Deja vu? 1929 isn’t the half of it…

by | Nov 2, 2008


Marcello Simonetta in Forbes agrees that current events have a certain familiarity to them – but he’s looking a lot further back than everyone else.  Specifically, he’s been immersed in Raymond de Roover’s 1963 tome The Rise and Decline of the Medici Bank (1397-1494)

Now, as then, the coordination between different branches or departments continues to be a major issue confronting administrators in business as well as in governments. Choosing the right person as a manager is no less difficult than finding the right heir to the business or the reign.

After Cosimo’s death, his son, Piero, and his grandson, Lorenzo, had a much less steady hand on the branch managers and gradually lost their grip on the banking empire. Diminished economic power brought about troubles at home, where in 1478 the so-called Pazzi Conspiracy–an attempted coup organized by a rival banking family secretly helped by the Roman Catholic Church–brought Lorenzo to his knees.

By the time Cosimo’s grandson tried to recover control over Florence, the Medici Bank was near collapse, which led to many irregularities. One disgruntled citizen commented after a two-year bout of warfare: “Cosimo and Piero (grandfather and father), with half of the money you have spent on this war, would have gained much more than you have lost.”

This might remind us of other recent disastrous military and monetary enterprises. Then, as now, too much money badly accounted often damages the purpose for which it is spent. Lorenzo, desperately in need for monies, turned business into a matter of state and took money from his own relatives to defend himself and the city, and also diverted public funds for his own use.

The fear of being annihilated by foreign powers, combined with the lack of transparency, allowed the ruler of the Republic to turn it into an effective tyranny. With the declared purpose of defending Florentine freedom and its way of life, Lorenzo raised taxes for the war and embezzled banking funds with the result (does this sound familiar, anyone?) of creating a huge credit crunch.

The Medici Bank–as De Roover argued–had tenuous cash reserves that were usually well below 10% of total assets. Lack of liquidity was an issue for banking since its origins. Of course, in the Renaissance they dealt with thousands or millions of florins–billions were yet unthinkable. But would a bailout have been thinkable at the time? Lorenzo certainly bailed himself and his family out of a political and financial mess with public funds. He eventually gained for himself the superlative epithet of “The Magnificent” by obtaining foreign military support and by compromising his city’s liberty.

However, shortly after his death in 1492, his weak son Piero was thrown out of Florence. Perhaps that was an early instance of what we would now call kicking the debt problem onto the next generation. 

Author

  • Alex Evans is founder of Larger Us, which explores how we can use psychology to reduce political tribalism and polarisation, a senior fellow at New York University, and author of The Myth Gap: What Happens When Evidence and Arguments Aren’t Enough? (Penguin, 2017). He is a former Campaign Director of the 50 million member global citizen’s movement Avaaz, special adviser to two UK Cabinet Ministers, climate expert in the UN Secretary-General’s office, and was Research Director for the Business Commission on Sustainable Development. Alex lives with his wife and two children in Yorkshire.


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