An Economic Awakening: Renaissance Florence and the Birth of Capitalism

An Economic Renaissance

Usually, when one thinks of the Renaissance, images of art or political ideas come to mind. The frescoes, paintings, and sculptures of Da Vinci and Michelangelo have left an indelible mark in the modern mind and Dante’s Divine Comedy is still a standard reading in many humanities courses throughout the world. Renaissance politics have also influenced the imagination of modern philosophers as well as the modern Western politics and government. The ebb and flow of the various Italian kingdoms, city-states, and dynasties has led to some great works of fiction and the often duplicitous nature of modern politics is often traced back to the Renaissance. But beyond the politics and art of the Renaissance were the equally important new economic and monetary ideas that helped propel Western Europe out of the Middle Ages and into the modern world.

The economic ideas of Renaissance Italy laid the groundwork for modern capitalism by introducing complex banking methods, advanced shipping, and the idea of monopolies just to name a few. The period of the Italian Renaissance also was the first time in world history that witnessed the creation of a true consumer culture, where people purchased luxury items in such large amounts that it not only stimulated the overall economy, but also led to the formation of new industries. Truly, a large part of the Italian Renaissance was economically orientated and at the core of this activity was the city-state of Florence.

Historical Background of the Italian Renaissance

The Renaissance is the period in Western European history that took place from the fourteenth through the fifteenth centuries AD. The period began in Italy and was so named because many saw it as a “rebirth” or renaissance of classical Greek and Roman artistic, literary, and even political styles. Although the Renaissance artists and philosophers may have looked to the ancient Greeks and Romans for inspiration, the reality is that they produced completely new styles and ideas that were influenced just as much by the Catholic Church and the nascent ideas of humanism/secularism as they were by the ancients. In the beginning the major impetus behind the Renaissance was not any king, emperor, or pope but the smaller northern Italian city-states, which operated somewhat independently of the major European powers.


During the Renaissance there was no unified Italy; Italy did not become a unified country until the middle of the nineteenth century and for most of its history, after the collapse of the Roman Empire until the formation of modern Italy it was comprised of a number of city-states and small kingdoms. Sicily and the southern portion of Italy, were usually under the direct control of the Holy Roman Empire for much of the Middle Ages. The Holy Roman Empire was essentially the name for medieval Germany and other than its constant opposition to the Church, had little to do with Rome. The middle section of Italy was controlled by the Pope and the Catholic Church, which are often called the “Papal State”, while the north of Italy was a collection of republics and kingdoms; the most powerful of these city-states were Milan, Venice, Genoa, Sienna, and Florence. Since these city-states were relatively small compared to the larger northern European kingdoms of France, England, and the Holy Roman Empire, they often picked sides in the continental conflicts, which during the early Renaissance were usually between the Church and the Holy Roman Empire. The wars between the Church and the Empire are known as the Investiture Conflict. City-states and individuals aligned to the Church were known as Guelphs, while those who supported the Holy Roman Empire were named the Ghibellines.

Florence was a republic and a Guelph state that for the most part supported the Church in its efforts against the Holy Roman Empire. As the Investiture Conflict subsided, the idea of political factions continued in Florence as the Guelph faction divided into the Blacks and Whites. This milieu of political competition and factionalism is where the fifteenth century political philosopher Niccolo Machiavelli received the inspiration for his treatise, but it was also the environment that helped produce vibrant economic competition, which in turn led to some of the greatest monetary and economic innovations in world history.

An Overview of the Italian Economic Renaissance

The Florentines, along with their northern Italian neighbors and competitors, not only developed new techniques that provided the basis for modern economic systems, but they essentially created a new economic system that was more similar to the global system of today than that of the medieval European system. The Italians made most of their money in trade, which they were able to do by exploiting existing sea and overland routes, while creating new ones when necessary. They manufactured various textiles and proved to be able middlemen in the trade routes that connected northern and western Europe with the Near and Far East. Italian merchants rose to primacy by inventing new economic techniques that included: double entry bookkeeping, credit systems, marine insurance, and bills of exchange. Italian merchants also doubled as bankers and supplied credit to both the English and French monarchies. In terms of manufacturing, Italian businessmen were some of the first people in the world to create specialized industries and they also sought to make monopolies by controlling both the production and distribution of certain commodities, mainly textiles. Perhaps one of the most interesting and enduring aspects of the Italian economic Renaissance was the genesis of a consumer culture.


Before the Renaissance art was usually created in a theological or political context; for instance, statues were created to legitimize a ruler or god and usually placed in a cathedral, temple, or palace where few people saw the works. During the Renaissance artists began to create works for private individuals on commission as art was gradually moved from the theological and political spheres into the secular. Artists and artisans became a separate class of workers with disposable incomes that they could spend on “non-essentials” and luxury goods. Luxury goods, such as perfumes, dyes, exotic foods, and art became so prolific in Renaissance Italy that the economy was at least partially driven by this emerging consumer culture. Even the Black Death of the mid-fourteenth century could not slow down the economic juggernaut as it actually resulted in higher wealth per capita. Italy truly experienced an economic revolution during the Renaissance and at the epicenter was the republic of Florence.

The Florentine Economy during the Renaissance

An examination of Florence’s economy during the Renaissance reveals that it was propelled by a combination of ideas that were ahead of its time and individuals who were bright and daring risk takers. As noted above, a large part of the Florentine economy revolved around cloth manufacturing. Florence was located in a prime spot geographically to take advantage of both trade routes and resources as they converted wool from the north into clothing that was purchased in the east and silk from the east that was in high demand in the north and west. Essentially, Florence became wealthy on the trade and manufacturing of textiles, but it is perhaps best remembered for its banking practices, which became international through the efforts of the Medici family.

The Medici family became wealthy through the textile industry, which they then used the profits of to go into banking. The first Medici banks were local deposit and loans houses – referred to as tavola in Italian – which were very similar to the branch banks that are common throughout the modern world; but these local banks were not how the Medici became rich, powerful, and famous/infamous. During the Renaissance, most of the money to be made in banking was from the international banks that specialized in foreign exchange that acted as creditors to the monarchs of Europe. The Medici quickly learned the economic benefits of creating such banks and so set up branches throughout Italy and later in Geneva, Switzerland and London, England. The international banks quickly made the Medici family rich and powerful, but the most lucrative branch was the one in Rome. The Roman Medici bank specialized in loans to the papacy, which helped elevate the family to new heights of wealth and power but also, as will be discussed below, led to their eventual demise. As the Medici gained more wealth from their banking ventures they eventually acted as a corporate body that went into business partnerships with other investors. At the height of their economic success in 1451the Medici were worth 72,000 florins (the standard monetary currency of Florence), which was more than any other family or firm at the time.


The florin itself provides another interesting example of Florentine economic prowess during the Renaissance. The florin was a gold coin that provided the standard currency not only of Florence, but for a time served as a reserve currency for most of western Europe. Interestingly, there were no gold mines in the environs of the Florence city-state so the Florentines were forced to trade for gold bullion with peoples from the east and north. Once the bullion arrived in Florence it was minted into coins where it was used in transactions throughout the world and as payment for Florentine wage workers. The Renaissance economy of Florence was truly incredible and was encouraged, at least partially, by the ideas and energy of the Medici family, but there are other factors that helped propel its success.

Some Factors that Led to the Florentine Economic Powerhouse

The spirit of competition inherent in the Renaissance period Italian city-states and the energetic Medici family were just two of the factors that led to Florence becoming a preeminent economic power. War is often something that can decimate a country’s economy, but Florence seems to have benefited from the wars between the Holy Roman Empire and the Church during the early Renaissance. For the most part Florence avoided any direct conflict, but benefited from the numerous foreign mercenaries who travelled to Italy to fight in the wars. The mercenaries put their money into the Florentine economy without doing any real damage to the city’s infrastructure. Similarly, in the sixteenth century, after the Spanish began to exploit and colonize the Americas, Florentine banks and businesses benefited from a fresh influx of American gold bullion. The money and gold that the mercenaries and Spanish put into the Florentine economy truly gave it a boost, but perhaps the most important aspect that made Florence’s Renaissance economy so successful was its structure, which was so different from anything in medieval Europe before it.


Most medieval kingdoms before the Renaissance were feudal based; at the top of the economic hierarchy were a small number of nobles, while at the bottom comprising the vast majority of the population were the serfs who were little better than slaves. The wealth of the nobles for the most part stayed with the nobles and there was little chance of upward social or economic mobility. Florence was a republic that had no feudal system and the Medici family, who entered politics in the mid-fifteenth century, was the closest they had to nobles. Even when the Florentine government became more of an oligarchy the wealth was much more evenly distributed than in other parts of Europe. As discussed above, artisans in Renaissance Florence had disposable income and an emerging middle class was visible. Men of modest means were able to spend their florins on art and luxury items that were often produced by men who had similar backgrounds. For instance, Sandro Botticelli’s version of the Adoration of the Magi was commissioned by a modest broker from the banker’s guild. The more even distribution of wealth in Renaissance Florence led to the creation of “new men” in banking and politics. New men were men who did not come from traditionally wealthy or connected families, but instead rose to prominence through their own intelligence, craft, and perhaps some luck in the Florentine business world. The new men of Florence and all Florentine businessmen were further aided by a lack of laws and regulatory organizations that often hamper modern businesses.

The lack of regulatory laws concerning business made it easier for many new men to enter the Florentine business world, but the government of Florence also played an active role in providing for the long-term economic stability of its people. During the Middle Ages education was almost exclusively the purview of the Church, which usually limited its university students to future Church leaders and offered a curriculum that was almost entirely theologically based. Pedagogical philosophies began to change in Renaissance Florence though as the city-state funded public schools and allowed individuals to fund private, secular based schools. Florence’s dedication to education can also be seen in other areas; it was in Florence in 1409 that the first Latin translation was made of the ancient Greek geographer Ptolemy’s Geography, which first postulated that the world was round. No doubt the Florentine government’s commitment to education helped spur its economic boom during the Renaissance in many tangible ways.

Florence’s Economic Decline

As the Renaissance came to an end during the sixteenth century, so did Florence’s economic boom. A number of factors contributed to Florence’s decline, most of which it could not avoid. Competition may have been one of the early factors that helped spur Florence to economic heights, but eventually it began to suffer at the hands of those competitors, especially the non-Italian ones. In the late Renaissance German merchants began to assert themselves more as both the northern German confederation known as the Hanseatic League and a number of southern Germans formed cartels and monopolies to challenge the Florentines. The sixteenth century also witnessed the rise of the Tudor dynasty in England and with it the creation of their vaunted navy that was able to impose its will on the seas, both militarily and commercially. The Spanish colonization of the Americas provided a temporary bullion boom in Florence, but due to the large amounts of gold that continued to be injected into the European economy a recession eventually took place. All of these outside factors no doubt contributed to the decline in Florentine economic prestige, but the Florentines themselves, especially the Medici, must also shoulder some of the blame.

In 1434 the Medici entered Florentine politics and set a course that eventually got them expelled from the city they helped make great. Once in politics the Medici, who early in their family history were ardent supporters of the Church, quarreled with the Church, which resulted in Pope Sixtus IV confiscating Medici property and repudiating all debts owed to the family in 1478. Without an army there was little that the Medici could do and thanks to mismanagement the family business eventually collapsed. A lack of liquidity meant that the Medici could not even make interest payments due to their depositors, which resulted in their expulsion from Florence in 1494. Although Florence’s role as the preeminent economic center during the Renaissance was over, its contributions to modern economic and monetary policies live on. The economic and monetary methods and techniques developed in Renaissance Florence survived and contributed in many ways to modern capitalism.


Denley, Peter. “The Mediterranean in the Age of the Renaissance, 1200-1500.” In The Oxford History of Medieval Europe, edited by George Holmes, 222-275. Oxford: Oxford University Press, 2001.

Goldthwaite, Richard A. “The Economy of Renaissance Italy: The Preconditions for Luxury Consumption.” I Tatti Studies in the Italian Renaissance 2 (1987): 15-39.

———. “The Medici Bank and the World of Florentine Capitalism.” Past and Present 114 (1987): 3-31.

Stern, Laura Ikins. “Politics and Law in Renaissance Florence and Venice.” American Journal of Legal History 46 (2004): 209-234.

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