The meandering trajectories of financial innovations: commercial paper and its uses in sixteenth-century Lyon's trading networks

Abstract

This article explores the complex dynamics of financial innovation in early modern times, challenging linear models of temporal and spatial divisions that tend to shape our understanding of the evolution of financial systems. It supports the idea that innovation should be viewed as a non-linear and contextual process, involving diverse stakeholders and characterised by interactions and unexpected occurrences. The study focuses on the dissemination and trajectories of financial innovations, specifically the bill of exchange and its variation, the ricorsa, as well as the transferability and negotiability of commercial paper. It does so by investigating the interactions and exchanges between merchants and bankers from diverse backgrounds during the sixteenth-century Lyon fairs, using the archival records of one of the first Italian banks in Lyon (Salviati). The study reveals the mutual influence and acculturation among these agents and challenges the compartmentalisation of financial expertise. Through an analysis of transactions recorded in the Salviati bank's ledgers, the article highlights previously unknown uses of commercial paper by Southern merchant communities and discusses the factors that may have hindered the full-scale development of endorsement and discount in the Lyon trading networks, despite their potential benefits. The results provide insights into the intricate nature of financial innovation and the influence of structural and cultural factors on its development.

I

Financial innovation is recognised as a driving force behind the advancement of financial systems, with the goal of establishing efficient and integrated markets characterised by seamless information flow and minimal transaction costs (North and Weingast 1989; Merton 1995; De Vries and Van der Woude 1997; McCusker 2005; Bateman 2015). Nevertheless, numerous theoretical and empirical studies have emphasised that the process of innovation should not be perceived as a linear progression towards a predetermined outcome. Rather, innovation should be understood as a complex journey characterised by unforeseen interactions between various phases and unexpected occurrences (Goldstone 2002; Duplessis 2019; Palma and Reis 2019). This dynamic progression entails contextual influences and involves a diverse range of stakeholders with various needs, engaging in collaborative efforts that blur the boundaries between participants, such as governments, financial institutions, private merchants, immigrants and pioneering thinkers from various fields (Neal 2000, 2018; Goetzmann and Rouwenhorst 2005; Poutanen et al. 2016; Bell and Moore 2018). Moving beyond the traditional Schumpeterian model that views innovation solely as the creation of new financial institutions, markets, or products, recent research has also emphasised that innovation, whether incremental or disruptive, involves processes of adoption and adaptation that unlock its value and potential (Bessant 2013) and lead to subsequent modifications and refinements (Neal 1991, p. 10; 2014, pp. 1–23; Baumol 2002, pp. 308–20).

Despite these efforts to deepen and nuance our understanding of financial innovation and its relationship with economic development, the evolution of financial systems in early modern times is still often interpreted as a linear process relying on strict divisions between regions lacking trade-stimulating institutions and agents skilled in complex financial instruments, and the vast hierarchical network of modern commercial and financial centres that organised European trade and fostered financial innovation. These spatial divisions (Flandreau et al. 2009) entail linear chronological distinctions between successive phases of the rise and decline of financial centres (North and Thomas 1973; Wallerstein 1974; Braudel 1981–4; Spufford 2006; Fratianni 2009). This powerful model of economic development has also shaped our understanding of the distribution of financial know-how among merchant communities. It is thus accepted that, in the sixteenth century, while Italian bankers engaged in long-distance operations using sophisticated financial instruments, such as the bill of exchange and shares in companies, merchants of lower status, such as the French, usually restricted their activity to a national sphere, using IOUs and bills obligatory for internal payments (Gascon 1971, pp. 266–76; Blanc 1994, p. 17; Boyer-Xambeu et al. 1994, pp. 39–41). Among Italian bankers, the Genoese are said to have developed more sophisticated banking techniques in Besançon than the Florentines had in Lyon (Van der Wee 1977, pp. 320–2; Boyer-Xambeu et al. 1994, pp. 86, 188, 195–8; Goldthwaite 2009, pp. 257, 480, 608). Notwithstanding the sophistication of Italian finance, a substantial breakthrough in the realm of financial techniques, and a definitive step towards modern banking, is said to have come from northwestern Europe, where endorsement and discount were introduced in the exchange system (Van der Wee 1993; Goldthwaite 2009; De Ruysscher 2009) and central banks were established (Gillard 2004; Murphy 2009).¹

Economic agents of varying capacities undoubtedly operated on the European scene in the early modern period. The dominance of different merchant groups and financial centres fluctuated over time, as exemplified by the transfer of economic power from southern to northern Europe in the seventeenth century (Rapp 1975; Abulafia 2011, pp. 411–41; Malanima 2013). However, amidst this dynamic landscape, interactions and exchanges between agents from diverse backgrounds occurred, leading to processes of mutual influence and acculturation that often go unnoticed when we focus solely on tracing origins and understanding the emergence of modernity, highlighting the importance of observing these interactions for a nuanced narrative.

Using the archival records of the Salviati, one of the prominent banks in the sixteenth-century Lyon market (Matringe 2016), I study the dissemination and trajectories of various financial techniques, examining their application across diverse merchant communities. The sixteenth-century Lyon fairs serve as a prime vantage point for this investigation, as merchants from diverse backgrounds engaged in payment and credit transactions during the annual Lyon ‘Payments’.² At the time Lyon was a central bill market and a clearinghouse for international payments (Braudel 1982, pp. 92, 217; Ehrenberg 1896, II, pp. 69–108; Boyer-Xambeu et al. 1994, pp. 81–5; Goldthwaite 2009, pp. 40, 164–5). In Lyon, Italian bankers, who dominated the market,³ maintained the symbiotic relationship between public finances, private credit and commercial activities which had defined their business practices for centuries (Neal 2015, pp. 42–3), while acting mostly as financial intermediaries (Matringe 2022).

