Chapter 34 - The Financial Collapse of 1345

I have put this chapter together about the financial crash of 1345 to show you the mechanics of a financial crash so that you might realize the importance of preventing the next one. I was not around at the time, so this chapter uses information from numerous sources including the following articles:

If you have time, please read the full articles. It will help to puzzle out the solution. Please also make a websearch for Financial Collapse of 1345  Websearch for ‘Financial Collapse of 1345’. It makes interesting reading.

To understand our present financial system it is useful to study the history of the Venetian Empire. Venice had become a world-class financial power and trading center. There was a Venetian oligarchy, the members of which had inter-married over centuries with Byzantine (Eastern Roman) nobility. This intermarriage had created a form of permanent oligarchy which remained powerful until around 1700. This Venetian financial and trading empire dominated Europe and elsewhere from the first Crusade in 1099 to the Financial Collapse of 1345 and the Black Death of 1347-1351. Venice possessed no industry other than a large military and naval factory. The power of Venice came from their control over banking, trade, and money. The Venetian banks had agencies in many countries which were very helpful in enabling trade between nations. Whilst assisting trade, the banks manipulated the money creation in type and volume to their advantage. This enabled them to take excessive profits on currency exchange through exchange fees and by manipulation of exchange rates. Frederick Lane wrote: “Venice’s rulers were less concerned with profits from industries than with profits from trade between regions that valued gold and silver differently.” [1] Venetian bankers (often called ‘The Lombards’), became worldwide masters in currency speculation. Gold and silver bullion was their main specialty. They would use their dominance of money to move bullion around to any place where they could make a significant profit. The monarchs of the region had little control over the money in use in their country. The size of this bullion trade was sizeable. Two times each year, a fleet of up to thirty bullion carrying ships, with a naval escort, sailed from Venice to Mediterranean ports, exporting deliberately overvalued silver and returning with gold. Jesus had complained of similar manipulation and was nailed to a scaffold for his efforts. The Venetian dominance of coinage meant that they could manipulate the ratio of gold to silver. This enabled them to loot as a form of tribute. This is not much different to the manipulation of exchange rates supposedly driven by ‘open trading’ on Forex which is easily manipulated by big speculators to extract tribute from nations that have been ‘encouraged’ to be subservient and tolerate the legalized plunder.

With traders from other regions, they would manipulate exchange rates in their favor. Even when there was an excess of specie or currency, they could withhold and alter exchange rates, which just happens to be the reason why Jesus tipped over the money tables in the temple many years before.

Venice had a close alliance with the Mongol Khans. The Mongols would slaughter the citizens of any trading cities whose activities threatened the dominance of Venice. The Mongols traveled to China with quantities of silver which was exchanged for Chinese gold. The Venetians also traded in Mongol captured slaves.

Venice was providing all the coinage for the largest empire that had ever existed. It also provided the currency exchange within this empire. Their currency trading and Money Supply covered what remained of the Byzantine Empire, and also of the Mamluk Sultanates in North Africa. The East suffered a change from a gold standard to a silver standard whilst other regions Byzantium and Europe changed from a silver standard to a gold standard. The orchestrated change enabled enormous profits as gold and silver were shipped from end to end. When gold or silver are used as money, manipulation enables unbelievable profit.

The Venetians also manipulated monarchs to their advantage and ensured that monarchs were in their debt. Venice had become a corporate state controlled by banking families. The modern version of this is more hidden. Its enforcers were the armies of the compliant regions this included armies from the Norman nobility of Europe, particularly from France and England. Venice had always done exceedingly well from divide and conquer. The method involves setting one group against another and gaining control whilst the sides are drained. It was the Normans who acted as the mercenary soldiers for Venice’s wars of conquest, known as the Crusades. These so-called Christian Crusades from 1099 to 1291 were arranged to expand and strengthen the maritime commercial empire of Venice. Venice provided the ships to take the Crusaders to the Middle East along with loans of money and instructions on which cities to capture or ransack. This gave Venice greater control of trade routes and associated ports. [8] Venice also controlled the Black Guelph party of the northern Italian cities, allied with the Pope. [2]

Fernand Braudel: “Venice was the greatest commercial success of the Middle Ages - a city without industry, except for naval-military construction, which came to bestride the Mediterranean world and to control an empire through mere trading enterprise. In the Fourteenth century, she was in the ascendant to her greatest periods of success and power.”

Fernand Braudel: “Venice had deliberately ensnared all the surrounding subject economies, including the German economy, for her own profit; she drew her living from them, preventing them from acting freely. ... The Fourteenth-century saw the creation of such a powerful monopoly to the advantage of the city-states of Italy ... that the embryo territorial states like England, France, and Spain necessarily suffered the consequences.”

England, France, and Spain remained impoverished nations. Just like the financial vultures operating today, the Venetian bankers indebted the citizens and nations and used the debt as a means of asset stripping. The extraction was magnified by manipulation of exchange rates. Many of the governments had effectively been ‘privatized’ by the actions of the banks. The ‘conditionalities’ were similar to the modern day ‘conditionalities’ imposed by the IMF and the current ‘Free Trade’ arrangements where foreign corporations have more rights than nations and their citizens.

