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excerpt from Money, Bank Credit, and Economic Cycles by Jesús Huerta De Soto
full text: http://www.mises.org/books/desoto.pdf
BANKING IN FLORENCE IN THE FOURTEENTH CENTURY
Around the end of the twelfth and beginning of the thirteenth
centuries, Florence was the site of an incipient banking
industry which gained great importance in the fourteenth century.
The following families owned many of the most important
banks: The Acciaiuolis, the Bonaccorsis, the Cocchis, the
Antellesis, the Corsinis, the Uzzanos, the Perendolis, the
Peruzzis, and the Bardis. Evidence shows that from the beginning
of the fourteenth century bankers gradually began to
make fraudulent use of a portion of the money on demand
deposit, creating out of nowhere a significant amount of
expansionary credit. Therefore, it is not surprising that an
increase in the money supply (in the form of credit expansion)
caused an artificial economic boom followed by a profound,
inevitable recession. This recession was triggered not only by
Neapolitan princes’ massive withdrawal of funds, but also by
England’s inability to repay its loans and the drastic fall in the
price of Florentine government bonds. In Florence, public
debt had been financed by speculative new loans created out
of nowhere by Florentine banks. Ageneral crisis of confidence
occurred, causing all of the above banks to fail between 1341
and 1346. As could be expected, these bank failures were
detrimental to all deposit-holders, who, after a prolonged
period, received half, a third, or even a fifth of their deposits
at most. Fortunately, Villani recorded the economic and
financial events of this period in a chronicle that Carlo M.
Cipolla has resurrected. According to Villani, the recession
was accompanied by a tremendous tightening of credit
(referred to descriptively as a mancamento della credenza, or
“credit shortage”), which further worsened economic conditions
and brought about a deluge of industry, workshop, and
business failures. Cipolla has studied this economic recession
in depth and graphically describes the transition from economic
boom to crisis and recession in this way: “The age of
‘The Canticle of the Sun’ gave way to the age of the Danse
macabre.” In fact, according to Cipolla, the recession lasted
until, “thanks” to the devastating effects of the plague, which
radically diminished the population, the supply of cash and
credit money per capita approached its pre-crisis level and
laid the foundation for a subsequent recovery.
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