Given the international scope and commission-based structure of their business, the Salviati ledgers provide records of transactions occurring not only within Lyon or between Lyon and foreign markets, and between the Salviati and their correspondents, but also between foreign markets and among the Salviati's correspondents. The transactions examined in this article support the notion that a thriving financial market could not rely on strict divisions among economic groups or a rigid differentiation in the usage of financial instruments among them. The purpose of this research is to uncover previously undisclosed or overlooked applications of commercial paper within ‘southern’ merchant networks of Italian, Spanish and French traders, and to propose explanations for the limited expansion of certain financial techniques within the same market over time, despite their perceived value in specific circumstances.

The next section shows that while French merchants regularly issued and paid inland bills of exchange, Italian merchants could use more rudimentary instruments to settle international debts. I then examine a variation of the exchange contract known as the ricorsa (Section III). This arrangement stands out as one of the earliest instances where bills of exchange were used as instruments for long-term credit, usually associated with public and private annuities (Munro 2003; Hoffman et al. 2019). The ricorsa has been acknowledged as a Genoese innovation which played a pivotal role in the development of Spanish royal finances (Pezzolo and Tattara 2008) and was part of the extensive financial operations that enriched the Genoese while downgrading the Florentines in the late sixteenth century (Boyer-Xambeu et al. 1994, p. 96; Goldthwaite 2009, pp. 44–7). I question both the alleged Genoese origin of this use of the bill of exchange and the notion that it was credit-focused instead of payment-based. I thereby challenge the idea that it signified a heightened level of sophistication and speculation in Genoese exchange practices compared to those of the Florentines (Boyer-Xambeu et al. 1994, pp. 195–8; Goldthwaite 2009, p. 603).

The article then focuses on the transferability and negotiability of commercial paper, deemed essential components in the modernisation of banking. By facilitating liquidity and versatility in financial dealings, negotiable bills are considered to have amplified the efficiency of monetary systems (Munro 2003; Li 2019; Accominotti et al. 2021). Although the modern economy has seen a gradual fading of negotiable instruments, supplanted by electronic transfers, the fundamental idea of shifting and managing financial risk, which sparked the rise of negotiable instruments during the early modern period, still resonates in current financial mechanisms like credit derivatives and default swaps. I show that southern merchants engaged in Lyon trading networks had frequent interactions with Flemish merchants and were acquainted with assignment (Section IV) and discount (Section V) but refrained from extensive utilisation. Lastly, I discuss why endorsement and discount never developed on a broad scale in the Lyon fairs trading networks, despite their potential benefits (Section VI). Functionally, the presence of ledger-based debt transfer solutions, serving a comparable function while diminishing the need to issue commercial paper, may have been a contributing factor. Culturally, Italian business traditions, which prioritised transacting with known individuals, could have hindered the broad acceptance of ‘impersonal’ endorsement and discount backed by legal liability.⁴

Overall, the results of this study challenge the notion that the financial expertise of early modern merchants was strictly compartmentalised. Instead, they reveal the intricate and elusive contours of financial innovation, whose trajectory is often difficult to trace.

II

In sixteenth-century Lyon, high-flying merchant-bankers and financiers from Italy and Germany entered into business with merchants from Spain, Portugal and Switzerland, and with French merchants of varying stature – from the great merchant-drapers, grocers and booksellers who participated in international trade and in the city magistratures, to the peasants and small artisans who came from the nearby provinces on foot to sell their produce (Gascon 1971, pp. 169, 222–5, 369–80). To describe the interactions between these various merchant groups, historians have tended to adopt a hierarchical perspective. The thesis of French merchants’ backwardness and their subordination to the Italian system of commerce and exchange was famously put forward by Gascon, who adopted Bergier's views on the Geneva fairs.⁵ According to Gascon and others after him, the technical gap between French and Italian merchants conditioned the nature of their business activity and their use of financial instruments: French merchants, specialised in the redistribution of foreign products imported by the Italians, paid for their purchases with IOUs. By contrast, the Italian bankers used bills of exchange for their international fund transfers (Gascon 1971, pp. 203–7, 266–76; Cassandro 1979; Boyer-Xambeu et al. 1994, pp. 17–18, 39–41). The Salviati archives provide an opportunity for a more nuanced approach to this issue. They present instances of collaborations between French and Italian merchants who engaged in exchange activities between the Castilian fairs and various French markets, including Lyon, Nantes and Rouen, as well as between Lyon and Paris. These archives also reveal that Italian merchants were not reluctant to use ‘rudimentary’ payment instruments when it was deemed advantageous or necessary.

