History

In the fourteenth and fifteenth centuries, city states in northern Italy such as
Florence, Genoa, Milan, and Venice were the leaders in European economic development. They traded in all corners of the European explored world and created the most advanced laws, financial instruments including money, and commercial contracts outside the Islamic countries. Their money exchanges and banks extended throughout Europe they financed kings and governments as well as traders. Yet the Industrial Revolution did not take place in Italy.

While these cities are today more prosperous than those in Sicily and the south, nevertheless they have long been outperformed as money markets, industrialists, and traders by northern states such as England, Holland, and Germany. The city states passed through four periods between the eclipse of the Roman Empire and the unification of Italy. In the first, from the sixth to the late eleventh century, they were mainly under the tutelage of bishops or other feudal lords. A second period began when the Holy Roman Emperors invaded them from the eleventh to the thirteenth centuries but ran into opposition from the pope.
By playing off pope against emperor, the city states gained leverage that brought them functional if not formal independence. They became communes ruled by consuls of their own selection. They expanded their suzerainty over surrounding agricultural areas, from which they acquired food. Instead of opening the way for growing alliances and leverage, however, the power contest of local magnates versus the Popolo merchants, guilds, and other commoners and the church brought instability. Wars damaged trade.
The rivalry between supporters of the pope Guelfs and those of the emperor Ghibellines widened into bitter personal feuds. The only way a city could keep order was to appoint a podestà from another city, free of local rivalries, to rule, with a term of six months or a year. Rivalry was too extreme, mistrust too great, for vertical alliances and leverage. Bringing on the third period, in the thirteenth century, the city states invited landed lordships Signorías to contain their violence by ruling them. These noble families perceived that outward oriented trade and finance were their quickest route to wealth.