The Merchant of Venice is set in Italy in the sixteenth century, mainly in Venice. At that time, Venice was an independent city-state. In Shakespeare’s era, setting plays, especially comedies, in Italy was a popular practice, and Shakespeare used Italian settings for many of his works. Since ancient times, Venice had been a center of naval trade. The city functioned as a meeting point between Western European lands and Eastern regions. Venice was also surrounded by water, giving ships easy access. Venetians like Antonio could both make and lose their fortunes by investing in naval trade. Venice was also one of the only European cities with a sizable Jewish population. By contrast, in England, the Jewish population had been officially expelled in 1290 and would not be allowed to legally return until the mid-seventeenth century. Because of its status as a cosmopolitan hub of international trade, Venice was home to a much wider range of nationalities and faiths. However, Venetian Jews were still subject to many forms of persecution and injustice, including being forced to live within one small designated area of the city. Shakespeare seems to neglect or confuse this detail since his play shows Shylock and Jessica living amidst the Christian population of Venice.
Venice had a distinctive political structure in which the city was governed by a council of representatives from the major aristocratic families. The Doge, or Duke, was elected by the Council to act as its administrative head, but he had a very different relationship to power and authority than a King or Queen would have under English law. In the courtroom scenes, the Duke is clearly unhappy with Shylock’s refusal to accept any alternative to his bond, and tells Antonio, “I am sorry for thee. Thou art come to answer / A stony adversary, an inhuman wretch / Uncapable of pity” (IV.i.3-5). Nonetheless, the Duke cannot overrule a legally binding contract because the laws of Venice are the source of his own authority. As Portia explains, “There is no power in Venice / Can alter a decree established” (IV.i.208-209). The legal loophole Portia cleverly provides is made necessary by the political structure of the play’s setting.