While the activities of important French merchants in the south and northwest of France in the sixteenth century have previously been studied (Mollat 1952; Lapeyre 1955a, p. 123; Caster 1962, pp. 171–89), the Parisian milieu is less known. The Salviati archives not only provide evidence of the previously debated presence of prominent Italian banks in the capital during the first half of the sixteenth century⁶ but also offer insights into the relationships between these banks and French merchants. The Salviati had several correspondents in Paris at that time, including the Del Bene, Rossi, Manuelo Riccio, Buonaccorsi and Capponi & Rinuccini. These banks facilitated cash transactions for the Salviati, involving sales made in Lyon to clients located in Paris, Tours, Orléans and Poitiers. Additionally, they managed payments related to government loans contracted in Lyon. Moreover, they handled the exchange of communications between the Roman Curia and the French court in collaboration with the Salviati.⁷ The analysis of Parisian bank accounts in the Salviati ledgers reveals that significant sums of money were involved in the Italian trade between the political hub of Paris and the financial centre of Lyon, necessitating collaboration between Italian bankers and French merchants to facilitate fund transfers between the two cities. For instance, the Rossi and Del Bene banks frequently purchased bills of exchange from French merchants such as Noël and Pierre Assézat,⁸ important woad merchants (Caster 1962), Nicolas Reillon,⁹ Nicolas Leriche,¹⁰ Sébastien Dubois¹¹ and Julien Larcher,¹² when remitting funds to Lyon. Similarly, the Salviati acquired bills issued by Lyon merchants on Parisian merchants. In the account managed by Riccardo Del Bene on behalf of the Salviati between 1544 and 1549, nearly a quarter of the remittances from Paris to Lyon, and slightly less than half of the remittances from Lyon to Paris, consisted of bills issued by French merchants and drawn on them.¹³ In the accounts managed by the Rossi on behalf of the Salviati, approximately 40 per cent of the remittances from Lyon to Paris involved bills issued by French merchants. These transactions primarily resulted in the acquisition of bills on Antwerp.¹⁴ The financial capabilities of these French merchants were by no means insignificant (Appendix 2.1.1 and 2.1.2). The Italian bankers in Paris had the ability to issue bills drawn on French merchants in Lyon, while the French merchants in Paris were able to draw bills on Italian bankers located in Lyon (Appendix 2.1.3 and 2.1.4). Hence, despite occasional displays of superiority by the Italians towards French merchants¹⁵ they still relied on the French to facilitate the circulation of money between Lyon and the capital, especially considering that the Italian network was not as extensively developed in the north of France as it was in the south. One of the Salviati's clients, Antoine Lemasson, was undoubtedly a prominent figure within the Paris mercantile elite, actively engaged in both Mediterranean and Atlantic trade and banking networks (Appendix 2.3).

While French merchants could use bills of exchange to pay for their purchases at the fairs, Italian merchant-bankers did not hesitate to use more rudimentary methods to transfer funds inside the kingdom and abroad. When the Salviati and their Parisian correspondents did not find bills of exchange or reliable exchange partners, or when exchange rates did not seem profitable, they resolved to ship species despite the associated risks. In total, the equivalent of 41,719 scudi di marco ¹⁶ circulated like this between the Lyon Salviati and their main correspondents in Paris, the Rossi and the Delbene, between 1544 and 1549.¹⁷ In the Salviati's ledgers, such transfers were compensated by payments made on behalf of the Salviati either to or from French merchants. Specie transfers also sometimes had a speculative aspect. For instance, the Salviati would ship specie to Paris before requesting a remittance from Paris to Lyon, or the Delbene family would ship specie to Lyon before drawing on Lyon. In these instances, differences in exchange rates led to the trading of sun crowns for a profit, which was documented as a percentage in the Salviati's ledgers.¹⁸ The Salviati also sent species to Carcassone to import pastel – part of which they re-exported to London – and to La Rochefoucault from where they imported saffron.¹⁹

The cash was typically sent via couriers²⁰ and, less frequently, through servants.²¹ For particularly large sums, the transfer would be carried out by Leonard Spina, the governor of the Lyon bank himself, or a trusted client.²² The cash was transported in various types of pouches (primarily gruppi but also sachetti, and occasionally ruotoli lungi).²³ Additionally, it circulated in the form of ‘plates’ (piastre) or ingots concealed within cloth bags or covered in paper.²⁴ The currency included coins of diverse origins, such as French sun crowns (the most prevalent), Italian and Spanish ducats, florin karolus from Flanders, as well as rose nobles and angelots from England.²⁵ Although the Salviati did not appear to have taken specific measures to secure these shipments aside from concealing the species in specific packaging, the Lyon–Paris route was most likely the safest in France. This was because it served as the main postal road, frequented by government officials, military personnel and merchants, and was well organised compared to other routes (Gascon 1971, pp. 149–51).

While species transfers were commonly employed for domestic payments within the kingdom, the Italians did not always rely on bills of exchange for international transactions. As an illustration, the Rustici family from Florence, who served as the primary suppliers of luxury silks to the Salviati, frequently settled their purchases by transferring IOUs held against their French clients in Paris to the Salviati, thus covering the costs of raw silks they acquired at the fairs.²⁶ Monetarised barter was also in use in the Italian community (Appendix 2.2). Finally, Italian financiers predominantly used letters of credit not involving any monetary conversion to support the voyages of clerics and diplomats throughout Europe. The Salviati's ricordanze contain numerous copies of such letters, which were sent to their correspondents in Paris, Rome and Venice.²⁷ The Salviati archives thus encourage us to reconsider the notion of French backwardness and challenge the strict division between French merchants’ use of IOUs for domestic payments within the kingdom and Italian merchant-bankers’ reliance on bills of exchange for international transactions.

III

It is usually accepted that the Florentine merchant-bankers, while they held complete dominance over the Lyon market and its French merchants, eventually lost their position as leaders in international finance to the Genoese bankers of Besançon. This shift in power has been attributed, at least in part, to the Genoese bankers’ advances in banking techniques (Van der Wee 1977, p. 320; Boyer-Xambeu et al. 1994, p. 196). One notable example of such a technical advance is the ricorsa, a credit contract involving exchange and rechange transactions between two markets over an extended period, leading to accumulated profits from rate differentials (Bell et al. 2017). This development blurred the boundary between long-term credit, typically associated with fixed bonds and annuities, and short-term credit facilitated by commercial bills.²⁸ However, the distinctiveness of Genoese banking during the Besançon fairs can only be fully understood by recognising the continuation of previous practices. For instance, the asiento, a financing arrangement in which Genoese financiers lent money to royal officials across different parts of the empire, to be reimbursed in Spain through fiscal income, was undeniably a Genoese creation. Yet the asiento incorporated traditional Italian practices of interest loans to sovereigns, supported by guarantees and involving a play on exchange rates. In this section, I will focus on the use of the ricorsa at the Lyon fairs and explore the extent to which it may have differed from its use by the Genoese in Besançon.

