THIS THEN WAS the state of play: Usury was abominable but people needed loans and bankers a return for giving them. The complex system of differing exchange rates, possible only because of the time it took to travel from one financial center to another, provided an ambiguous territory that kept trade moving and many in a constant state of anxiety as to the destination of their eternal souls. Some merchants steered clear of the whole business, convinced it was a sin. Some less scrupulous operators were happy about the Church’s position because it scared off the squeamish and reduced the competition. The practical effect was that long-term loans became difficult, because a bill of exchange must always be paid in no more than the time officially required to reach one of the major European centers. Capital investment suffered. The bank became anchored to trade rather than manufacturing and was forced to become international, when otherwise it might well have stayed local. Loans were more expensive than they need have been, and highly speculative. “Exchange is a bird of passage,” warns one banking manual, “grab it while you can, it won’t be back!” Above all, there was constant tension between what people said they were doing, what they knew they were really doing, and what they knew they were supposed not to be doing. Meantime, every letter between banks on whatever matter always carried an avviso, a warning, or announcement, of currency rates on that day. Already information was of the essence. Stare sugli avvisi, to be on your guard, came to mean to deal in bills of exchange. On your guard! Such is the special excitement of dealing in money: am I winning or losing, am I going to heaven or hell?
One of the ways Giovanni di Bicci had always been on his guard was in his determination to have close relations with the Church, the ultimate source of capitaclass="underline" spiritual, political, and monetary. While in Rome, he had met the extrovert Neapolitan priest Baldassarre Cossa. Was it Giovanni di Bicci who funded the man’s purchase of a cardinal’s hat in 1402? It’s not clear. In any event, Cossa took to addressing the banker as “My most dear friend,” in his many letters.
In 1410, Cossa was elected pope and became Giovanni XXIII (but not, of course, the Giovanni XXIII of the Second Vatican Council — of which more later). Down in Rome, Ilarione di Lippaccio de’ Bardi, brother of Giovanni di Bicci’s partner Benedetto and now director of the Medici bank’s Rome branch, immediately became Depositary of the Papal Chamber. Which is to say, the Medici bank in Rome now held the pope’s cash, collected his vast incomes, paid out his vast expenditures. They lent him money for war on Naples and they lent him more money to pay the reparations when he lost the war. Indispensable — and friendly too! — the bank began to suggest whom the pope might appoint to this or that bishopric, then collected the fees due when the appointee took up his position. Obviously, the bankers only proposed candidates who were in a position to pay promptly. Throughout Giovanni di Bicci’s life, and much of Cosimo’s, more than 50 percent of the Medici bank’s profits came from Rome.
To invest that holy income (in ambiguous bills of exchange), the bank had already opened two new branches in major trading centers, Naples and Venice. The relationship of these branches to each other and to the central office in Florence was to be crucial. The Bardi and Peruzzi banks that had preceded the Medici collapsed in part because of bad debts to foreign monarchs, but in part also because there was no juridical distinction between its operations in different countries. The bank as a whole was liable for the debts of each of its outlets. If money is allowed to flow without restraint, a sudden movement will tip the boat. Worse, in order to fund such a huge international operation, the Peruzzi in particular had brought a large number of partners into what was a single, monolithic organization, with the result that eventually they lost overall control. When money began to leak drastically from one or another branch and the ship listed, the various partners began to argue. It was hard to steer to a safe haven.
Giovanni di Bicci resolved these difficulties with a simple structural correction, and in doing so revealed at once what was to be the genius of the Medici family: its manipulation of people within organizational structures — first financial, but later social and political too. Each branch was to be a separate company. The shareholders were: the branch director, to the tune of something between 10 and 40 percent, and then the Medici bank for the rest. Not the Medici family personally, and not the Florence branch, which had the same status as the other branches, but rather a separate holding company located in a separate office in Florence. In this way, a large number of capital-bearing partners could be brought in — one or two in each branch and one or two more important figures in the holding — without the Medici themselves ever losing control of either the parts or the whole.
A branch director would receive expenses and a considerably larger percentage of the profits than his own share of the investment would appear to warrant. This to motivate him. In return, he was obliged under contract to live in his branch’s city and to observe the rules enforced by the holding company: Don’t lend more than 300 florins to cardinals; to courtiers no more than 200; don’t give credit to any Roman merchant, unreliable; nor to feudal barons, not even if they give you security (barons are a law unto themselves); and never, never lend money to Germans, since their courts won’t respect your claim if, or rather when, things go wrong.
Between cashiers, letter writers, messenger boys, and managers, there were about four to eight people in each branch — all working, eating, and sleeping in the same building, sharing the same one or two servants, slaves, and horses. The holding company in Florence was responsible for all hirings and firings. And salaries. Otherwise, who knows what complicity might arise between a branch director and his staff in a distant city? In addition to the official ledgers, there was also a “secret book” in which the director wrote down such things as the discretionary deposits of clients who wished to remain anonymous. And salaries. No one must know another’s salary. There must be no opportunity for private gripes and local conspiracies against the head office. The secret book was made of parchment, not paper, to last longer, and kept under lock and key, often in the director’s bedroom. Once a year it would be taken to Florence for discussion. Above all, each branch dealt with the others as with any other company. Each was part of a whole, but simultaneously in competition; each running its own show, but under observation. Thus the Medici learned the techniques they would later apply in the political sphere: Divide, be reasonably generous, and rule.