Kicking Medieval Jews out of Europe damaged the economy...

and the effects are still seen

TODAY: Regions that expelled them have lower GDP than those that didn't

Jewish communities were expelled from cities in the south of Italy in 1503

A leading economist argues the impacts of this are still visible today

Jews provided a flow of credit in northern cities leading to the first banks

This has led to a 10 per cent income gap between north and south Italy

By Richard Gray for MailOnline

Published: 15:27, 10 March 2016 | Updated: 15:46, 10 March 2016
They have suffered a long history of persecution and, in some cases, Jews were actively
expelled from entire regions of Medieval Europe.
But cities that tolerated and allowed Jewish communities to flourish may still be reaping the
benefits today, according to a new academic paper.
It argues that in these areas, Jewish communities were instrumental in the establishment of
some of the early banks during the Renaissance and the effects are still noticeable in modern
economies.
Medieval Jewish moneylenders (painting of Medieval moneylenders pictured) and
pawnbrokers in the northern city states of Italy during the Renaissance set those regions on
the course to prosperity. By contrast, cities that expelled the Jews at around this time fell
behind and this is still reflected in their economies today
Professor Luigi Pascali, an economist at the University of Warwick and Pompeu Fabra
University in Barcelona, claims the presence of Jewish moneylenders and pawnbrokers
during the 1500s resulted in more credit being available in municipalities.
This flow of cash ensured that productivity and income was able to increase.
Speaking to MailOnline, Professor Pascali said: 'I argue that cities, in which the local Jewish
community in 1500 caused an early development of the banking sector, have more banks
today and, because of this, are more developed today.
RISE OF LOMBARD BANKING
The prosperous northern Italian region of Lombardy became a byword for a type of banking
that grew out of mount of piety style pawnshops which originated in the region.
A ruling by Pope Leo the Great forbade charging interest on loans on the basis getting profit
on money without working was sinful.

However, the Talmud allowed loans to be converted into investments so interest could accrue
from them.
Although Jews were not allowed to hold land, they would instead trade in crops.
This allowed them to lend to farmers against crops in their fields.
As the skills needed for bookmaking were passed down within Jewish families, they were
able to keep this trade within the community.
This led to the establishment of merchant banks and led to the establishment of powerful
banking families.
Lombard banks quickly spread to other cities in northern Italy and even in to the Papal states.
'Local banking development has a large causal impact on economic development.
'In particular, using firm-level data, I show that a higher density of local banks increases
aggregate productivity in the manufacturing sector, by reallocating resources towards the
most productive firms.
'This is the main channel through which local banks have an effect on economic
development.'
In his paper, published in The Review of Economics and Statistics, Professor Pascali
examines the presence of Jewish communities in Italian cities during the Renaissance.
In 1503, a large part of the south of Italy, including the Kingdom of Naples fell under the
control of the Spanish crown, which had decreed all Jews convert to Christianity or be driven
out of its territories.
However, in the north of the country, which remained either under French control or as
independent city states, the Jews were able to remain.
Here they began establishing moneylending services after the Catholic Church, through
several Ecclesiastical Councils, banned the practice of lending to earn a profit among
Christians.
Professor Pascali said: 'Some Jews in Central Italy who had engaged in trade during the
Middle Ages had accumulated sizeable fortunes and had both the capital and expertise to
become moneylenders.
Medieval moneylenders (depicted in this painting by Rembrandt) ensured a flow of credit in
cities that was not readily available in cities were Jews were expelled. Christian laws forbade
the lending of money for interest, so Jews were able to dominate money lending, and in the
cities where they remained, leading to the first banks
'Although the ban on Catholic [money lending] did not prevent the rise of a new class of
Catholic merchant bankers, for more than a century the Jews enjoyed a monopoly in lending
to the poor and the middle class.

'By the beginning of the 15th century, the geographic expansion of Jewish lending was
complete and had become a general economic phenomenon in all parts of Italy.'
Jewish pawnbrokers also began to be established in many of the northern cities, ultimately
leading to the creation of charitable loan banks, called the Monti di Pieta, in an attempt to
drive them out of the market.
This meant even the poor could access credit if they needed it and these institutions still exist
today.
While there are many that argue the expulsion of the Jews from southern Italy had a negative
impact on the prosperity in the region at the time, Professor Pascali claims this can still be
seen today.

In 1492 the Spanish crown ordered the expulsion of Jews from its kingdom and territories,
leading them to be forced out of the cities in the kingdom of Naples and central Italy in the
1500s (illustrated in the map showing the expulsion of Jews in Europe). By contrast, Jewish
communities remained in the northern city states
By looking at the presence of Jewish communities during the Renaissance and the current
economic power of cities today, he claims there is a strong correlation.
According to his study, he estimates if the Jews had not been expelled from the Spanish
territories, the GDP in southern Italy would have been seven per cent higher.
He said the expulsions of the Jews may explain at least 10 per cent of the income gap
currently seen in northern and southern Italy.

Professor Pascali said: 'Although Jewish pawnshops disappeared over time, the Monti di
Piet have survived to the present day and gave rise to a significant portion of contemporary
Italian banks.
'My results confirm that the level of local banking development during the Renaissance
(proxied by the presence of a Monte di Piet or a Jewish pawnshop) had strong causal effects
on the current availability of credit in Italian municipalities.'
He added similar trends to those that occurred in Italy will also likely to have happened in
other countries in Europe when Jewish communities were expelled in the Middle Ages.
The Alhambra Decree (pictured) was issued by the Spanish Crown in 1492, stating that all
Jews were to convert to Christianity or be expelled from the territories of Spain. Professor
Pascali argues this led to a decline in prosperity across much of Europe where the Jewish
communities were expelled