When it came to most arts and sciences, the state of Medieval European civilization left a lot to be desired. However, behind the shroud of brutishness and simplicity, it was a society steadily developing financial complexity. It was a unique development as well. The continent’s organization into numerous small states, in contrast to the Caliphates and Empires of the East, made the economic and financial organization distinct. During the High Middle Ages, it was a non-state entity, the Knights Templar, which would wield financial power unlike any monarch in Europe. In contrast to the broader civilization around it, it was also an innovative organization.
Despite their later financial successes, the Knights Templar were founded for a very different purpose. Established in Jerusalem in 1119 by a French knight, they were charged with protecting pilgrims from Europe on their journeys through the Holy Land. Their formation was approved by the King of Jerusalem, Baldwin II, who had ruled the city after it was captured in 1099 during the First Crusade. Within a couple decades, they also had the strong backing of the Catholic Church in Rome and from there, their influence spread across Europe too.
The Templars were a monastic order, members took a vow of poverty and could not marry or own property. They had military responsibilities as well, both offensive and defensive. When it came to the later, protecting pilgrims on their unsafe journey through the Levant whilst it was in the midst of war was accomplished by maintaining numerous fortifications. In time, the Templars would control nearly 800 castles across Europe and the Near East, castles that would serve as imposing bank branches for these monastic financiers.
The Templars were officially a monastic military order. However, they entered the field of finance by a few different means. First, they acted as a fundraising arm for the Crusades, managing donations given to them to support the war. These were not inconsequential sums; monarchs often bequeathed great riches to the Templars, occasionally in return for their support, as happened in Spain during the Reconquista. The Spanish King, Alfonso I gave the order a large bequest in exchange for their support in fighting the Moors. The order’s financial mission extended beyond charity though.
Consider that, as with other monastic orders, members of the Knights Templar took a vow of poverty. As with knights elsewhere, many prospective members were relatively well off before joining and thus, upon becoming members, temporarily placed their wealth in the hands of the organization, in order to be used communally. By this custom, the Knights Templar became perhaps the foremost multinational asset manager of the High Middle Ages. They put this money to work, using it to buy swaths of land and financing trade. Because the order was involved in the military conquests of the Crusades, they were also given a share of the land and treasure they and other Crusaders captured, adding to the assets they controlled.
Given their origin, the Templars were not an ordinary financial institution. As a religious order, they were exempt from paying taxes, for example. This exemption came from the Pope, whose authority extended beyond individual nations in Europe. Further, this was not the extent of the Templars special privileges. The order was also given freedom of movement across Europe, they could move money around as they needed, whatever the wishes of kings and counts. The backing of the Pope kept greedy monarchs and others from seizing the assets of rivals held with the Templars. The order thus had a great competitive advantage when it came to the business of managing others’ money.
Monasticism and finance may not seem complementary but the connection is worth exploring. It’s been conjectured that perhaps given their vow of poverty, the Templars became a more trusted fiduciary. Because members could hold no property themselves, they may have been less inclined to steal from their clients. After all it was not just fellow Templars whose wealth they managed. Nobles and soldiers who were not members began to leave their money with the order for safekeeping, often while they themselves were participating in the Crusades or journeying on pilgrimages.
The Templars experience with finance extended beyond managing investments. They were also involved in banking, or rather, what counted as banking in Medieval Europe. Among the services they provided were bills of exchange which facilitated the transfer of money to Jerusalem, or to anywhere else in Europe or the Levant for that matter. Bills of exchange worked as follows: pilgrims travelling to the Holy Land could leave money with the Templars in one city at one time in one currency and in exchange received a kind of promissory note they could draw on when they reached Jerusalem. This note was a bill of exchange, and saved the need for ordinary people to carry sufficient money with them at all times.
Bills of exchange offered by the Templars served more purposes than facilitating pilgrimages. They were also offered to merchants to ease trade. With numerous such notes needing to be paid out at different places, providing such a service must have required a sophisticated organization. Further, the physical document carried by the pilgrim or merchant must have been designed to prevent forgery. The exact technique used to achieve this is unknown to this day. The bill of exchange was a creative and more complex instrument than it may seem at first glance. It was part money transfer, part loan, and part currency exchange. Such complexity helped circumvent usury restrictions by making it seem less like an ordinary loan earning interest.
Along with pilgrims and merchants, the Knights Templar also served the most powerful men of Medieval Europe. They collected deposits and made loans to the Catholic Church and secular rulers across the continent. Owing to the size of their organization, the Templars often controlled financial resources in excess of what individual kings had access to. Further, as a religious institution, the monasteries they secured their riches in were given strong legal, and in the minds of the devout, even divine, protections. This no doubt helped the Templars to be regarded as a safe depository.
When it came to lending money, the Templars acted as pawn-brokers. The order loaned money to English kings in the 13th century against the value of their crown jewels. Even here the approach was not always straightforward. Because of the prohibition of usury, in exchange for these loans, the Templars often received rights such as exemptions from taxes and tariffs, rather than interest. In exchange for some loans, the Templars received rents on state assets, like the rents on two mills in Barcelona used to repay a loan made to the Principality of Catalonia.
If they were merely in the business of managing investments and making loans, the Knights Templar would already be a financial firm of broad expertise. However, their services extended even further than that. The order provided tax collection, accounting, and payments services to several states in Medieval Europe. They essentially became the chief providers of financial acumen to otherwise primitive societies and served as a trusted intermediary in transactions between often hostile nobles. King John of England even acquired a pension from the Templars in the early 13th century by providing a lump sum at its conception. There was almost no financial business the order wouldn’t entertain.
The end for the Templars came by both financial, military, and political means. First, the recapture of Jerusalem by the Ayyubids in 1244 put the Crusades firmly into rewind as the Crusader states were gradually defeated and abandoned over the next fifty years. With this, the Knights Templar lost some of its military raison d’etre. However, the dissolution of the order really came in France.
In 1307, Philip IV, the King of France, seized the Knights Templar’s assets out of a desperation for money with which to fund a war against England. In the past, the order could have expected the support of the Pope, but this was no longer true. King Philip IV had substantial influence over the Pope, Clement V, who was French himself and relocated the Papacy to Avignon, which was then right on the border with France. Perhaps because of a secret alliance with the French monarchy, Clement V himself suppressed and abolished the Knights Templar in 1311.
As a monastic military order and financial institution, the Knights Templar was, rather curiously, both a peculiarly medieval organization and a surprising modern one. While not very similar to the banks of today, the Templars provided banking services. While unlike any modern investment company, the religious order managed the wealth of members and non-members alike. Just as the Crusades mark a transformation in the political and military organization of Europe, the Knights Templar mark the transition to a financially more complex society. Though the 14th century saw the end for the order, it was not the end for financial innovation in Europe. Rather, there is a direct lineage from the services provided by the Templars across Medieval Europe to the financial creativity found later in Venice, Florence, Amsterdam, and London.
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1. Chow, Mike. The Knights Templar and the Birth of Banking. Medium, 2 July 2018.
2. Goetzmann, William N. Money Changes Everything: How Finance Made Civilization Possible. Princeton University Press, 2017.
3. Harford, Tim. “The Warrior Monks Who Invented Banking.” 50 Things That Made the Modern Economy, BBC, 30 Jan. 2017.
4. Smith, Robert, and Tim Harford. “Making Bank.” Planet Money, NPR, 16 Dec. 2016.