One of many such privatization arrangements is as follows: In 1325, a Venetian bank owned the revenues of the Kingdom of Naples which encompassed the southern half of Italy. This region was a productive grain growing area. [8] They owned and organized the King of Naples’ army and collected his taxes. This Venetian bank also appointed the officials of his government and even sold the grain from his kingdom. [8] They encouraged wars with Sicily to reduce Sicily’s grain production. [8] You will see parallels with the modern world.

The Kingdom of Naples. Creative Commons.

The Beginnings of Virtual Bank Credit

In 1171, the government of the Republic of Venice had extracted forced loans of specie from their wealthy citizens. The government kept registers of the amounts it owed individual citizens. [7] The citizens received four percent interest per year, but the government did not make repayments of the principal. The citizens began to pass the ownership of these government debt obligations as a means of payment. This made them into an equivalent to money without actually being money. [7] The act of recording the transactions in books was much more convenient than making payments in coin, particularly where large sums needed to be moved for large value transactions. Soon the citizen would entrust their money to banks and transfer the book entries as means of payment. This Venetian practice of banking using the security of government loans has continued through history to today where currency is issued against a supposed store of gold or whatever the people believe is backing their notes. The system works even if the gold is virtual. Private banks use a similar system where citizens believe they have deposited money in the banking system and believe that their bank balance is backed by real government issued legal tender. Payment is effected by transfer of ‘credit’ between accounts. In reality, it is the goods that the money will purchase that backs the money. If money will buy goods, it has value. If money will not buy goods, it has no value. No gold backing is needed. It is the GDP that is the backing for the money.

The main family banks of Venice had branches in many countries including England, Netherlands, North Africa, and the Middle East. Trade between distant regions became significantly easier. One did not need to travel with a cart loaded with gold to effect a purchase. Much of their profit was derived from fees levied on the exchange of currency, which in modern times is the area controlled by a private corporation masquerading as the Bank for International Settlements. The loaning of credit is good business until the magnitude of the loans exceeds common sense and default occurs as asset stripping reaches its limit. The creation of credit with attached debt by double entry accounting works well until it someone calls the operators bluff.

Venice purposefully intervened to prevent the emergence of national governments. [Fernand Braudel]

In the 1330s, the Big Venetian banks lent vast sums of Bank Credit to King Edward III of England. England was equivalent of a third world nation at the time. Their lending to King Edward III was done with brutal ‘conditionalities’ which enabled them to seize and loot his revenues. [4] The IMF uses similar ‘conditionalities’ in its lending to current third world countries. The national budget of King Edward’s nation was small compared to that of Venetian banks. By 1342, King Edward was effectively under bank servitude. The Venetian banks had also rigged the exchange rate against King Edward in much the same way as exchange rates continue to destroy Third World Nations today. As is typical of usury, it is impossible for all to repay and the banks started to lend even more to prevent a collapse. These days this is called a ‘bailout’ rather than ‘lunacy’. The bailout is a bailout for the banking system to prevent collapse of the over-extended usury system. The Venetians had encouraged Edward to wage war with France. War was and is a profitable business for banks. By 1343, the ‘Hundred Years War’ with France (1339-1453) was not going well for England. Edward refused payment to his bankers. His opinion was later shared by Shakespeare. Shakespeare may have been trying to divert the truth.

The problem of lending to kings was later overcome by revolution. Kings were replaced with pliable parliaments that would happily follow instructions. To rig the parliaments, political parties were invented to subvert the concept of democracy. Gullible citizens would vote for political parties that outwardly appeared different but they supported the debt banking system and every war that was appropriately propagandized. Kings had long been a problem for the moneylenders. When a moneylender lends money to a king, what happens when the king dies. Does the new king say "I’ll take on the debt" or does he say "Chop off their heads. They should not be lending money. It says so in the bible." Kings were removed or turned into redundant figureheads. Debt could then be hung on a parliament with the liability put onto the people. New taxes were invented for the purpose of garnering the tribute.

In the years leading up to the 1345 crash, European production of the essential daily commodities was severely hampered by the predatory actions of the Venetian banks. Trade diminished in these years. The circulation of money was completely disrupted in the decades leading up to the 1345 crash of the Venetian banks. [2] In 1345, the world’s biggest banks went ‘belly up’, starting with two big banking companies of Florence. This bank crash turned into a financial disintegration. All Bank Credit simply disappeared. In my graphs, that would represent a disappearance of the green section. Only the orange currency would remain for trading. The Money Supply fell to a fraction of its former value. Trade and exchange dried up. Hunger, created by bank profiteering, became famine and poverty.

