A World of Public Debts

A Political History

Nicolas Barreyre, Nicolas Delalande, Nicolas Barreyre, Nicolas Delalande

• Publisher: Palgrave Macmillan
• Year: 2020
• ISBN:
  9783030487942
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

This book analyzes public debt from a political, historical, and global perspective. It demonstrates that public debt has been a defining feature in the construction of modern states, a main driver in the history of capitalism, and a potent geopolitical force. From revolutionary crisis to empire and the rise and fall of a post-war world order, the problem of debt has never been the sole purview of closed economic circles. This book offers a key to understanding the centrality of public debt today by revealing that political problems of public debt have and will continue to need a political response.

Today's tendency to consider public debt as a source of fragility or economic inefficiency misses the fact that, since the eighteenth century, public debts and capital markets have on many occasions been used by states to enforce their sovereignty and build their institutions, especially in times of war. It is nonetheless striking to observe that certain solutions that were used in the past to smooth out public debt crises (inflation, default, cancellation, or capital controls) were left out of the political framing of the recent crisis, therefore revealing how the balance of power between bondholders, taxpayers, pensioners, and wage-earners has evolved over the past 40 years.

Today, as the Covid-19 pandemic opens up a dramatic new crisis, reconnecting the history of capitalism and that of democracy seems one of the most urgent intellectual and political tasks of our time. This global political history of public debt is a contribution to this debate and will be of interest to financial, economic, and political historians and researchers.

Chapters 13 and 19 are available open access under a Creative Commons Attribution 4.0 International License via link.springer.com.

Part I

Political Crises and the Legitimacy of Public Debts (1770s–1860s)

By the end of the eighteenth century, public debt became a major issue in many countries throughout Europe. The need to fund repeated wars, each more global in its reach than the previous one—what some historians called the “second hundred years war”—the mounting debt levels, but also the transformations of public discourse on what public debt actually was, all brought about a reconceptualization that is still influential in the ways we understand public debt today.

Yet, that understanding needs revising. Much of the scholarship has erected the conflicting experiences of Britain and France in the late eighteenth century as a lesson about good practices and good institutions, consecrating the British peculiar setup as a model of “successful” public debt. As this first part will show, however, there were a variety of viable ways of borrowing and managing debts for European states, and what really turned them into an issue had more to do with the political legitimacy of political institutions, and to whom they catered, than any measure of economic sustainability. The historical cases of Spanish America, France, and Sweden explored here thus suggest that we should revisit this period, and revise even well-known examples such as Britain, to better understand the reasons why, by the mid-nineteenth century, a liberal debt regime became dominant in Europe before being exported, sometimes forcefully, to other parts of the world. As we argue, those reasons were largely political.

As Regina Grafe underlines in Chap. 1, public financial institutions (including public debt) were themselves the result of political compromise, settlement, and pragmatism. Spanish American colonies had developed a very different system from the one the British were then consolidating. This decentralized, interconnected network of local Treasury chests, enmeshing religious institutions and merchant capital into its circuits, enabled the Spanish to sustain what was then the largest empire in the world while keeping the central government with little debt compared to other European powers. Yet this system rested on the political legitimacy of Church and Crown—precisely what the revolutionary wars in Europe, then the wars of independence in Spanish America, destroyed. The lessons liberal reformers tried to apply were, precisely, the wrong ones.

This question of political legitimacy and liberal reform going awry is where Rebecca Spang picks up in Chap. 2. As she argues, it was the political fight around public finance, rather than economic unsustainability, that made the French Monarchy’s debt problematic in the 1780s and precipitated the French Revolution. In turn, the revolutionaries tied public debt (and honoring it) to the very legitimacy of the new regime and the financial instruments it wielded. The political centrality of public debt, thus, was a crucial engine in the radicalization of the Revolution; and, in turn, the partial default of 1797, while sealing the fate of the regime, also gave its successors the tools to rebuild a new political legitimacy.

