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State Cash Resources and State Building in Europe 13th-18th century

Katia Béguin
Anne L. Murphy

Markets for Public Debt Securities


Laurent Feller et Dominique Margairaz

Note de l’éditeur

The first part of this introduction is by Laurent Feller, the second by Dominique Margairaz.

Texte intégral

1The third conference session was devoted to the subject of the public debt securities market. It comprised five papers. Laurent Feller, a medievalist specializing in the middle centuries of the Middle Ages in Italy, and Dominique Margairaz, a modernist, both from the University of Paris 1 Panthéon-Sorbonne, led the discussion. Here they provide a perspective on the chapters by the five contributors.

I. Social and Political Logic of Debt: the Examples of Genoa and Castile

2The two articles considered here, one by Jeffrey Miner and the other produced jointly by Carlos Álvarez-Nogal and Christopher Chamley, deal with the same question, management of the long-term public debt, in two very different ways. The first article focuses on the social use, in the broadest possible sense, of public debt securities and forced loans in the city of Genoa in the second half of the fourteenth century, before the establishment of the institution which was to manage the debt, namely the Casa di San Giorgio. The second article discusses the mechanisms and procedures whereby in Spain, at the time of Philip II, the monarchy’s short-term debts were converted into long-term debts linked to dedicated resources, managed locally by the towns.

3There is a world of difference between the two approaches. First, even the documentation is not the same: that used by Jeffrey Miner enabled him to find out ‘family secrets’, i.e. asset management and the question of the property relations of married couples. The documentation concerning Spain deals with the functioning of hierarchical institutions, the monarchy and the towns, and the body dealing with negotiations between them, namely the Cortes. Although the two articles deal with the same subject, they are therefore not talking about the same thing, as the first is only concerned with the economic aspects of the behaviour of social elites, while the second deals more with institutions and mechanisms.

4Jeffrey Miner begins by stating that, although the Genoese governing group was deeply divided against itself, the state was always short of money and power was very unstable, the debt was never used as a weapon by the dominant faction to dispossess its adversaries and eliminate them from the field of politics by ruining them and transferring their capital to the city or to the dominant section of it.

5Throughout the period in question, the second half of the fourteenth century, Genoa had no difficulty in borrowing. The explanation proposed is entirely clear. Public debt securities, whether created by voluntary loans or forced loans, were too deeply embedded in private asset management for it to be possible to envisage such crude manipulations that would upset the balance of not just one faction but the whole social and political elite of Genoa. The initial emphasis is on ideological reasons: a good government has to protect widows and orphans, i.e. those who, from the Carolingian era onwards, were regarded as the poor of society. Those motives must be taken seriously: because they in fact influenced the political activity of the urban elites in the late Middle Ages. In the case of the public debt, those ideas concerned the effective protection of women whose assets and income were based on public debt securities. These questions, which are far from trivial, lead on to the question of defining a common good and the creation of a public space which structures the public debate from the thirteenth century onwards. While the twelfth-century commune enabled a small group to share the resources of the town and transfer the income or even the property to the dominant family groups, the practice of power and its ideology led to the creation of a common or public space where there had previously only been private confrontation for the purpose of monopolizing the income.

6That space is based on the dowry, a legal instrument of alliance between family groups, as debt securities were in fact used to provide dowries. They provided an income in the event of widowhood. Thanks to their liquidity, they permitted all sorts of manipulations which ensured that the male family members controlled the landed property and also ensured that part of the wealth was passed on in the female line. Securities therefore appear to be a specialized asset, and even in some ways a female asset. All families used them in the same way. To impede their circulation or threaten the associated property rights would have jeopardized all the procedures that made marriage alliances possible and stable. There is therefore an obvious consensus on keeping these assets separate and not including them in the political battle as legitimate prey, quite simply because their social use seems to safeguard the stability of society and therefore of its political institutions. Ultimately, debt securities facilitate transfers between generations, the circulation of assets between married couples, and between brothers and sisters.

7I feel that this social use of the debt is totally characteristic of the way in which medieval societies used things to which they attributed a value different from their utility value, vesting specific functions in them: here, paradoxically, a security forming the basis of an income also serves as the foundation of a clearly ideological attitude which makes it possible to define the common good.

8The very structure of the real estate market also makes it essential to use debt securities to fulfil a quasi-monetary function. We know that one of the constants of medieval urban aristocracies is that they sought to convert commercial profits into investment in land, i.e. to transform property acquired by labour into prestige property. These policies also permit the formation of stores of value, as land also performs this function which is likewise assigned to cash. Debt securities serving to guarantee purchases of real estate, or even used as means of payment, are thus at the heart of the policies on property, including the management of both symbolic capital and the economic capital held by families.

9Paradoxically, the use of public debt securities to transfer assets within families facilitates the operation of a form of social contract which guarantees a minimum level of agreement on the reasons why a city such as Genoa forms a community.

10But whereas in medieval Genoa debt was one of the factors permitting the formation of a public space via the transfer of assets, in modern Spain it is used to fill a space already saturated with institutions and procedures surrounding the question of taxation in forms of confrontation between players that are very different from the forms of conflict in fourteenth-century Italy.

