Necessary Evil

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Thomas Jefferson believed that "banking establishments are more dangerous than standing armies." Charlie Munger compared bankers to "heroin addicts." Henry Ford was convinced that if people understood our monetary system, "there would be a revolution before tomorrow morning." Even Bill Gates, who many distrust as much as they do bankers, has said, "Banking is necessary, banks are not."

For centuries, a deep and abiding mistrust of banking has been woven into our culture. We know we need banks to buy a house, go to college or finance a business, yet we often see them as a system that produces nothing tangible. They are a necessary evil that we’re pretty sure will take advantage of us if given the chance. But where did this system come from? Was a better, more ethical system possible? And perhaps most relevant to our purposes (This being an AI-focused blog after all) can we find, in this analysis, answers that will help us that ensure ethics are at the forefront as we race headlong into an AI-dominated future?

Now, to be fair, consumer protection regulation, at least in the U.S., has come a long way in the last 100 years. The Glass-Steagall Act of 1933 (a response to the Great Depression) created the FDIC which protects against bank runs and is considered one of the most successful consumer protection measures ever. Also not to be overlooked the Dodd-Frank Act of 2010 (a response to the Great Financial Crisis of 2008) saw the creation of the Consumer Financial Protection Bureau and has done much to protect people from predatory financial products.

Still, despite these major improvements it goes without saying that both of those protective measures were only put into place as a reaction to greedy and dishonest practices done by banks. And it’s also worth noting that by 1933, when the Glass-Steagall Act went into effect, the modern banking machine had already been around for more than 500 years and still hadn’t ironed out all of its kinks.

So, to return to the questions posed at the outset, We’ll now look at where this system really started to take shape and what lessons we can take for the ethical adoption of AI.

To begin, we have to look at the family that wrote the blueprint for modern capitalism: the Medici.

The story begins in 15th-century Florence, with a man who learned to navigate the intersection of God and money. Giovanni di Bicci de' Medici was a merchant who got his start in his cousin's bank branch in Rome. It was there, at the center of the Church's vast political machinery, that Giovanni’s shrewdness shone. He identified a rising, ambitious, and controversial figure named Baldassare Cossa and took a calculated risk, loaning Cossa the funds he needed to secure the office of Cardinal. When Cossa was later elected Pope John XXIII, he rewarded the banker who had backed him. Giovanni de' Medici became the official banker to the Holy See.

This would prove to become one of the most pivotal moments in modern history and is not unlike our own day. The political backdrop here was extremely contentious which makes it a good allegory to our current politically-precarious position in the United States and abroad.

Baldassare Cossa became Pope (or 1 of 3 men simultaneously claiming to be Pope…) during the Western Schism, a period of deep political polarization. Three men, Gregory XII of Rome, Benedict XIII of Avignon, France and John XXIII (Baldassare Cossa, Pope’s change their name when they become Pope), all simultaneously claimed to be the legitimate Pope. As one might imagine, this is not an ideal situation for maintaining a concentration of power or trust from the people. So to solve the dispute, a Council was held in 1414 to end the Schism. The result? All three men were removed from power and a new Pope (named Martin V) was installed in their place.

As a testament to the political and interpersonal genius of Giovanni di Bicci de’ Medici (our Protagonist or Villain depending on your opinion of bankers) he still managed to retain his place as the official money-manager of this new Pope when all the dust had settled. This would give the Medici Family the power, influence and money needed to mold the initial infrastructure for banking that our modern systems are built around.

As time passed it became clear that this family was, to quote a modern phrase, “built different”. The fortune Giovanni built was transformed into a dynasty by his son, Cosimo. While his father was cautious, Cosimo was a visionary architect of power. He inherited the bank at a time when its main rivals, the great Bardi and Peruzzi banks, had collapsed spectacularly after a single bad loan to the King of England bankrupted their entire international operation. Cosimo studied their failure and rebuilt the Medici bank on a revolutionary new model.

His first innovation was decentralization. Each Medici branch was established as a separate legal partnership, creating a firewall. The failure of one branch would not bankrupt the network. It was, in essence, one of the world's first holding companies, designed for resilience. This was where predecessors had gone wrong.

His second was perfecting the bill of exchange. This wasn't just a way to avoid shipping gold; it was a masterclass in sidestepping the Church's ban on usury, which forbid collecting interest on a debt. Instead of issuing a "loan" with interest, the bank would offer a bill of exchange in a different currency, payable at a future date. Their profit was hidden in the favorable exchange rate they set as opposed to collecting interest, which merchants willingly paid because a bill of exchange was a lot safer, cheaper and easier to transport from one place to the next than gold or silver.

This stable, resilient financial engine gave Cosimo the freedom to invest in his city. He commissioned Donatello to create his revolutionary bronze statue of David. But again, this family was not content with just pumping out two world-changing figures. Cosimo’s Grandson Lorenzo is actually the most famous of the Medici. Lorenzo the Magnificent really leaned into the sponsorship of artists, most notably, a young Michelangelo (who you may remember, painted something on a ceiling somewhere).

So to this point, banks are actually looking pretty good. From its architecture to its masterpieces, the foundation of the Renaissance was made possible through the capital provided by these banking innovations.

But what is the legacy of this system? The Medici fueled trade, sponsored timeless art, and built the financial infrastructure of the modern world. Yet, we didn’t even touch on the fact that they perfected a system of shadow politics, using financial leverage to control a republic. Their methods, while brilliant, were designed to concentrate wealth and power. And when wealth and power concentrate, the majority of the population get squeezed.

In hindsight, could they have done it differently? Without modern watchdog organizations or the instant accountability of social media, perhaps it was inevitable. The Medici didn't invent ambition; they simply built the most effective system for cultivating it. It is hard, after all, to place a 21st century lens over a 15th century operation. But today is different. While we still have concentration of power, wealth inequality and a lack of sufficient checks and balances, we have more visibility, the freedom of speech, increased advocacy and the ability for the masses to disseminate information quickly to much larger groups of people (arguably much more disinformation but still…). So can we design this new dawn of Artificial Intelligence in such a way that it doesn’t take us the next 500 years to start focusing on ethics and protections for the “little guy”?

Maybe. Or maybe we’ll just keep doing what we’ve always done: run it ‘til it breaks then kind of fix it enough to get it back in the race.

So far it seems we’ve chosen the latter.

We are building the infrastructure of the AI age with breathtaking speed, largely without guardrails, trusting that the benefits will outweigh the risks. We are placing immense faith in the architects of these new systems, just as 15th-century Florence placed its faith in the Medici. Are we destined to repeat their story, creating immense good intertwined with a new, more powerful concentration of influence? Or do we have the chance to learn from history and build a more equitable system from the start? The blueprint is being written right now.