Public debt and its management had thus become, in the eighteenth century, a key lever for the control of political power and the state. Sweden’s example, Patrik Winton argues in Chap. 3, might be little known but is illuminating in that regard. Describing several key episodes from the mid-eighteenth century to the 1820s, he shows how public debt was intimately tied to the nature of the political regime, and who wielded power within the state structure. Decisions to borrow domestically or abroad, and between various lenders in Europe, all had an impact on the internal balance of power in Sweden, and the institutional makeup of a regime, that balanced between the absolutist power of the king and more divided power between the estates—until French Marshal Bernadotte turned king of Sweden could attach the new public debt of the country to his own person, thus definitely building his own political legitimacy.

The importance of public debt in building political legitimacy in post-revolutionary Europe is at the heart of David Todd and Alexia Yates’s argument in Chap. 4. Returning to France, they show how the state, in spite of multiple changes of regimes, could rebuild a political legitimacy through debt in the post-Napoleonic years. It did it through intellectual and material innovations that produced a positive view of public debt as citizen democratic participation in the life of the state—and its foreign relations. That France could become so rapidly a financial powerhouse after the Revolution and the indemnities imposed on it in 1815 is a testament to this new system, that was compatible with the ascendant liberal debt regime that dominated the world in the second half of the nineteenth century, but represented a significant variation with long-term consequences—all the way to World War I.

© The Author(s) 2020

N. Barreyre, N. Delalande (eds.)A World of Public DebtsPalgrave Studies in the History of Financehttps://doi.org/10.1007/978-3-030-48794-2_1

Begin Abstract

1. An Empire of Debts? Spain and Its Colonial Realm

Regina Grafe¹

(1)

Department of History and Civilization, European University Institute, Florence, Italy

Regina Grafe

Email: [email protected]

End Abstract

Public debt is a fundamental part of the fiscal viability of any complex polity. In the early modern period, small city states, larger territorial states, and the largest overseas empire of the western hemisphere, the early modern Españas (Spains), needed access to credit for at least two reasons. First, revenue and expenditure streams do not follow the same cycle. Prior to the late nineteenth century, military spending was by far the largest item of expenditure. It was also particularly uneven. Money needed to be available up-front when campaigns started. Armies, whether regular, militia, or mercenaries, stopped fighting and started looting if their masters were too far behind on pay. Revenues, on the other hand, tended to flow in steadily over the year, and even if they came in as lump sum payments from tax farmers, those pay schedules hardly ever coincided with major expenditures. This was even more so in those fiscal regimes that relied overwhelmingly on trade and consumption taxes rather than direct land taxes as was the case in the early modern Spains.¹

Second, revenue and expenditure are often spatially incongruent especially, though not only, in large empires. Taxes collected in a number of cities far from the frontier ended up financing the militias sent to defend the border. Much research has gone into the ability of early modern states to raise revenue, that is, their fiscal capacity, and their effectiveness and efficiency at providing the basic functions of political organizations such as internal and external protection, that is, their legal capacity.² Arguably the intertemporal and interspatial transfers that were at the heart of this state capacity were the internal plumbing of any fiscal system. But the shape of that system needed to be negotiated politically, financed usually by drawing on credit, and executed in practice. The purpose of this paper is to chart how that political negotiation of intertemporal and interspatial transfers emerged and evolved over time in Spanish America during the colonial period, and what its legacy was on the fiscal and financial systems of modern Spanish American republics.

In the literature on comparative empires the question of colonial legacy looms justifiably large. Economic historians of Latin America in the later nineteenth and twentieth centuries have searched the colonial past for explanations why, to paraphrase a famous book, “Latin America fell behind.” They concluded that the late development of modern financial markets in most of the states after Independence (1808–25) explains at least some of the problems.³ Even in the larger Latin American republics, banks, stock exchanges, and bond markets only became fully functional in the modern sense of those institutions relatively late in the nineteenth century. Narrow and shallow capital markets held back industrialization in particular, with long-term negative consequences for Latin Americans’ economic opportunities.⁴

Historians of Latin American independence in turn viewed the poor financial infrastructure of the lat...

Table of contents

• Cover
• Front Matter
• Part I
• Part II
• Part III
• Part IV
• Part V. Conclusion: On the Historical Uses of Numbers and Words
• Correction to: A World of Public Debts
• Back Matter