Both the French and Spanish crowns sought to raise money in the same way, but they had to use towns as intermediaries. In the French case, funds were raised on behalf of the monarch by the Paris hôtel de ville-, in the Spanish case, royal juros had to be marketed through Genoa's Casa di San Giorgio (a private syndicate that purchased the right to collect the city's taxes) and Antwerp's heurs, a forerunner of the modern stock market. Yet investors in royal debt had to be wary. Whereas towns, with their oligarchical forms of rule and locally held debts, had incentives not to default, the same was not true of absolute rulers. As we saw, the Spanish crown became a serial defaulter in the late sixteenth and seventeenth centuries, wholly or partially suspending payments to creditors in 1557, 1560, 1575 , 1596, 1607, 1627, 1647, 1652 and 1662.
Part of the reason for Spain's financial difficulties was the extreme costliness of trying and failing to bring to heel the rebellious provinces of the northern Netherlands, whose revolt against Spanish rule was a watershed in financial as well as political history. With their republican institutions, the United Provinces combined the advantages of the city-state with the scale of a nation-state. They were able to finance their wars by developing Amsterdam as the market for a whole range of new securities: not only life and perpetual annuities, but also lottery loans (whereby investors bought a small probability of a large return). By 1650 there were more than 65,000 Dutch rentiers, men who had invested their capital in one or other of these debt instruments and thereby helped finance the long Dutch struggle to preserve their independence.
As the Dutch progressed from self-defence to imperial expansion, their debt mountain grew high indeed, from 50 million guilders in 1632 to 250 million in 1752. Yet the yield on Dutch bonds declined steadily, to a low of just 2.5 per cent in 1747 - a sign not only that capital was abundant in the United Provinces, but also that investors had little fear of an outright Dutch default. With the Glorious Revolution of 1688, which ousted the Catholic James II from the English throne in favour of the Dutch Protestant Prince of Orange, these and other innovations crossed the English Channel from Amsterdam to London. The English fiscal system was already significantly different from that of the continental monarchies. The lands owned by the crown had been sold off earlier than elsewhere, increasing the power of parliaments to control royal expenditure at a time when their powers were waning in Spain, France and the German lands. There was already an observable move in the direction of a professional civil service, reliant on salaries rather than peculation. The Glorious Revolution accentuated this divergence. From now on there would be no more regular defaulting (the 'Stop of Exchequer' of 1672, when, with the crown deep in debt, Charles II had suspended payment of his bills, was still fresh in the memories of London investors). There would be no more debasement of the coinage, particularly after the adoption of the gold standard in 1717 . There would be parliamentary scrutiny of royal finances. And there would be a sustained effort to consolidate the various debts that the Stuart dynasty had incurred over the years, a process that culminated in 1749 with the creation by Sir Henry Pelham of the Consolidated Fund*.
(NB * Hence the name 'consols' for the new standardized British government bonds.)This was the very opposite of the financial direction taken in France, where defaults continued to happen regularly; offices were sold to raise money rather than to staff the civil service; tax collection was privatized or farmed out; budgets were rare and scarcely intelligible; the Estates General (the nearest thing to a French parliament) had ceased to meet; and successive controllersgeneral struggled to raise money by issuing rentes and tontines (annuities sold on the lives of groups of people) on terms that were excessively generous to investors. In London by the mid eighteenth century there was a thriving bond market, in which government consols were the dominant securities traded, bonds that were highly liquid - in other words easy to sell - and attractive to foreign (especially Dutch) investors. In Paris, by contrast, there was no such thing. It was a financial divergence that would prove to have profound political consequences.
Since it was arguably the most successful bond ever issued, it is worth pausing to look more closely at the famed British consol. By the late eighteenth century it was possible to invest in two types: those bearing a 3 per cent coupon, and those bearing a 5 per cent coupon. They were otherwise identical, in that they were perpetual bonds, without a fixed maturity date, which could be bought back (redeemed) by the government only if their market price equalled or exceeded their face value (par). The illustration opposite shows a typical consol, a partially printed, partially handwritten receipt, stating the amount invested, the face value of the security, the investor's name and the date: Received this 22 Day of January 1796 of Mrs. Anna Hawes the Sum of One hundred and one pounds being the Consideration for One hundred pounds Interest or Share in the Capital or Joint Stock of Five per Cent Annuities, consolidated July 6th, 1785 . . . transferable at the Bank of England . . .
 |
| A 5 per cent con sol purchased by Anna Hawes in January 1796 |
The meteoric rise of a diminutive Corsican to be Emperor of France and master of the European continent was an event few could have predicted in 1796, least of all Mrs Anna Hawes. Yet an even more remarkable (and more enduring) feat of social mobility was to happen in almost exactly the same timeframe. Within just a few years of Napoleon's final defeat at Waterloo, a man who had grown up amid the gloom of the Frankfurt ghetto had emerged as a financial Bonaparte: the master of the bond market and, some ventured to suggest, the master of European politics as well. That man's name was Nathan Rothschild.
It may also be useful:
0 comments:
Post a Comment