II. Public Credit in Time and Space

11When the Guide to Exchange Alley was published in 1765, it was already in its sixth edition. The main chapter, ‘Every man his own broker’, unambiguously expresses what the author, Thomas Mortimer, was writing about: disillusioned by the failure of attempts to regulate the financial market through parliament, he intends to divulge the minimum knowledge essential for anyone holding assets who would like to avoid having to use the swarms of intermediaries of every kind, speculating in power: ‘render those who have the property of the funds the managers of the business of buying and selling’. This is basically a survival kit for small speculators. A practical handbook for use by potential buyers of public debt securities, the work sounds surprisingly familiar to us, despite the picturesque elements undoubtedly introduced on purpose, and especially the anti-Semitism which pervades the whole work. The picture which it draws against the background of its denunciation of the speculative excesses of the traders is that of a very active market in which the nerve centres – Exchange Alley, the Bank of England, home of the South Sea and the East India Companies – are continually awash with rumours and motley figures who turn up almost every working day, selling one day, buying the next, and constantly changing their financial position. Anne Murphy offers a foretaste of a typology of these players, among whom Mortimer picks out the ones most vulnerable to the solicitations of the brokers, headed unsurprisingly by women, daughters or widows, seeking secure investments which will generate a regular income. So it is a very open market, with various categories of players, whether institutions or individuals, professional or otherwise, involving a broad section of society: owners, merchants, artisans, etc., each with their own expectations and objectives. In exposing the traps that lie in wait for them and seeking appropriate solutions, Mortimer describes the mechanisms and determinants of the market. We can easily recognize the fundamental features and reference points in the life of modern financial centres: the concept of risk and variations in its perception, the key role of information, and consequently, the role of the intermediaries; the concepts of liquidity, transferability, opportunity and choices between alternative investments; the existence of forward markets, ways of insuring market risk; the tenuous, indistinct borderline between straightforward actions and speculative manoeuvres. Such a description, apart from the desired effect – which is evidently to emphasize the peculiarities of the prevailing market codes in order to enhance the value of the knowledge imparted – makes us think of the market in English public debt securities in modern terms, and as an entirely appropriate subject for the application of instruments used for analysis in contemporary economic and financial theory.

12In line with an abundant literature which he methodically reviews, that is what David Chilosi does in his exploration of the links between the nature of political regimes and the level of long-term interest rates. Unlike Mortimer, who focuses his attention on the behaviour of the players, and in particular the intermediaries, David Chilosi concentrates on the factors that determine the credibility of the borrower, basing his approach on the assumption of a positive correlation between the institutional set-up and the relatively low level of interest rates. The more that set-up favours the potential lenders’ control over the issuance conditions, and above all the payment of arrears (principally the control of the fiscal resources which are the necessary backing for the borrowings), the greater the chance that the borrowing entity will be able to obtain moderate rates. Italy today, with its diversity of regimes and political configurations, lends itself brilliantly to the exercise, as do the logistic regressions which allow us to feed quantitative and qualitative data into the model, the task then being to verify whether the addition of a given factor significantly increases the probability of an interest rate which is below the average for the peninsula. Of course, and particularly in a long-term perspective, the next question is to find out the extent to which the data entered are homogeneous over time, and can be taken as equivalent from one territory to another. The institutions are not just an assemblage of normative coordinates which can be readily summed up as either present or absent. They are also vehicles conveying meaning and values, living organisms whose power to produce effects depends above all on the way in which they are invested: interpreted, shared, monopolized, manipulated, etc. Venice is a telling example: it is the nature of the underlying socio-political system and the social power ratios within the republic’s system of representation that explain the persistently high interest rates, supported by a redistributive fiscal system in favour of the wealthy. Without pre-judging the importance of structural differences such as the distribution of wealth, the size of the respective pools of potential lenders, or the real conditions governing liquidity or access to information and the market, transparency, control and respect for property rights do indeed seem to be the factors which boost lender confidence. Assuming (undistorted) competition between them, the abstract model of a market postulated to comprise these attributes supports that view.