First, it should be emphasised that the Florentine and Genoese bankers were in constant interaction in Lyon and elsewhere. Aside from interacting with dozens of Genoese banks established in Lyon, such as the Catteneo & Centurione,²⁹ the Centurione & Lomellini,³⁰ the Imperiale & Lercaro,³¹ the Giustiniani & De Franchi,³² or the Lomellini & Gentili,³³ the Salviati also had several Genoese correspondents in Genoa (such as the Spinola or the Di Negro & Pallavicino),³⁴ Antwerp (mostly the Spinola but also the Cibo & Giustiniani and the Gentili & Centurione),³⁵ London (De Gradi),³⁶ Rome (mainly, the Centurione),³⁷ at the Castilian fairs (such as the Interiano & Di Negro of Medina del Campo)³⁸ and in Besançon (the Imperiale Garbarini).³⁹ This constant collaboration, occasionally marked by rivalry, between the Florentines and the Genoese (alongside other Italian ‘nations’ like the Venetian and the Milanese⁴⁰) was also evident a few decades later, well into the so-called Age of the Genoese (Marsilio 2010). Hence, it is reasonable to expect that the banking practices of these merchant groups were consistently interlinked and developed in correlation over time.

Contrary to the notion that the ricorsa contract was a Genoese innovation (Pezzolo and Tattara 2008) ‘almost unknown’ at the Lyon fairs (Boyer-Xambeu et al. 1994, p. 96), evidence from the Salviati and other Lyon bankers, such as the Martelli,⁴¹ demonstrates their regular involvement in ricorsa operations. These operations were primarily conducted with Venice, Rome and Florence – a city where their main headquarters were situated. In the case of the Salviati, the Florence motherhouse would transfer money to Lyon on behalf of its clients, with the Lyon branch acting as the drawee and beneficiary of the bills. This transaction would be followed by an equivalent sum being exchanged in the opposite direction, with the Lyon Salviati now taking on the role of drawers–remitters. In cases where the Florence Salviati's clients were borrowers, the Florence Salviati would draw bills on Lyon on their behalf, and the Lyon Salviati would subsequently draw a counter-bill on the Florence Salviati, who would be debited on behalf of the borrowers, thus effectively renewing their loan. This process of exchange and rechange could continue for an extended period, sometimes lasting several years. The interest accumulated was either reduced (when clients lent money) or increased (when clients borrowed money) by the commission fees charged by the Lyon and Florence banks. Although the Salviati archives do not explicitly state whether the initial agreement regarding the loan duration was prearranged, these operations align with the conventional ricorsa pattern.

Appendix 3.2 reconstructs such a transaction between Lyon and Florence involving Francesco Franchini, a shopkeeper from Prato, who lent approximately 100 scudi for a duration of seven years, earning an average annual interest rate of 5 per cent. Such remuneration of loans was consistent throughout the Salviati ledgers, while borrowing in Florence through the same modality was usually taxed at about 7 per cent.⁴² Both rates align with the offerings of social assistance institutions in Florence turned into public banks, including the orphanage of the Innocents, the Santa Maria Nuova hospital and the Monte di Pietà (Menning 1993; Sandri 2001; Fubini Leuzzi 2005). However, the level of competition between public banks and private banks in Florence remains unclear.⁴³

The ricorsa contract's innovative nature has often been linked to its seemingly speculative nature and the perceived autonomy of the Besançon fairs from commodity trading (Boyer-Xambeu et al. 1994, p. 86; Pezzolo and Tattara 2008). However, Mandich's pioneering study on the ricorsa, which is based on primary sources, presents an ambiguous perspective on this matter. On one hand, Mandich asserts that in markets where the ricorsa was practised, the official exchange rate list (conto) was solely determined by banking considerations from a select group of bankers (Mandich 1953, pp. 57–8).⁴⁴ On the other hand, Mandich mentions that only a minority of the Genoese exchange transactions in Besançon were purely financial and unrelated to merchandise trade (Mandich 1953, p. 108). Mandich further emphasises that the remaining balances held by Genoese bankers at the end of the fairs, which did influence the fixation of exchange rates (although not explicitly stated by Mandich), were primarily the result of transactions with markets where commodity trade played a significant role (1953, p. 109).

While there is no doubt that the bankers who determined the conto would have sought to favour the interests of lenders–remitters, the extent to which their decision-making may also have been influenced by considerations related to trade balances is unknown. Furthermore, Mandich's observations regarding the purpose of exchange transactions and the impact of commodity trade on fair balances support the notion that disconnecting the fixation of the conto from merchandise flows is unjustified, even in the case of the Genoese fairs in Besançon.

In the case of Franchini's deposit, the Salviati deviated from the Lyon conto – which I was able to find for five fairs in the copies of letters sent – during at least three fairs (Appendix 3.2). If the interest rate on ricorsa transactions had solely determined the official exchange rates with Florence, those rates would have been as high as the private rates applied to the remittances made on behalf of Franchini. However, the substantial influx of imports from Italy may have exerted downward pressure on exchange rates. Not only did the profitability of ricorsa transactions in Lyon partly depend on balances of trade. Ricorsa transactions themselves were often connected to payments from the commodity trade. Even if just one party involved (directly or indirectly) in an exchange transaction wanted to make a payment for merchandise, the operation ceased to be purely financial in nature. For instance, when the Florence Salviati remitted funds to Lyon on behalf of Franchini, they frequently purchased bills from silk exporters at the Lyon fairs, such as the Capponi, Gaddi and Panciatichi. Similarly, when the Lyon Salviati issued counter-bills on Florence, they often took the opportunity to remit funds on behalf of their merchandise suppliers, such as the Rustici, Buondelmonti for luxury silks, or furriers from Pistoia like the Ricciardi.

