Between the rise of the Italian banking magnates and the bursting of the South Sea Bubble, the royal families of Europe kept themselves in business by borrowing money from Italian financiers.  Having the monarch, or the monarch’s council, heavily in debt like this could lead to the bankers becoming excessively powerful. In the modern world, politicians who are seen to be too close to financial institutions are seen as corrupt; in the past, this corruption was a real threat to the security of the realm. Several examples can be found of a country’s leaders relying on these financiers, only to be betrayed or left penniless.

royal banking

The Medici

One of the first families to use their immense wealth (partly from banking) to rise to power is the Medici. By the end of the fourteenth century, this family were already heavily involved in  both lending to the royal houses of Italy, and constantly undermining them through plotting. The Ciompi (woolcarder) Revolt is one example of this, where Medici family members were heavily involved with the rebellion. In 1400, the Medici were banned from holding office in Florence for twenty years. By 1434, less than half a century after this expulsion from politics, Cosimo de Medici was the unofficial ruler of Florence. However, this power was greeted with envy by other banking families, and by 1478 they were in open revolt against the Medici, attempting to murder both Lorenzo “The Magnificent” and his brother Giuliano. The Medici would eventually become Dukes of Florence, and two of their relatives would (in turn) become Pope. Throughout their rise to power, the Medici used their financial backing to provide other political figures with a monetary base, eventually allowing them to seize control of the whole of Florence.

Ridolfi

Roberto di Ridolfi was a member of a Florentine banking family. In the mid 1550s, he settled in London, and began business partnerships with famous men, including William Cecil, chief advisor of Elizabeth I. As Catholicism was gradually driven underground by Elizabethan politics, Ridolfi began gathering discontented members of the nobility about him. They were partially attracted by his large capital. His position as a wealthy banker allowed him to move backwards and forwards between the major European capitals, communicating both with rebels in England, and with discontented nobles abroad. Ridolfi used his capital to buy arms and gain access to Kings and rulers in Europe who might help to depose Elizabeth and place her cousin, Mary Queen of Scots, on the throne. By using his money to access powerful people such as William Cecil, Ridolfi felt that he could control the plotters, and eventually have the ruler of England indebted to him.  He was, essentially playing all of the plotters off against each other. However, his contacts in Europe were not as committed to the overthrow of Elizabeth, and in fact she was warned by these leaders. The plot was discovered, and Mary agreed that she had given money to Ridolfi, although claimed not to know where that money was going. Ridolfi was forced to flee England, but his plotting had laid the foundations of other schemes which would eventually result in the Queen of Scot’s death.

The Dutch

By the eighteenth century, English nobles and Kings were borrowing heavily from European financiers. One group of men who loaned money to the Hanoverian Kings were the Dutch. By the 1740s, Dutch investment was so essential to the running of the monarchy that the King of England could not have managed without it. Events such as the Seven Years’ War in Europe could not have been won by British forces without the Dutch bankers. These financiers not only supplied funds, but were used by the English to speculate on the stock exchange, keeping English stocks afloat. This did not always work (as for example in the South Sea Bubble), but for most of the time, Dutch bankers kept English money stable. It has been estimated that Dutch bankers held £35 million English Bonds, around a quarter of all bonds then on the market. However, by the end of 1778, they owned only £25 million. This period came to an end in 1778, when financial crisis made the Dutch remove their portfolios from England, and take out French or American bonds. This is known as the “Dutch Cut-off”. The British were not able to fill the hole left by the Dutch, and were forced to pull out of wars. It is possible that a lack of Dutch investment meant that the British could not afford to keep fighting the Americans, leading to the Treaty of Paris which recognised the independence of the United States. By investing in England, Dutch bankers had allowed Britain to set down the foundations of her Empire, but, by leaving, they had also started the chronic lack of funding which would damage her industrial and social development.

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