Crusade against the Pope

Chapter 386 Medieval Finance
Even if the debt is accumulated at an annual interest rate of 6%, the debt is not large in the early days when there were few factories, so the interest in the first year is only 6 currency units.

It was not until the later period, when there were many factories and the interest rates became relatively high due to the arrears accumulated over the years.

But as long as the economic snowball keeps rolling, that little bit of interest is not worth mentioning.

Calculated at an annual interest rate of 4%, the total debt at the end of the tenth year would be approximately 3030 currencies. If the annual interest rate is 6%, it would be only around 3295 currencies.

No matter how you calculate it, in this simple economic model, it will only take 235 years for the 3 factories to clear their debts.

This model is of course problematic. In reality, when investing in building a factory, there will never be such an ideal situation. Instead, you will encounter various problems.

However, the significance of theory lies in guiding practice. Moreover, Gellis judged that the Kingdom of Jerusalem, with a population of less than one million, would not be enough to meet the commodity demand in the Mediterranean before completing the unification of Egypt.

If you want to effectively integrate Egypt, you will definitely need a strong economic foundation, so there is nothing much to say about this.

As an absolute first-mover country, there is still a vast market waiting to be developed in Jerusalem.

In this process, the Delfino family participated in the early construction of the kingdom's financial industry.

Moreover, the Delfino family did not simply pour their money into the financial market. Instead, at the suggestion of Gellis, they set up a fundraising institution in Venice.

By raising funds from the Venetians, the Delfino family has maintained a leverage ratio of 10-2 times in its investment in Jerusalem over the past 5 years.

A large amount of hot money from Venice poured into Jerusalem across thousands of kilometers of ocean.

In today's era, this is undoubtedly advanced and terrifying.

Leverage refers to the strategy of expanding the scale of investment by borrowing funds.

Simply put, it means borrowing money to invest. The money you make can be multiplied by several times, and the money you lose can also be multiplied by several times.

As long as the booming economic development of the Kingdom of Jerusalem is interrupted, the kingdom will not be in trouble. However, as the middleman, what will be the fate of the Delfino family is hard to say.

Once the bubble bursts, the Venetians might eat the Delfino family alive...

Fortunately, the kingdom has not let the Delfino family down in the past ten years, so their total assets have tripled.

This is higher than the 10% annual interest rate boasted by the Medici family of Italy in later generations, reaching almost 12%.

With such stable and efficient wealth appreciation, the Delfino family is now well-known even in Venice.

……

Among many political systems, Venice is undoubtedly one of the oldest.

The formation of the Venetian concept did not happen overnight, but was a gradual process.

Putting aside various mythological descriptions, this matter must first be traced back to ancient Rome.

During the Roman Empire, the land north of the Adriatic Sea was called Venetia. At that time, a large amount of river water carried silt into the ocean, forming sandbars and lagoons around the continent.

Many of these sandbanks and islands were summer resorts for the wealthy Romans at that time.

As more silt accumulated, the new land began to become habitable for long-term living.

It was at this time that the Western Roman Empire began to collapse.

In 568, the Lombards invaded Italy, forcing the surrounding residents to migrate in large numbers to these sandbanks for refuge.

This meant that after the collapse of the Western Roman Empire, the coastal part of Venetia did not fall under barbarian rule like other regions, but continued to obey Roman officials appointed by Constantinople.

These refugees are spread throughout the lagoon area.

But not the entire lagoon area was called Venice. The refugees at that time mainly lived in Chioggia and Cavarzere. Only Malamocco, near the center of the sandbar, was called Venice by later generations.

As the authority of the Eastern Roman Empire gradually declined, the Venetians gained de facto independence.

The long hundreds of years that followed were the history of how the Venetians crisscrossed the Adriatic Sea and established their own commercial hegemony.

But it was not until the 12th century that the Venetians dared to say that they ruled the Adriatic Sea and officially had their own place in the entire European continent.

After all, the lagoon produced little except salt fish and salt, and eating just salt fish and salt was not enough to survive, nor was it enough to support a population of the size of the Venetians.

Commercial trade and handicraft production became important means for the Venetians to maintain their existence.

It was so dependent on commerce that it formed a social order and urban morality that was completely different from the feudal society at that time.

It can even be said that whenever the Pope tried to interfere with the Venetians, he would be told, "Venice has its own national conditions."

Take the "old Venetian custom", which means they charge 20% interest on well-secured loans.

By the 12th century, the church had completely banned interest-bearing lending.

The Venice court stated that as long as the interest rate did not exceed 8%, everything would be fine. Even though the church criticized it as usury, the Venetians were too lazy to pay attention.

In other words, the Pope meant well and did good things to make Venice's financial market more formalized.

With a financial system that is considered to be leading in the world, the Venetians have demonstrated unique efficiency and ruthlessness in business and trade.

Of course, the success of the Delfino family still caught many Venetians by surprise.

Take Korner for example. As the head of a business aristocratic family, he heard about the reconstruction of the Kingdom of Jerusalem 10 years ago.

But at that time, he did not think that this would have a profound impact on Venice.

After all, the output of goods in this era is basically constant and unchanging.

If the Kingdom of Jerusalem did not expand its territory, they would be just a middleman. Even if they could produce some Eastern goods, it would not be too much.

Even if we increase investment in Jerusalem, I don't think we will get any more returns.

But the facts gave Korner a slap in the face.