These examples highlight the importance of exercising caution and avoiding the tendency, observed in certain instances (Goldthwaite 2009, p. 440; Maixé-Altés and Iglesias 2009), to disconnect fund transfers associated with commodity trade from local banking activities. Contrary to some arguments put forth (Spufford 1986, pp. xl–xliii; Boyer-Xambeu et al. 1994, pp. 140–1), the dichotomy between instrumental and speculative exchange cannot hold as a rule. The identification of purely financial exchange transactions, whether in the form of ricorsa or other dry exchanges (De Roover 1944), can only be established by examining each transaction in detail over time. Based on Mandich's insights and the Salviati archives, it appears that ricorsa transactions were less exclusively credit-focused than previously believed. Rather they serve as evidence for the enduring connection between trade and credit since medieval times (Bell and Moore 2018), therefore emphasising the presence of continuity within change. This holds true regardless of whether the transactions took place at hybrid commodity–exchange fairs like Lyon or purely exchange-focused fairs such as Besançon, Piacenza or Verona. The Salviati (and Martelli) archives also attest that it would be incorrect to consider the ricorsa a Genoese innovation. It is more likely that this exchange practice flourished at the Lyon fairs, although it may not have originated there. Unfortunately, the limited availability of archives from the medieval Champagne fairs prevents tracing the ricorsa further back to that time period.

Apart from the ricorsa's alleged greater sophistication compared to the Florentine exchange in Lyon, Van der Wee also argues that the clearing method was more efficient at the Besançon fairs due to the mutual offsetting achieved through the sale and purchase of bills on foreign markets (Van der Wee 1977, p. 321). However, the Salviati fair ledgers demonstrate that such a clearing method was equally developed in Lyon, alongside rescontre,⁴⁵ and these two clearing techniques were frequently used in combination. Once their mutual balances for the bills to be paid and cashed were cleared, and after exploring all rescontre possibilities, Lyon bankers often issued new bills to settle the remaining balances.⁴⁶ Van der Wee (1977) also highlights the Genoese capacity to anticipate and orientate fund transfers in their favour and minimise transaction costs through speculation on exchange rates. These practices, again, had been typical of Italian banking since the Middle Ages. It remains unclear how the Genoese eventually improved or extended them in any way.

IV

While the Florentines are supposed to have been technically downgraded by the Genoese, it is suggested that Flemish merchants gained a significant advantage in financial techniques during the early seventeenth century by introducing the transferability and negotiability of bills (Van der Wee 1963, p. 1082; 1977; Goldthwaite 2009, pp. 229–30). Yet such practices were not unfamiliar in southern Europe. Economic historians have long discovered evidence of assigned bills of exchange in the archives of Italian and Spanish companies dating back to the fourteenth and fifteenth centuries (Teja 1936, I, p. 114; Lapeyre 1955b; Melis 1958). Additionally, in the late sixteenth and seventeenth centuries, deposit certificates from public banks in Naples circulated locally through successive endorsements (Costabile and Nappi 2018). In this section I examine the assignment practices employed within the Lyon trading networks, before delving into discounting practices in the next section.

Apart from rescontre, the most common form of assignment involved the issuer or beneficiary of a bill requesting the Salviati, through written order, to debit or credit the value of the bill in the account of a third party instead of their own (see Appendix 4.1). The value of bills could also be assigned to a third party by the beneficiary. This practice of assigning due bills has been observed in Italian merchant networks as early as the fourteenth century (De Roover 1953, pp. 137–8). As Van der Wee points out, such transfers of the value of due bills did not facilitate their circulation outside the bank (Van der Wee 1993, p. 160).

While bills could be assigned retroactively to third parties in the banker's account, some bills also included a priori assignment clauses that mentioned potential proxy and alternative beneficiaries. These clauses were sometimes in the form of open orders (see Appendix 4.2.1–4.2.5), which functioned similarly to blank cheques, allowing the drawer to designate the bill as payable to whomever the remitter would specify.⁴⁷ In the case of open orders, the remitter could also choose the drawee of the bill (see Appendix 4.2.2–4.4.4), implying an agreement with the drawer. The second type of assignment clause explicitly mentioned the names of alternative beneficiaries (see Appendix 4.2.6), while in absentia clauses designated a proxy beneficiary who would be paid in case the preferred beneficiary was absent and could also be the drawee of the bill (see Appendix 4.2.7). Additionally, mentions of procurations sometimes appeared on bills payable to a specific beneficiary ‘or whomever would have his procuration’ (see Appendix 4.2.8–4.2.14). As indicated in some of the entries, the procuration was an actual document presented by the proxy beneficiary at the bank (Appendix 4.2.9 and 4.2.10). In Antwerp during the same period, assignment notes were attached to IOUs upon transfer (Van der Wee 1977, p. 327). The Salviati archives do not reveal whether the procurator acted as the creditor of the original beneficiary, which would imply that the ‘procuration’ was, in fact, an assignment.

