Venice was ruled by a merchant council headed by an elected official, the Doge. Its Mediterranean empire generated so much wealth that Venice minted more gold currency than did England and France combined – its gold coins (ducats) were always exactly the same weight and purity and were accepted across the Mediterranean as a result. Its government had representation for all of the moneyed classes, but no one represented the more than half of the city’s population that consisted of the urban poor.
The source of Venice's prosperity was its control of the spice trade. It is difficult to overstate the value of spices during the middle ages and Renaissance - Europeans had a limitless hunger for spices (note that the theory that spices were desirable because they masked the taste of rotten meat is patently false; medieval and Renaissance-era Europeans did not eat spoiled foods). Unlike other luxury goods that could be produced in Europe itself, spices could only be grown in the tropical and subtropical regions of Asia, meaning their transportation to European markets required voyages of many thousands of miles, vastly driving up costs.
The European terminus of much of that trade was Venice. In about 1300 40% of all ships bearing spices offloaded in Venice, and by 1500 it was up to 60%. The prices commanded by spices ensured that Venetian merchants could achieve incredible wealth. For example, nutmeg (grown in Indonesia, halfway around the world from Italy) was worth a full 60,000% of its original price once it reached Europe. Likewise, spices like pepper, cloves, and cinnamon could only be imported rather than grown in Europe itself, and Venice controlled the majority of that hugely lucrative trade. Spices were, in so many words, worth far more than their weight in gold.
Based on that wealth, Venice was the first place to create true banks (named after the desks, banchi, where people met to exchange or borrow money in Venice). Furthermore, innovations like the letter of credit were necessitated by Venice’s remoteness from many of its trade partners; it was too risky to travel with chests full of gold, so Venetian banks were the first to work with letters of credit between branches. A letter of credit could be issued from one bank branch at a certain amount, redeemable only by the account owner. That individual could then travel to any city with a Venetian bank branch and redeem the letter of credit, which could then be spent on trade goods.
In addition, because Venice needed a peaceful trade network for its continuing prosperity, it was the first power in Europe to rely heavily on formal diplomacy in its relations with neighboring states. By the late 1400s practically every royal court in Europe and North Africa had a Venetian ambassador in residence. The overall result was that Venice spearheaded many of the practices and patterns that later spread across northern Italy and, ultimately, to the rest of Europe: the political power of merchants, advanced banking and mercantile practices, and a sophisticated international diplomatic network.