How the Medici family created and lost their banking empire

The Medici family had a long and powerful influence in European history for hundreds of years. They were well known for their banking prowess and are synonymous as an unparalleled patron of the arts during the Italian Renaissance.

How the Medici family created and lost their banking empire
Lorenzo The Magnificent, Agnolo Bronzino, 1560, Uffizi Gallery, Florence


The Medici family had a long and powerful influence in European history for hundreds of years. They were well known for their banking prowess and are synonymous as an unparalleled patron of the arts during the Italian Renaissance. Early historical records point to some of the first Medici’s being active in political affairs starting in the 13th century.

But it wasn’t until the late 14th and 15th century that the family truly came to power with the creation of the Bank of Medici. Giovanni de’ Medici opened up one of the first family banks in 1397 in Florence,  the city which would become and remain a central hub for the family for the next four hundred years. Throughout the years they saw their fortunes grow and flounder through a variety of ventures.

From running one of the largest banks in Europe to shifting their fortunes to patronage and control of the papacy and other political posts, the Medici’s reign was a complex affair. This is how they rose to financial prominence because of their banking success and their eventual downfall. The family took their once great banking kingdom and dominance and turned it into a dynastic legacy that affected Europe and the world as we know it today.

Palazzo Medici Riccardi, Creative Commons

Origins of the banking empire

One of the first great Medici bankers was Cosimo de Medici, who managed to build up the great financial empire. By expanding the bank and starting off a trend that would follow with his sons and grandsons, he gave patronage to the construction of churches. Cosimo was a practical man whose advice to his family was to “Be inoffensive to the rich and strong, while being consistently charitable to the poor and weak.”

Running in tandem to him consolidating power within the bank, he was also cultivating a tradition of patronage that would run into the mature renaissance period. Donatello, who is well known for his sculpture of David, was one of the first benefactors of the Medici patronage. This would continue as his grandson Lorenzo the Magnificent would provide patronage to Leonardo Da Vinci and Michelangelo among many other great artists and projects of the era.   

It was due to Cosimo’s meticulous and advanced banking practices which led to the substantial generation of their wealth, the Medici’s would use this impetus of a fortune to bankroll their political power in Florence and sponsor the greatest artists and projects during the Renaissance period. During this time, Pope Pius II said of Cosimo that: “He is king in everything but name.”

From the time of Giovanni and for the next hundred years, the Medici banking dynasty became one of the largest banks ever seen throughout Europe and the world. From Florence, Rome, to even Barcelona and London it expanded its banking activities at an extraordinary pace. Many of its banking branches were partnerships that up until 1455 were under a central holding company. The idea of a holding company is considered a Medici invention. During this period of banking dominance, the Medicis utilized a number of banking innovations which are still in use today.

Medici Chapel, Florence, ilovetuscany.com 

Medici banking system sets the standard of the era and beyond

The advent of double-entry bookkeeping was put into practice by Giovanni de Medici who popularized its use. The sheer amount of capital flowing through their bank generated by traders during this time needed to be accurately tracked. Keeping the books in check and eliminating error was a necessity in this time as the mercantile class had created a boom in the economy.  

Double-entry bookkeeping uses a ledger where the accounting equation of “Assets = Liabilities + Equity” is put to use. This means that both debits and credits are recorded, which can then be used to create an overview of how much money the business has and in what function it is being used. It helped bankers and merchants keep a better eye on their accounts to make smarter financial decisions. It’s a simple yet highly effective tactic that helped build Medici’s reputation.

Along with this more efficient bookkeeping method, the Medici’s utilized letters of credit, which allowed international trade at the time to flourish. Letters of credit are agreements in which a buyer’s bank guarantees to pay back the seller’s bank once goods or services have been delivered. For example, one party would be authorized to receive pounds at the London bank in exchange for the florin (Florence’s currency at the time.)

During this time it was too difficult and dangerous to ship large sums of money across Europe. For this reason, traders would deposit their money for a Medici letter of credit. More than just assisting in the flow of trade and maintaining a successful commercial enterprise, this was a way for the Medici’s to circumvent an overly religious zealous culture. During the Middle Ages, the church had made usury (which is the lending of money for interest) a sin. A letter of credit was able to sneakily build interest into the transaction without being an outright usury. Currencies then traded under the auspices of exchange would then be utilized as a way for the Medicis to receive interest on loaned payments. It was because of advancements and financial solutions like these that the Medici bank became so powerful. But the bank soon began to overstretch its reach and just as fast as it had risen to power it began to fall.  