Overall, transferable bills consistently involved merchants engaged in Atlantic trade as drawers or drawees, such as Spanish merchants in Nantes and Rouen, Genoese and Spanish merchants active at Castilian fairs, and Portuguese merchants in Antwerp. I have not come across instances of assignment clauses applied to bills of exchange circulated among Italian merchants operating in the Mediterranean space. This suggests that French, Spanish and Genoese merchants involved in these transactions might have adopted such practices through their interactions with Flemish merchants. The presence of absentia beneficiaries and procurators can also be observed in the Martelli ledgers a few decades later, involving merchants settled in Castile.⁴⁸

To a lesser extent, the Salviati archives also contain a few examples of IOUs and bills obligatory with a bearer's clause, which rendered procuration unnecessary. The inclusion of a bearer's clause was a characteristic feature of the Flemish financial system and has been considered as the catalyst for the development of endorsement in the northern regions (Van der Wee 1963, pp. 340–8; 1977, pp. 322–32). Instances found in the Salviati archives pertain to internal payments between Paris and Lyon, as well as transactions involving Italian and French merchants engaged in Mediterranean trade, along with a Lyon nobleman named François Rousselet (see Appendix 4.3). It becomes challenging to ascertain the extent of Flemish influence in such cases. However, the fact that even Rousselet could issue a bill payable to the bearer suggests that the bearer's clause was indeed well known within the Lyon fairs. It is possible that this practice emerged simultaneously in various regions of Europe, although it did not attain widespread usage in the south.

Further indications regarding this time drawers of bills of exchange suggest that bills could be assigned. In such cases, formulations referred to the underwriting of bills by a third party who assumed the role of ‘principal debtor’ (see Appendix 4.4). The standard formula employed in these instances, alla sottoscriptione di, indicates that the name of the guarantor, who was obligated to pay in the event of the drawee's default, appeared below (sotto) that of the drawer. Underwritten bills were commonly used in Brabant. According to the customs of Antwerp, the guarantor who undertook the role of the principal debtor would be pursued for payment, even if the drawee was solvent (De Longé 1879, pp. 55–7). Once again, the examples found here involved bills issued by Spanish, French and Genoese merchants on the Castilian fairs or Paris. By contrast, in exchanges between Lyon and Italian markets, guarantees took the form of sopra di accounts, where all bills drawn on a banker by a risky or distant client or their agents were guaranteed by a trusted correspondent, whose name was included in the account title (for example: ‘Vincenzo Cellesi sopra di Piero Cellesi & Ci di Pistoia’ for bills drawn for Vincenzo on Lyon and guaranteed by Piero Cellesi & Ci).⁴⁹

Underwriting in certain cases could signify assignment. The underwriter would request a creditor to draw a bill on one of their correspondents abroad for reimbursement, which the underwriter would then sign to ensure its acceptance overseas. This is suggested by the language used in the entries (see Appendix 4.4.4) and the structure of some transactions (see Appendix 4.4.5). The format of underwritten bills sometimes resembled endorsement, as guarantees were occasionally written on the back of bills. Guarantees on the back of bills were customary in sixteenth-century Antwerp (Van der Wee 1963, p. 348 n. 78). Instances of this practice have been discovered in the account of Lyon merchants Cornut & Chabaud (see Appendix 4.4.6) concerning bills drawn on Rome. In addition to the Salviati's signature on the back of the bills, other elements are reminiscent of an endorsement by the drawer. The receipts issued by the Della Casa after the payment of these bills were sent to the Salviati, not to the original drawers, Chabaud & Cornut. Furthermore, since the Salviati's proprietary (nostro) account with the Della Casa is credited in the Salviati's ledgers, it implies that the account held by the Della Casa on behalf of the Salviati (Salviati's vostro account) was debited in the Della Casa's ledgers, rather than a potential account opened in the name of Chabaud & Cornut. In this case, underwriting served a function similar to endorsement.

These examples further reinforce the notion, as previously emphasised with regards to maturities (Bolton and Guidi Bruscoli 2021), that bills of exchange did not adhere to strict formatting as one might anticipate prior to the widespread adoption of endorsement and discount. Resort to alternative beneficiaries, procurations and guarantees all served functions akin to endorsement.

Lastly, the Salviati archives provide examples of direct transfers of IOUs and bills obligatory. As previously mentioned, the Salviati's suppliers of luxury silks occasionally settled their debts for purchases of raw silk at the Salviati bank by presenting unmatured IOUs from their French clients (Appendix 4.5.1). However, such cases were atypical, and the transfer of IOUs appeared to be less common in Lyon than in Rouen, where trade relied heavily on the Low Countries, and such transfers helped alleviate the prevalent cash shortage (Mollat 1952, pp. 389–90). In Lyon the transfer of bills obligatory was also infrequent and necessitated the presence of a notary (Appendix 4.5). The Salviati archives do not provide information regarding the legal protection of the assignee. Only if the original IOU/bond holder remained liable for payment would these transactions amount to endorsements. The requirement of a legal seal to transfer bonds outside the bank, as observed in Rouen (Bottin 1988, p. 984) and Amiens, where transfers were recorded by a municipal tribunal (Pelus-Kaplan 1989, pp. 109–10), suggests that such practices were not as widespread in France as they were in Flanders, England and Germany (Holden 1955; Jeannin 1991, pp. 110–12; Rogers 1995).

The Salviati records thus confirm that the assignment of unmatured commercial paper outside the bank was not widely practised within the sphere of the Lyon fairs. However, they also reveal that other assignment methods, including assignments within the bank and indirect mechanisms of debt transfer such as the use of procurators and guarantees from principal debtors, were regularly employed. While special clauses primarily concerned Franco-Hispanic and Hispano-Genoese networks involved in the Atlantic trade, the actual instances of commercial paper transfers involved Italian merchants. This demonstrates that Italians were not limited to internal bank transfers confined within their own ledgers, as has sometimes been suggested (Van der Wee 1977, p. 328), and could adopt the ‘Flemish’ way of assignment when convenient. This is further corroborated by the existence of an assignments book in the archives of the Salviati Antwerp bank (Appendix 1.1.3). Examples of modern endorsement, understood as the successive transfers of unmatured bills by jointly responsible endorsers – which had not yet developed in Antwerp – have so far not been found in the Salviati archives for this period.

