By Dr Tony K. Moore
The modern financial trader is generally pictured as glued to a half-a-dozen computer screens. Six hundred years ago, he would have been sitting with ink-stained fingers before a mass of letters and account books. Most of these early financial records are now lost, but the business archive of one successful merchant, Francesco di Marco Datini (‘the merchant of Prato’) still survives today. An ongoing Leverhulme Trust-funded project at the ICMA Centre is using Datini’s business letters (a combination of internal instructions, market data and forecasts) to study the medieval foreign exchange (FX) market. But these letters also shed light on the difficulties of managing an international financial organisation. As Datini’s wife Margherita put it: ‘Save for [two named partners], you have no man who does not betray you twelve times a day’.
Between 1382 and 1410, Datini established and ran a number of companies across the Mediterranean from Tuscany to Spain. These companies were formally separate (although they used each other’s services when possible) although Datini was the majority shareholder in all of them. As Datini was based in Florence, he had to appoint agents to run his overseas companies, while the slow pace of communications meant that he had to devolve considerable autonomy to them. In general, Datini had three types of agents. In cities where Datini did not establish a company, he corresponded with Italian merchants based there and employed them on a commission basis. Where Datini did have a company, it was headed by either a fattore paid a set wage or a full partner who shared in the profits. For example, at first Simone d’Andrea took charge of the Barcelona branch as a fattore but was later promoted to partner. As partner, he received one-fifteenth share of all the profits from Datini’s Spanish companies. In return, he contributed 300 florins in capital (roughly 3% of the total) – although in fact Datini even had to lend him this initial stake.
Although the business letters examined by the FX project focus on commercial matters, Datini also wrote private letters to his agents in which he decried their personal behaviour. His representatives in Spain, who tended to be younger men and were less easily supervised, proved particularly troublesome. Datini wrote to Cristofano di Bartolo, head of the branch in Majorca, to remind him that: ‘you once said to me, you would like to be the head of a branch, to show your ability; but now I believe… you spoke thus to do what you please and to live at ease and make merry and have much pleasure and beget bastards’. D’Andrea’s behaviour was particularly shocking –he kept a Moorish slave-woman as his mistress, and she was reputed to run the household. Datini ordered him to dismiss her and hire a male servant, but to no effect.
Ultimately, Datini was probably more exercised by poor business management. Among a long list of complaints about sloppy record-keeping, Datini also criticised Bartolo for speculating on ostrich feathers, stating that ‘you mean to earn 16 per cent for yourself – let the other [partners] earn what they may!’. When another partner tried to save money by not insuring merchandise, Datini warned that, although the ship had arrived safely, ‘you are no prophet – and if some evil had come to her, it would have been the worse for you’. This reflected the differing incentives of the two parties. The junior partners received a share in any upside profits while Datini had most to lose since he contributed the bulk of the initial capital and held extensive assets that could be seized in bankruptcy. Thus the junior partners were risk-seeking while Datini was more risk-averse.
On occasion, Datini also expressed ethical concerns, especially about the use of certain types of FX transactions to circumvent the usury prohibition on charging interest. Again, d’Andrea was the chief offender. In 1400, Datini wrote to him repeating a prohibition on such dealings, stating that ‘once for all, I would have you a merchant and not a banker. If you are not so disposed, you will see how swiftly any agreement between us can be brought to an end’. This admonition was repeated in 1402 (‘I have told you, these exchanges please me not at any price…’) and again in 1406 (‘If you feel inclined to buy or sell money on the exchange, and attend to the business of many money-changers… find someone else who is of a like mind, for I will not be caught to satisfy your hunger’).
In the end, however, Datini does not seem to have followed through on any of these threats and his agents may have discounted them as empty words. As one put it, ‘did you not bite me in each letter, you would feel you had done no good’. A cynic might suspect that Datini’s exhortations were merely pro forma – after all, he too shared in the profits reaped from unethical behaviour. Perhaps the real subtext of Datini’s letters was not do not conduct such business but rather if you get caught, you are on your own. More pragmatically, Datini and his partners were mutually dependent; they needed his capital, connections and reputation and he could not have conducted his international business without them. Although the medieval experience does not provide a simple solution to modern problems, it does reinforce the point that the best compliance policy is toothless if it clashes with the underlying incentives.
A condensed version of this appears in the November 2014 issue of Focus@Henley
Notes
Dr Tony K. Moore is Research Associate, on the ‘Medieval Foreign Exchange, c.1300-1500’ project, with lead investigators Professors Chris Brooks and Adrian R. Bell. The project is funded by the Leverhulme Trust (grant number RPG-193). For more information, see: http://apps.icamcentre.ac.uk/medievalfx/.
Images of the Datini letters can be consulted online at http://datini.archiviodistato.prato.it/. The above quotations are taken from Iris Origo, The Merchant of Prato: Francesco di Marco Datini, 1335-1410 (New York, 1957).