The endless emergence of new production technologies and previously unthinkable production models enabled the Kingdom of Jerusalem to complete its transformation from a country that simply collected Silk Road tolls to a commodity producer in just 10 years.

Originally, only 8% of the Oriental trade goods on the Venetian market were produced in Jerusalem, but now this proportion has expanded to 30%.

Such a rapid move naturally made Korner regret it. But this wrong step led to all the wrong steps. Now it would not be so easy to get involved in Jerusalem's business.

Fortunately, he had always been paying attention to the situation in Jerusalem, and following the Delfino family, he still made some extra money.

In addition, merchant ships from Venice to Tyre would bring news from there in a timely manner, so Korner learned the latest big news - Jerusalem declared war on Egypt.

The impact of this news on Venice was beyond the expectations of many people.

When Corna and his son arrived at the porch of the Rialto Church, they saw at least twenty or thirty people holding IOUs in their hands, demanding that the Delfino family's agent here pay off the money that the Delfino family had borrowed from them in advance.

"We are not the country tenant farmers who have been dealing with merchants for years! This contract in my hand was signed in black and white by your Delfino. You borrowed 500 Grosso! If this money of mine rots in the Holy Land, where can I ask you for compensation?"

Although later generations called the Knights Templar the originator of the banking industry.

But to be precise, the Knights Templar are closer to the originator of a large multinational financial institution rather than the originator of a bank in the strict sense.

Take the Venetians, for example. Their bank is more properly called a giro bank.

The main function of this type of bank is not to issue loans but to make payments on behalf of customers.

Simply put, many Venetian families had too much money, and the quality of the coins was uneven, so it was better to deposit it directly into the account book of a reputable banker.

And these bankers didn't really have a bank; many of them simply sat on the benches in the porch of the Rialto Church, spreading out a huge ledger.

When the customers come in person, the customer's money will be transferred to another customer's account according to the customer's verbal instructions.

Since all of the Venetians' similar businesses were near the Rialto Bridge, these bankers were actually acquaintances of each other.

It is not difficult to make inter-bank transfers, and it covers almost all business activities in Venice.

At the same time, these bankers did not have their own safes. The real currency was actually kept in the residence of the state treasurer, in a shared warehouse, next to the bankers' stalls.

This method is quite efficient if the banker has a good reputation or the Venice "treasury" has sufficient funds.

But, today, does the "national treasury" really have enough funds?
In theory, traditional Venetian bankers were not allowed to lend money or allow overdraft accounts.

But the Delfino family actually borrowed a lot of money and transferred it to Jerusalem.

Now that Jerusalem is facing a war crisis, many creditors of the Delfino family are worried that the Delfino family’s investment in Jerusalem will be in vain, so they can’t wait to come here and ask the Delfino family to repay the debt in advance.

Since this was not savings, the Delfino family's agent directly and righteously rejected these people's requests.

"Gentlemen, please listen to me. This is not savings, but speculative loans. These capitals are invested in overseas enterprises and kingdom affairs on the premise of sharing profits-"

The agent had not even finished speaking when another round of argument broke out.

In this situation, Korner asked his son with a hint of consideration:

"What do you think we should do?"

Federico, a young man in his teens, frowned when he heard his father's question. Then he gave his answer soon after.

“We should buy the bonds held by these people.”

Korner did not rush to agree or deny his son's answer, but continued to ask: "Is it that simple?"

"Yes, it's that simple. As the Delfino family's largest creditor, any decision we make at this juncture will affect the thinking of all other creditors."

"Father, I know you were thinking about whether to continue to suppress the price of this batch of debts before buying them. But the Delfino family didn't just borrow a little money, they borrowed a lot of money!"

"Although, from a legal perspective, the Delfino family does not have to repay the debts as they have not yet reached the redemption deadline, the judge himself may also be a creditor of the Delfino family. If the panic you create is too great and things get out of control, that would be disastrous."

"By then, the Delfino family will go directly to Jerusalem and never return to Venice, and all our investments will be completely wiped out."

Listening to his son's words, Korner nodded, quite satisfied.

After all, at his age, he can't be so calm and analyze the pros and cons directly.

But Korner felt that his son was still a little conservative.

So he said, "You are wrong about one thing. I was not thinking about suppressing the price of this batch of debts, but thinking about how many bills I should issue to package all these debts."

When talking about the bill of exchange, Federico looked at his father with a hint of astonishment. Why didn't he think that his father was also a gambler?

Medieval laws prohibited usury, and even Venice kept interest rates below 8%.

In this case, since the interest rate is not very high, people's enthusiasm for lending money to each other is actually relatively limited.

But almost all successful businessmen, when faced with fleeting business opportunities, will subconsciously choose to increase investment.

Even though this requires them to pay a higher price, they still enjoy doing it.

A medieval financial method was used in a new way at this time - bill of exchange.

A bill of exchange is essentially a remote settlement.

Koerner had good relations with the merchants of Bruges, so he could issue a bill of exchange, with which anyone could go to Bruges to settle the bill.

He would sell the bill to a local Venetian and get cash.

The Venetian would have the bill sent to Bruges for settlement.

When the partner in Bruges receives this bill, he will issue another bill for settlement by Koerner and sell it to pay the bill issued by Koerner.

When the bill of exchange issued by the partner in Bruges arrived in Venice, Cornell had to pay a more expensive fee to pay the bill of exchange issued by the partner.

From Venice to Bruges, the round trip takes a total of 120 days.

In other words, this is short-term usury with a cycle of 120 days.

"Father... this..."

(End of this chapter)