V

The Salviati archives also provide valuable new insights into the use of discounting among southern merchants during the first half of the sixteenth century. According to De Roover's classic study on the history of the bill of exchange, modern discounting, understood as the cession of commercial paper to a third party before its payment term for an amount lower than its nominal value, originated in seventeenth-century England and subsequently spread to the continent in the eighteenth century (De Roover 1953, p. 119). More recent research by Steel (2012) and Moore (2013) has unearthed evidence of discounting of tallies by Italian bankers in the receipt rolls of the English Exchequer as early as the fourteenth century. It has also been shown that discounting bills obligatory became common practice in Antwerp at the end of the sixteenth century (Van der Wee 1963, pp. 349–52), positioning Antwerp as the centre of innovation from which this practice gradually spread throughout Europe (Jeannin 1991, p. 111).

In the sixteenth century, the term ‘discount’ in commercial language often referred to a reduction in price granted to a debtor who repaid a debt before its due date (De Roover 1953, p. 119). Such transactions frequently appear in the Salviati registers,⁵⁰ where I have also encountered an example of modern discount involving an assignor and an assignee (Appendix 4.6). The assignee, Jean Camus, was a prominent merchant in Lyon known for his specialisation in importing spices and wheat from Flanders (Gascon 1971, p. 373). It is possible that his familiarity with discounting originated from his interactions with Flemish merchants. When it comes to the Salviati, who were also involved as assignors by proxy in the transaction, we have seen that they had a branch in Antwerp. It is worth noting that at the time of this transaction (1547) discounting is believed to have been in its developmental stage in Antwerp (Van der Wee 1977, pp. 329–30).

The Salviati archives contain more numerous examples of ‘in-book’ discounting. During the 1540s and 1550s, as the credit of the royal government deteriorated, the Salviati increasingly discounted shares held by their clients in government loans. Instead of transferring the interest-bearing bonds, often issued in the Salviati's name by the king and his agents, to third parties, the Salviati simply transferred old shares within their ledgers to new clients or other Lyon banks when a client wished to exit the loan (Appendix 4.7). The original creditor's loss of interest was determined by the remaining time until the bond matured. The Salviati referred to these tradable shares as ‘slots on the king’ (piazze sul Re). This form of interbank and intrabank discounting was facilitated by the extensive networks of clients maintained by Italian banks and the mutual trust between them, obviating the necessity of bond transfers. Although these discount transactions hinted at the emergence of a secondary market, they remained within the (international) network of clients of the Lyon banks.

The Salviati archives also feature instances of anticipated payment of bills of exchange, a phenomenon previously observed in the Fugger archives by Van der Wee (1963, p. 349). While these transactions cannot be directly equated to modern discounting, they involve a concept of interest lost. The examples I have found pertain to bills that were protested by the drawee and subsequently accepted for payment by the Salviati ‘for the honour’ of the drawer (Appendix 4.8). Several elements distinguish these transactions from discounting in its modern sense. Firstly, the original drawees were no longer obligated to pay the value of the protested bills to the Salviati upon maturity.⁵¹ Secondly, the interest rate applied to these transactions, which aligned with the deposito rate, did not impact the value of the bill in the accounts and disadvantaged the drawer rather than the beneficiary. Nonetheless, the anticipated payment of bills by a third party, different from the designated payor, in exchange for a percentage of the bill's value exhibited shared structural similarities with discounting. Examples of anticipated payments by an alternative payor were also observed in relation to letters of credit (Appendix 4.8.3). However, in this case, the profit deducted from the beneficiary's account did not align with the deposito rate. Instead, it resembled a fee charged for operating outside the designated payment period, similar to the fees merchants had to pay when buying and selling silks between fairs,⁵² rather than a commercial discount.

These examples show that various forms of discounting were in use at the Lyon fairs. While the discount of IOUs involving Jean Camus can be related to the effect of a Flemish influence, intrabank discounting, as well as the anticipated payment of bills, seemed well grounded in Italian practice.

VI

This brief excursion into the Salviati archives sheds some light on the previously disregarded flexibility in the use of commercial paper in southern Europe. The various examples presented here demonstrate that a strict categorisation of merchant groups and their corresponding uses of financial instruments are incompatible with a dynamic financial market which relied on a necessary collaboration between merchants of various social and ‘national’ backgrounds. First, I showed that the French merchants were not ignorant of the art of exchange, and that the Italians did not hesitate to use ‘primitive’ instruments such as IOUs to settle international debts. Second, the ricorsa practice at the Lyon fairs led me to question the idea of a greater sophistication of the Genoese exchange system in Besançon. Third, this article has showed that various forms of assignment and discount, including their most ‘Flemish’ versions, were in use in the southern commercial networks. IOUs, bills obligatory and bills of exchange were sometimes paid to a third party other than the original beneficiary, with or without a procuration. Examples of the bearer's clause have also been found in the Salviati archives. Furthermore, guarantees on bills of exchange, which were frequent among the French, Spanish and Genoese merchants settled in Castile and in northwestern Europe, could be used by drawers to recover a claim on their debtors. Bill transfers outside banks, however, required the intervention of a notary.