'Portrait of Leo X', Raphael, 1519. The ball on top of the chair is supposed to represent the Medici family.  

The downfall of the bank and transfer of wealth to patronage and politics  

With increased size comes more overhead. As many different branches and departments began to grow, there were problems in coordination between administrators in disconnected branches and even other governments. Without a strong leading presence to carry out the banks' function and governance, following Cosimo’s death in 1464 the seeds for disintegration were already set. His son Piero and grandson Lorenzo were less apt to the banking business than their elder.   

Piero who was bedridden because of gout had no experience in the banking sector nor did his son, who put more stock on the Medici family’s fortune rather than continuing to run the bank. As these descendants lost their grip on the banking empire, economic troubles with debt-ridden foreign nationals and the Pazzi conspiracy – a coup by rival banking families backed by the Catholic Church to usurp Medici control in Florence – had brought the Medici Bank to an end. By 1494 the bank had closed all of its branches and was nearly bankrupt.  

Although the bank was lost, the fortune was not. Dealing with coups and exiles, the Medici family went through a tumultuous time during the end of the Renaissance. Lorenzo carried on with the Medici fortune and name, consolidating new forms of power from their riches and sponsoring the likes of Botticelli and Michelangelo. The once financial kingpins and businessman had shifted their expertise to the artistic and political realm.     

Throughout the years they would install Medici men as popes and would wed their lineage to far reaching kingdoms in France and England. Although the Medici regained their power after the bank fell in Florence, they’d never again rebuild the Medici Bank, instead, the dynasty would move on to influence the world in ways beyond money.

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Are we really addicted to technology?

Fear that new technologies are addictive isn't a modern phenomenon.

Credit: Rodion Kutsaev via Unsplash
Technology & Innovation

This article was originally published on our sister site, Freethink, which has partnered with the Build for Tomorrow podcast to go inside new episodes each month. Subscribe here to learn more about the crazy, curious things from history that shaped us, and how we can shape the future.

In many ways, technology has made our lives better. Through smartphones, apps, and social media platforms we can now work more efficiently and connect in ways that would have been unimaginable just decades ago.

But as we've grown to rely on technology for a lot of our professional and personal needs, most of us are asking tough questions about the role technology plays in our own lives. Are we becoming too dependent on technology to the point that it's actually harming us?

In the latest episode of Build for Tomorrow, host and Entrepreneur Editor-in-Chief Jason Feifer takes on the thorny question: is technology addictive?

Popularizing medical language

What makes something addictive rather than just engaging? It's a meaningful distinction because if technology is addictive, the next question could be: are the creators of popular digital technologies, like smartphones and social media apps, intentionally creating things that are addictive? If so, should they be held responsible?

To answer those questions, we've first got to agree on a definition of "addiction." As it turns out, that's not quite as easy as it sounds.

If we don't have a good definition of what we're talking about, then we can't properly help people.

LIAM SATCHELL UNIVERSITY OF WINCHESTER

"Over the past few decades, a lot of effort has gone into destigmatizing conversations about mental health, which of course is a very good thing," Feifer explains. It also means that medical language has entered into our vernacular —we're now more comfortable using clinical words outside of a specific diagnosis.

"We've all got that one friend who says, 'Oh, I'm a little bit OCD' or that friend who says, 'Oh, this is my big PTSD moment,'" Liam Satchell, a lecturer in psychology at the University of Winchester and guest on the podcast, says. He's concerned about how the word "addiction" gets tossed around by people with no background in mental health. An increased concern surrounding "tech addiction" isn't actually being driven by concern among psychiatric professionals, he says.

"These sorts of concerns about things like internet use or social media use haven't come from the psychiatric community as much," Satchell says. "They've come from people who are interested in technology first."

The casual use of medical language can lead to confusion about what is actually a mental health concern. We need a reliable standard for recognizing, discussing, and ultimately treating psychological conditions.

"If we don't have a good definition of what we're talking about, then we can't properly help people," Satchell says. That's why, according to Satchell, the psychiatric definition of addiction being based around experiencing distress or significant family, social, or occupational disruption needs to be included in any definition of addiction we may use.

Too much reading causes... heat rashes?

But as Feifer points out in his podcast, both popularizing medical language and the fear that new technologies are addictive aren't totally modern phenomena.

Take, for instance, the concept of "reading mania."