13In contrast, Claudio Marsilio and Anne Murphy focus their attention on the practical conditions under which financial centres operate. Mortimer is certainly not unaware of this aspect: in his view, the organization of a central location dedicated exclusively to security trading operations (be it a market in new issues or a secondary market), where the day-to-day business of each intermediary could be recorded, is necessary in order to establish a degree of transparency. He considers the scattered locations, taverns or public spaces where information and rumours circulate, where the financial world and the demi-monde congregate, and contrasts that with a single location where transparency and control would result from the concentration of supply and demand and the disclosure of transactions. In this scheme we recognize the principles that govern the system for policing the grain industry, and more generally, the provisions regulating markets and preventing speculative manoeuvres, typical of the modern period. Before it was conceptualized as an ideal type, separate from the specific circumstances in which supply and demand come together, the market was thought of only in its contractual and spatial dimensions. Social and spatial records are constantly taken into consideration, be it at the analytical or the normative level. The two contributions by Anne Murphy and Claudio Marsilio tackle head-on this question of the organization of the market place versus the market principle. Does not the Bank of England, which manages almost 70% of the public debt placements, appear to conform to Mortimer’s recommendations, and endeavour to rationalize its working and trading areas in order to inspire public confidence? The separation of the rotunda, where securities are traded, from the area which deals with interest payments, and – in accordance with a strict segregation of functions – the arrangement of separate offices where subscriptions and transfers are recorded, has no purpose other than to inspire confidence by letting people see the prompt recording of the transactions, the strict book-keeping, and the clear separation of functions and responsibilities. Two findings emerge from an analysis of this spatial configuration, as designed by its promoters or perceived by its users: the administrative space is not sealed off from the market place proper, and it is possible in practice to move between the rotunda – the equivalent of the ‘corbeille’ (Paris stock exchange trading floor) – and the offices where book-keepers, inspectors and controllers actually enter subscriptions and transfers in the books. Those two findings are paradoxical. First, they show the inadequacy of an arrangement incapable of reducing the asymmetry of information, an arrangement which is actually vulnerable to insider trading or conflicts of interest, particularly on the part of clerks who simultaneously perform the function of intermediaries, or on the part of speculators who only need to go through a door in order to access information on the trading volumes and trends being recorded by the clerks. On the one hand, the fluidity permitted by the way in which the premises are arranged fosters the very speculation that the institutional set-up and the control exercised by the bank are intended to combat. But at the same time, porosity and circulation within the bank’s premises help to reinforce the idea that the debt management operations are protected from manipulation, not only under the supervision of the representative institutions but also under the gaze of citizens, all interested for various reasons in keeping watch over the market in public debt securities.

14While the arrangement of the trading areas is an essential aspect of market supervision, the timing of the different market operations is equally important. On the grain or commodities markets, a precise sequencing of operations and the order in which the various players enter the arena is planned with same aims in view as those underlying the spatial organization of the market: to encourage competition between bidders, to maintain transparency of operations, to impose access priorities which safeguard the ability of the weakest to act, etc. Similarly, merchants and officials in the seventeenth century agreed on regulation of the trading hours at specialist fairs, such as those at Piacenza or later at Novi, the break-up of the Besançon fairs, and the place for collecting international funds for Florentine bankers, and especially those from Genoa. The currency exchange was clearly an essential factor for raising foreign capital and for the profitability of transactions involving the acquisition or resale of securities by bankers, who collected funds in response to demand by the Spanish or Italian state, and could use the exchange to transfer the funds in appropriate currencies. During the fair there was strict allocation of set times for negotiations concerning bills of exchange, which ended with the fixing of the exchange rate, interbank clearing and monetary transfers. At the same time, the separation of the spaces earmarked for the regulatory authority, for negotiations between merchant bankers, or the settlement of disputes recorded in protests, and the keeping and preservation of written records by the various players, made it easier for the players to get together in the orderly fashion necessary for the creation of an exchange market. The advantages secured in the structured space and time of the fair schedules also fostered a reduction in transaction costs, particularly the costs relating to the quest for information, and strengthened trust between the players, merchant bankers or their agents, who were still few in number.

15Like the Bank of England rotunda, the fair was therefore a place where the players could meet face to face, restoring the trading aspect present at the heart of the typical market. It was also a meeting place between public and private credit, a nodal point where the flow of money mingled with the flow of merchandise. It is significant that the practical arrangements and time schedules intended to ensure the regularity of operations within the bank’s premises or during the fair were in many ways similar to those applicable to markets in sensitive products, if not basic essentials: that indicates the growing, or even vital, importance of financial flows, both for the borrower states, whose scope for action depended on them, and for the lenders, whose circle was expanding, and increasingly included players who invested in public debt securities in the hope of an income, and beyond that, a life protected from material uncertainties.


Laurent Feller is Professor at the University of Paris 1 Panthéon-Sorbonne. His notable publications include: ‘Sur la formation des prix dans l’économie du haut Moyen Âge’, Annales. Histoire, Sciences sociales, 66 (3), 2011, pp. 627–661; ‘Dette, stratégies matrimoniales and institution d’héritier: sur l’élite paysanne lombarde au IXe siècle’, Revue Historique, 645 (2), 2008, pp. 339–368.

Dominique Margairaz is Professor of Modern History at the University of Paris 1 Panthéon-Sorbonne. She has recently published: (with P. Gervais and Y. Lemarchand, eds.) Merchants and profit in the age of commerce, London, Pickering and Chatto, 2013; ‘City and country: home, possessions and diet, western Europe 1600–1800’, in F. Trentman (ed.), The handbook of consumption, Oxford, Oxford University Press, 2012, pp. 191–210. She is the editor of the sections: ‘Production et consommation’, in V. Millot, P. Minard and M. Porret (eds.), La grande chevauchée. Faire de l’histoire avec Daniel Roche, Genève, Droz, 2011, part 3, pp. 143–235; ‘Produits et circuits du commerce’, in C. Maitte et al. (eds.), La gloire de l’industrie, Rennes, PUR, 2012, part 2, pp. 91–162.

© Institut de la gestion publique et du développement économique, 2017

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