The credit was created out of thin air by registry entries and it disappeared back to where it came from - thin air. When banks create credit-from-thin-air and demand greater amounts of credit in return, they have created an ‘impossible contract’. The impossible contract works to their benefit whilst they have the upper hand. When the inability to pay exceeds the ability to asset strip the debtors, the system collapses. More and more credit is advanced until the whole credit-from-thin-air system collapses. The whole of the economic system collapses. Food becomes unavailable. There is no money for wages. Farm product does not move. All savings are destroyed. The well-off join the beggars looking for non-existent food scraps and finish up eating grass, if they are lucky enough to find grass. The credit-from-thin-air system collapses suddenly, without warning. Suddenly may mean overnight. By morning, you are defending yourself from marauding gangs demanding food with threats of violence. Society disintegrates and there is no organizing authority to reestablish a trusted money system essential for civilized life.

The continuous financial looting and economic profiteering over many years had damaged the real economies of the subordinate nations. This affected prices for essential commodities and caused a slow decline in output and a gradual fall in living standards. City infrastructure became decayed through lack of maintenance. City populations swelled as farm production had fallen and farm folk moved to the cities in desperation. Nutrition levels fell. Education declined. When the financial crash of 1345 occurred, it hit hard and the towns and cities were not in a good position to control the situation. Farm production was already down.The upheaval caused terrible famines. The plague arrived shortly afterward to magnify the problem. Europe was not in a good situation to take preventative health measures. The regions lacked good governance due to the Venetian interference. There was a severe shortage of money tokens and the society was not functioning well. Food production had declined and city populations had swelled. It was not possible to stop the plague with the social disorder emanating from the crash of the money system. As I have pointed out, the debts and financial issues were bad, but nothing is as bad as collapse. It is better to keep a bad money system going than to allow the money system to collapse. After 1343, and the start of the plague, the population of Europe fell dramatically and continued to drop for another century. It is difficult to be sure of the magnitude of the cull in population and we can only go on the numerous estimations. Paul Gallagher suggests the population fell “from perhaps 90 million, to roughly 60 million.” It is possible that the plague killed more than half of the population. Some believe that 70% of the population died. [6] Florence is reported to have lost 45000 out of a population of 90000 people. Siena is reported to have lost around 27000 out of its population of 42000. Between 1348 and 1374 the total population of England fell from 3.8 million to about 2.1 million. [3] It took two hundred years for the population to steadily grow to its 1345 level. It then plunged to its previous level over the next few years. I cannot verify the data in this graph, which appears in a number of places. I have constructed it from what I believe to be the best figures available. The fall may have been more rapid than indicated in the graph as they were not doing annual counts of population:

The Population of Europe. Graph by Andy Chalkley. Creative Commons Attribute. [5]

From 1350 through to about 1420, the population continued to fall as economic devastation, disease, famine, collapse of the social fabric, and lack of political systems caused continued misery. The Venetian bankers were gradually expelled from country after country and a great dislike for Venetian banking and money systems continued for a long time. Nations gradually started to take control of their own affairs. Fortunately for modern bankers, we have forgotten the history of this 1345 financial lunacy. We just get Shakespeare’s softened down version of events as if it was just an interesting story for art buffs to jabber on about. Unfortunately, we will be reminded of the 1345 financial crash by reliving the event in the near future. In those days, people lived closer to the land and food supplies and they still suffered. Nowadays, our cities are far from food resources. A controversial police shooting creates riots and looting. So we have little chance if every ATM and all credit vanishes. A gun and stored food will be your only chance of survival.

Moving Forward

In the years following the financial disintegrations, much thinking occurred about humans and their relationship to the world at large. New ideas about society and its governance were discussed. The German churchman, Nicholas of Cusa, established the principle of the nation state based on the principle of the ‘Common Good’. He included a basis for peace amongst nations. [2] The ideas of Nicholas of Cusa were adopted by a meeting of numerous leaders from around Europe at a conference in Florence in 1439. They agreed on the basis for a new civilization based on Common Good, human reason, and national sovereignty. Louis the Eleventh (XI) became King of France in 1461. He established the first modern sovereign nation-state. Louis proceeded to build ports, roads, schools, printing works, industry, and general infrastructure. This new King of France provided support for the cities, created a national currency, and broke the power of the feudal barons. The population increased as food production improved. National income rose. [2]

The young Henry Tudor had exiled himself from England to France during the War of the Roses. He learned much whilst overseas. On his return to England, at the 1485 Battle of Bosworth, he claimed the monarchy from Richard III. The new king, Henry the Seventh (VII) implemented the methods that he had learned in Europe. He embarked on national economic development and attacked the power of the feudal nobility. He implemented national policies under the principle of the Common Good. As under King Louis of France, national income, food production, and population all increased. [2] This same nation building occurred in Spain and elsewhere and was a buffer against the power of Venice and its usury. This was during the time of the trans-Atlantic voyage by Columbus in 1492. [2] However, it was not the end of the interference in finance and sovereignty by the Venetians. The information is not easy to find because the traditional history books all conveniently leave out any reference to who is pulling the money strings. These traditional texts talk about this king and that war but never talk about who was financing and encouraging the wars between nations and sovereigns. Do your research and avoid the regular history books.

The center of control for the Venetians was eventually moved to Amsterdam with the creation of the Bank of Amsterdam. This later moved to London as the Bank of England.

Further reading: