credit adjustments became commonplace with the publication of Luca Pacioli ’ s Summa de Arithmetic , Geometrica , Proportioni , et . Proportionalite ( Summary of Arithmetic , Geometry , and Algebra ). A Franciscan monk and mathematician , Pacioli ’ s work included instruction on the “ Details of Accounting and Recording .” Published in 1494 , Summa was not only devoted to the study of mathematics , but it also emphasized the importance of how to record commercial transactions , along with a section solely devoted to bookkeeping . Financial historian Gary Giroux maintains that the popularity of Summa , particularly chapter nine concerning finance and bookkeeping , led to it becoming the “ mercantile standard ” of Europe at the time .
Another of the Italian Renaissance ’ s contributions to modern banking and finance is the practice of using bills of exchange in trade arrangements . Simply put , these instruments guarantee payment on a loan contract at some date in the future . The agreement stipulates through a written order that one person requests another to pay a third party . During the 13th century , Italian merchants employed traveling agents , or “ itinerants ,” to settle their accounts when engaging in off-site domestic trade , or with merchants in foreign countries . The typical Renaissance arrangement involving the usage of bills of exchange ( not very different from its contemporary application ) included several entities . Four merchants were generally engaged , with two located in the same city ; they were the principals in the transaction . The other two participants functioned as agents .
One principal , interested in transferring money to his agent in a different locality for a purchase , would lend money to another principal . In return , the first principal would receive a bill of exchange payable in foreign currency where the transaction would occur . The second principal ( the borrower ) would then submit the bill to his agent residing in the city / town that finalized the transaction . There , the agent would pay the exact amount on a specified date to the agent of the first principal . As historian Francesca Trivellato has hypothesized , the framework practically eliminated the need to transport coins , extended short-term credit and circumvented proscriptions on the practice of usury . Likewise , bankers would
sometimes sell bills of exchange in a different currency from the one backing the note to evade usury restrictions .
As the volume of trade increased during the 14th through 16th centuries , companies established specific agents who acted not only on the behalf of merchants but bankers , too , serving as their principal representative in various towns . These representatives used bills as a means of payment to those who had purchased goods from their place of origin ; hence ,
Ledger showing the acceptance of bills of exchange among merchants of Barcelona and Florence , 1411 .
bills of exchange helped facilitate trade . Florence , for example , by the early 15th century , witnessed substantial economic growth both due to the liquidity of its cloth market and the availability of merchant bankers dealing in bills . Both during and after the Renaissance , Florentine bankers provided substantial levels of international credit when employing bills in the financing of trade .
The expansion of credit through what were then becoming more sophisticated
Gold ducat coin from the Florence mint , circa 1533 – 1536 .
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