Thus, while it is certainly possible to distinguish an economic area where certain financial techniques became widespread from one where their use remained limited, the question of the origins of financial innovation, and of the reciprocal influences of various merchant groups on one another, is more difficult to disentangle. It is still not clear whether transferability developed sui generis in the north, as is suggested by Van der Wee (1977, p. 323), or whether previous contacts with the Italians, who had already issued bills payable to someone other than the original beneficiary since medieval times, played a role in the process. When it comes to sixteenth-century Lyon, some assignment practices can be related to the effect of a Flemish influence, but that is not always the case. It is also important to acknowledge the possibility that, just as Italian bankers were willing to assign and discount commercial paper when convenient, Flemish bankers of later periods may have also engaged in the assignment and discounting of debts at an intrabank level, without transferring bills. Only further research into the archives of Flemish banks would enable quantifying the prevalence of different banking practices within them.

The main difference between Italian and Flemish banking, as can be inferred from the Salviati archives, concerns the scope of the transferability and negotiability of commercial paper, rather than the technical expertise of economic agents. This raises the question as to why such practices did not scale up in the Mediterranean space or specifically in Lyon. Although the answer remains speculative, certain characteristics of the Lyon market structure and Italian banking are worth noting. The notion that innovation, both in a general sense and specifically in the realm of finance, is context-dependent has previously been emphasised (Epstein 2000, p. 49; Murray 2005, p. 177; Neal 2015; Bell and Moore 2018). In Lyon, the limited use of endorsement and discount did not necessarily hinder the circulation of credit. This was due to the availability of various solutions, primarily ledger-based, for transferring debts employed by Italian bankers who often operated on a commission basis. Besides the rescontre mechanism for bill settlement, Italian bankers also engaged in multilateral clearing at the time of bill issuance. This involved pooling ledger debts and netting them through compound bills (Matringe 2022). Chains of commission, evident in several accounts (Matringe 2022), also allowed for longer debt transfers than traditional exchange transactions involving only four parties.⁵³ Overall, the presence of a tight network of fair banks who were all in account with one another in Lyon as in Castile (Carande 1965, pp. 324–41) enabled clients to easily transfer and settle debts between them without having to transfer bonds.

In terms of early debt repayment with interest, Lyon facilitated this process through its deposit system, which allowed merchants to postpone payment on bills of exchange drawn on them from abroad or to acquire bills on foreign markets without requiring provisions (Matringe 2017). As discussed earlier in this section, the discount rates for off-bank bills and bond transfers were aligned with the deposito rate. Merchants who borrowed from the deposit market did not require credit from others, only an active account with a Lyon bank. Undoubtedly, the structure of the fair market with its concentration of transactions during the four annual Payments facilitated multilateral in-bank clearing. In a place of cambio aperto like the Antwerp stock exchange, where bills were traded year-round, debt transfer and discounting through bonds may have provided greater flexibility. Previous studies have suggested a correlation between the decline of early modern fairs and their clearing mechanisms and the widespread adoption of endorsement (Schneider 1989; Brübach 1994). This functional similarity between the two systems, along with the Italians’ familiarity with endorsement and discounting, suggests that the limited use of these practices in Lyon was attributable to a perceived lack of necessity rather than unfamiliarity.

A second factor that may have influenced these different approaches to debt transfer between Italy and Flanders relates to their respective business cultures. One notable distinction lies in the ‘insider’ nature of Italian business, despite its wide-ranging influence, as opposed to the possibilities of disintermediation and ‘open access’ finance offered by the Flemish system and its governance structure. Italian bankers demonstrated a preference for conducting business with individuals they knew, be it through trusted recommendations. This preference is evident in the close solidarity among fair banks and the Italian practice of using guarantees from trusted correspondents to accept bills from new clients through sopra di accounts. A glimpse into the directories of the Florentine banks’ ledgers kept in the Archivio di Stato of Florence reveals that the network is dominated by well-known Florentine names. Goldthwaite has previously emphasised the persistence of medieval corporatism and the significance of personal connections in the Florentine world of capitalism (Goldthwaite 1987, pp. 23–4; 2009, p. 463). Reciprocity, which entailed a degree of personalisation of business relations, has also been consistently emphasised as a core value in Italian business practices (Dahl 1998; Padgett and McLean 2011; Court 2018). Therefore, it is not surprising that Italian networks maintained their reliance on community-based arrangements, emphasising shared values and shared economic interests, to cultivate trust (Dahl 1998; González de Lara 2008; Padgett and McLean 2011; Court 2018), at a time when northwestern Europe, where IOUs had freely circulated from hand to hand since the Middle Ages, made greater use of public legal and financial institutions (Neal 1994; North 1996). This is not to suggest that Flemish, English and Dutch merchants completely disregarded personal connections in their business dealings, or that values such as honour and reputation had no significance for them, but it is plausible that these factors played a relatively smaller role in facilitating seamless exchanges compared to their Italian counterparts.⁵⁴

In conclusion, the decline of the Lyon fairs, caused by monetary disorders and religious conflicts (Gascon 1971), undoubtedly had an adverse effect on Italian business in the south, at least temporarily, by the end of the sixteenth century. However, the limited resort to endorsement and discounting of commercial paper in this region can be attributed to other factors. Despite the Italians’ familiarity with these techniques since medieval times and their possession of extensive networks, they voluntarily opted for not using them extensively during the golden age of the Lyon fairs. The structure of the Lyon market and the foundations of Italian business culture most likely influenced this decision.

The role of cultural shifts in propelling economic expansion and innovation has been recognised for some time (Mokyr 2017), with democratisation emerging as a crucial long-term factor (Gerring et al. 2005). This suggests that Italians may have overlooked the potential to bring a creative democratic change to their financial structure because of entrenched corporatist tendencies. Such missed opportunities might be one of the reasons for their diminished sway and the rise of the comparatively more ‘inclusive’ Dutch and British trading communities (Grassby 2002; Gelderblom 2013) in the seventeenth and eighteenth centuries.