A Tale of “Benevolent” Governments: Private Credit Markets, Public Finance, and the Role of Jewish Lenders in Medieval and Renaissance Italy
By Maristella Botticini
The Journal of Economic History, Vol. 60, No. 1 (2000)
Abstract: This article illustrates the impact of Jewish lenders on private credit markets and public finance in medieval and Renaissance Italian towns. In Tuscan private credit markets, Jewish lending helped households to smooth consumption, buy working capital, and provide dowries for daughters. Jewish lenders also helped the public finances of the communes in which they resided. This article shows that public- finance considerations affected the choice of the interest-rate ceiling Jews were allowed to charge. In many instances, the communes raised the interest-rate ceiling for Jewish lenders in order to tax or borrow the proceeds.
Excerpt: Loans served various ends. Peasants borrowed to purchase draft animals, merchants to build inventories. Young heads of households borrowed to smooth consumption and to purchase land and working capital. In addition, older heads of households sought loans to finance dowries for their daughters or granddaughters. A large dowry enabled a woman to find a better match in the marriage market and thus start a new household and produce offspring.
While most households actively participated in credit-market transactions, the data also show that Tuscan credit markets were local and isolated especially for peasant households: in 99 percent of the 2,587 loans to peasant households in five of the nine Tuscan towns, lender and borrower lived in the same town. Households whose main source of income and wealth was agriculture, and who therefore were subject to correlated shocks, nevertheless lent and borrowed locally. Peasants lacked access to a regional or larger credit market, as there were neither rural banks nor credit cooperatives. As a result, peasants in Pescia did not lend to people living in Montepulciano, peasants in Cortona seldom borrowed from people living in San Gimingnano, and so on.