6893; Francis William Kent, Ties of Neighbor-hood and Patronage in Quattrocento Florence, in Patronage, Art, and Society inRenaissance Italy, ed. Francis William Kent and Patricia Simons (Oxford, 1987),7998; Nicholas A. Eckstein, The District of the Green Dragon: Neighborhood Lifeand Social Change in Renaissance Florence (Florence, 1995); Gene A. Brucker,Florentine Politics and Society, 13431378 (Princeton, NJ, 1962), 126, 131; Kent, Riseof the Medici, 68, 178.


company. Whereas Florentine international merchant-banking business wasorganized substantially through family relations, Florentine domestic-bankingbusiness was organized substantially through neighbors and friends. As wasthe case with the association between family and international corrispondenti,moreover, domestic merchant bankers and their recurrent exchange partnersfrequently referred to one another in business letters as friends, whether or notthey really were. Causality went as much from business to friends as it didfrom friends to business.68

In another article, Padgett has demonstrated that the effect of neighborhoodon marriage, while always statistically significant, declined in absolute im-portance in Florence from 1300 to 1500.69 Whether a similar temporal declinewas true for economic credit cannot be assessed with data on 1427.

OnoreThe Italian word onore means both honor and political office, reflectingthe historical reality in Italian republics that to be elected to a public office wasconceived to be an honor, bespeaking respect from ones fellow citizens.Office holding in the Florentine republic was not a matter for professionalpoliticians. Many normal amateur, but respected and articulate, citizenswere elected to serve short stints in Florentine public office, taking temporaryand unpaid time out from their normal business or other pursuits.70 It issurprising to modern eyes to see how anxious and honored Florentine repub-lican citizens were to be elected by their social superiors and peers to highpolitical office, with no overt reward or payment other than prestige.71

As mentioned above, no political office other than the top officenamely,the Priorate or city councilhad consistent statistical effects on commercial-credit behavior among Florentine companies. But republican service in this

68 Compare Klapisch-Zuber, Tuscans and Their Families, 89.69 Padgett, Open Elite? 25.70 For the nine-person Priorate or city council, elected tours of duty were for two

months, during which time councilors lived in the Palazzo Vecchio, or city hall,leaving their business to be run by others. After electing a large number of eligiblesevery five years through an oligarchic voting procedure called the scrutiny, successfulname tags were placed into a monastically controlled bag, from which actual office-holders were selected randomly. Candidates did not know that they had been selectedfor city council until their name was drawn. The random component of this two-stagedvoting procedure was designed to minimize control of the state by small factions. Forthe evolution of Florentine voting procedures, see John M. Najemy, Corporatism andConsensus in Florentine Electoral Politics, 12801400 (Chapel Hill, NC, 1982); andNicolai Rubinstein, The Government of Florence under the Medici, 1434 to 1494(Oxford, 1966).

71 Gene Brucker, ed., Two Memoirs of Renaissance Florence: The Diaries ofBuonaccorso Pitti and Gregorio Dati (New York, 1967), 12526; Najemy, Corporat-ism and Consensus in Florentine Electoral Politics, 299300, 302.


very top office of Priorate, measured as the percentage of both companiespartners serving in the Priorate before 1427, had frequent and strong conse-quences for commercial credit in all markets involving domestic merchantbanks. This was especially true for reciprocal credits, but it was true also forall credits and for asymmetric credits. In this regard the variable Prioratebehaved statistically just like same gonfalone. In addition to amicizia, thesocial logic of onore, conceptualized as personal honor but manifest asrepublican office holding, was at the core of commercial credit among com-panies dealing with merchant banks resident in Florence.

The concentration of strong statistical Priorate effects on commercial credit,especially in markets related to domestic banking and to domestic merchantbanking, makes sense. Florentine international merchant bankers were scat-tered all over Europe, far away from Priorate service back home. And thedensity of social ties observing and calibrating onore, measured in scrutinyvoting, was higher at home in Florence than it was abroad. Public reputationcould not really be ignored anywhere, but it was especially salient andobservable at home.

It has been shown previously that political office holding had effects onbusiness and wealth, via state finance, at the very highest echelons of theelite.72 However, this is the first demonstration of a pervasive office-holdingeffect on business throughout wide segments of Florentine society. Perhapsthis widespread causal effect is related to the fact that eligibility for thePriorate had increased substantially from 1343 to 1427.73

In table 5, we also report statistical results for scrutiny voting and forpolitical factions. Scrutiny voting in 1433, measured as the votes received bythe sum of the highest vote receivers in each company, had numerous statis-tical effects on commercial credit in 1427, but these effects were scatteredamong international and domestic merchant-banking markets. Likewise, fac-tional membership in the Medici and Albizzi parties of 1433 had numerousstatistical effects on commercial credit in 1427, but these also were scatteredamong merchant-banking markets. Perhaps the lack of clear patterning may berelated to the six-year gap between the two sets of data.