In the 18th Century, an author named J. G. Heinzmann claimed that people who read too many novels could experience something called "reading mania." This condition, Heinzmann explained, could cause many symptoms, including: "weakening of the eyes, heat rashes, gout, arthritis, hemorrhoids, asthma, apoplexy, pulmonary disease, indigestion, blocking of the bowels, nervous disorder, migraines, epilepsy, hypochondria, and melancholy."

"That is all very specific! But really, even the term 'reading mania' is medical," Feifer says.

"Manic episodes are not a joke, folks. But this didn't stop people a century later from applying the same term to wristwatches."

Indeed, an 1889 piece in the Newcastle Weekly Courant declared: "The watch mania, as it is called, is certainly excessive; indeed it becomes rabid."

Similar concerns have echoed throughout history about the radio, telephone, TV, and video games.

"It may sound comical in our modern context, but back then, when those new technologies were the latest distraction, they were probably really engaging. People spent too much time doing them," Feifer says. "And what can we say about that now, having seen it play out over and over and over again? We can say it's common. It's a common behavior. Doesn't mean it's the healthiest one. It's just not a medical problem."

Few today would argue that novels are in-and-of-themselves addictive — regardless of how voraciously you may have consumed your last favorite novel. So, what happened? Were these things ever addictive — and if not, what was happening in these moments of concern?

People are complicated, our relationship with new technology is complicated, and addiction is complicated — and our efforts to simplify very complex things, and make generalizations across broad portions of the population, can lead to real harm.

JASON FEIFER HOST OF BUILD FOR TOMORROW

There's a risk of pathologizing normal behavior, says Joel Billieux, professor of clinical psychology and psychological assessment at the University of Lausanne in Switzerland, and guest on the podcast. He's on a mission to understand how we can suss out what is truly addictive behavior versus what is normal behavior that we're calling addictive.

For Billieux and other professionals, this isn't just a rhetorical game. He uses the example of gaming addiction, which has come under increased scrutiny over the past half-decade. The language used around the subject of gaming addiction will determine how behaviors of potential patients are analyzed — and ultimately what treatment is recommended.

"For a lot of people you can realize that the gaming is actually a coping (mechanism for) social anxiety or trauma or depression," says Billieux.

"Those cases, of course, you will not necessarily target gaming per se. You will target what caused depression. And then as a result, If you succeed, gaming will diminish."

In some instances, a person might legitimately be addicted to gaming or technology, and require the corresponding treatment — but that treatment might be the wrong answer for another person.

"None of this is to discount that for some people, technology is a factor in a mental health problem," says Feifer.

"I am also not discounting that individual people can use technology such as smartphones or social media to a degree where it has a genuine negative impact on their lives. But the point here to understand is that people are complicated, our relationship with new technology is complicated, and addiction is complicated — and our efforts to simplify very complex things, and make generalizations across broad portions of the population, can lead to real harm."

Behavioral addiction is a notoriously complex thing for professionals to diagnose — even more so since the latest edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-5), the book professionals use to classify mental disorders, introduced a new idea about addiction in 2013.

"The DSM-5 grouped substance addiction with gambling addiction — this is the first time that substance addiction was directly categorized with any kind of behavioral addiction," Feifer says.

"And then, the DSM-5 went a tiny bit further — and proposed that other potentially addictive behaviors require further study."

This might not sound like that big of a deal to laypeople, but its effect was massive in medicine.

"Researchers started launching studies — not to see if a behavior like social media use can be addictive, but rather, to start with the assumption that social media use is addictive, and then to see how many people have the addiction," says Feifer.

Learned helplessness

The assumption that a lot of us are addicted to technology may itself be harming us by undermining our autonomy and belief that we have agency to create change in our own lives. That's what Nir Eyal, author of the books Hooked and Indistractable, calls 'learned helplessness.'

"The price of living in a world with so many good things in it is that sometimes we have to learn these new skills, these new behaviors to moderate our use," Eyal says. "One surefire way to not do anything is to believe you are powerless. That's what learned helplessness is all about."

So if it's not an addiction that most of us are experiencing when we check our phones 90 times a day or are wondering about what our followers are saying on Twitter — then what is it?

"A choice, a willful choice, and perhaps some people would not agree or would criticize your choices. But I think we cannot consider that as something that is pathological in the clinical sense," says Billieux.

Of course, for some people technology can be addictive.

"If something is genuinely interfering with your social or occupational life, and you have no ability to control it, then please seek help," says Feifer.

But for the vast majority of people, thinking about our use of technology as a choice — albeit not always a healthy one — can be the first step to overcoming unwanted habits.

For more, be sure to check out the Build for Tomorrow episode here.

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Credit: World Values Survey, public domain.
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