At the very least, we can conclude that politics mattered in economic creditmarkets in 1427. It is even clearer that economics mattered in the early 1430s

72 L. F. Marks, The Financial Oligarchy in Florence under Lorenzo, in ItalianRenaissance Studies, ed. E. F. Jacob (London, 1960), 12347; Molho, FlorentinePublic Finances in the Early Renaissance, 16682.

73 Anthony Molho, Politics and the Ruling Class in Early Renaissance Florence,Nuova Rivista Storica 52 (1968): 40120; Ronald G. Witt, Florentine Politics and theRuling Class, 13821407, Journal of Medieval and Renaissance Studies 6 (1976):24367; Najemy, Corporatism and Consensus in Florentine Electoral Politics, 26376; Padgett and Ansell, Robust Action and the Rise of the Medici, 1261; Padgett,Open Elite? 9, 47.


construction of the Medici political party or faction.74 Florentine commercialbehavior, especially in merchant banking, was no more segregated frompolitical participation than it was from kinship or friendship.

Partnership SystemsThe partnership system was a new organizational form in the history offinancial capitalism, invented in Florence.75 Partnership systems were sets oflegally autonomous companies, with their own account books, linked inownership through single persons or through a holding company of control-ling partners. Usually, although not necessarily, the linked companies inquestion were diversified across industries, with international merchant banksand domestic merchant banks dominating in number and with domesticmerchant banks serving as the managerial headquarters. Padgett and McLeandocumented the rapid diffusion of this organizational form after its Ciompi-revolt-induced birth in 1383.76

Table 5 reveals strong credit interconnections in 1427 among companieslinked in partnership systems throughout the merchant-banking sector andoccasionally in other sectors as well. This is not surprising, for companieslinked through common owners presumably were ordered to cooperate, eventhough they were legally autonomous.77 More impressive, however, within thedomestic-banking industry is the extent to which partnership systems them-selves cooperated strongly and significantly among one another through re-ciprocal credits. This demonstrates coordination among titular competitorsat the very apex of the Florentine economy. Senior-partner leaders of thesepartnership systems became captains of finance in Florence, monitoring andmanaging large credit flows across multiple markets through their visiblehands.

Such concentration of ownership of multiple companies into fewer hands isinadequately understood without placing it into its political context, namely,the consolidation of a citywide oligarchy among elite Florentine merchantrepublicans in response to the Ciompi revolt in 1378.78 Economic market

74 Molho, Florentine Public Finances in the Early Renaissance, 16682; AnthonyMolho, Cosimo de Medici: Pater Patriae or Padrino? Stanford Italian Review 1(1979): 533; Padgett and Ansell, Robust Action and the Rise of the Medici,127677, 13056.

75 See Padgett and McLean, Organizational Invention and Elite Transformation,and references therein.

76 Ibid., 147485, 154860.77 The voluminous correspondence of the Milan branch of the Datini system offers

copious evidence of this coordinated cooperation. See Luciana Frangioni, ed., Milanofine trecento: Il carteggio Milanese dellArchivio Datini di Prato (Florence, 1994).

78 Padgett and McLean, Organizational Invention and Elite Transformation, 14941522.


restructuring through partnership systems was one aspect of a broader politicaland social transformation in elite structure. Through this elite-transformationprocess, economic partnership systems took their place among the social-network constituents of that elite, transforming merchants on the one sideand republicans on the other even more deeply into multifaceted merchantrepublicans.

Volume of Social-Context EffectsStatistical significance is a necessary but not sufficient criterion for assessingthe volume of any factors impact. Nuclear family, for example, frequentlyexerted a significant impact on companies extension of commercial credit toone another when such close family relations linked those companies, butthere are not really enough brothers to go around to organize an entire creditmarket. Table 6, therefore, reports the percentage of commercial creditsaffected by the significant social-context variables reported in table 5. Here, wereport volume only for markets involving merchant banks, because ritagliatorimarkets were shown in table 5 mostly to have operated impersonallythat is,independently of our social-context variables.

Table 6, column 5, reinforces our interpretation of reciprocal credits associal exchange. In merchant-banking markets (except for international mer-chant bank/silk), from 42 to 96 percent of reciprocal commercial credits wererooted in dense and multitextured social networks. Reciprocal credits were theinner skeleton of merchant-banking markets in Renaissance Florence, andthese were constructed largely out of social-network materials.

Nonreciprocal or asymmetric credits were on the whole not as sociallyembedded as were reciprocal credits. In two out of three markets internal tothe merchant-banking sector, however, they were just as socially embedded:76 and 89 percent of the nonreciprocated commercial credits in the domesticmerchant bank/international merchant bank market and in the domesticmerchant-banking market could be correlated with measurable social con-texts, respectively.

Putting both the reciprocal and the nonreciprocal sides together, the globaleconomic-ne