the plan for the future
Taken from: Giuseppefelloni.it - Genoa and the history of finance: a series of firsts?
The world of public debt is full of ups and downs, sometimes to the advantage of the state and the disadvantage of its creditors, or vice versa. When government needs funds it offers high interest rates, which deplete public revenues, enriching the creditors but also compromising the smooth running of the bureaucratic machine. Inevitably there comes a point when the state has to alter the original terms of the loan introducing various reforms: consolidation of matured loans, introduction of a lower interest rate, unification of various debts to achieve economies of scale.
In Genoa expansion and reforms to public debt were particularly frequent, leading to an accelerated evolution of financial techniques and to the formation of a strong group of public creditors.
Consolidation. The combining of two or more sources of revenue into a common fund, or of varied formes of public indebtedness into a stock bearing interest at a uniform rate (The Oxford English Dictionary, 2nd ed.).
Conversion. The change of an issue of public securities, of bonds, debentures, stocks, shares, etc. into another of different character, or with an altered (generally reduced) rate of interest (The Oxford English Dictionary, 2nd ed.).
It is the operation by which the state proposes to public creditors either to replace their bonds with new bonds bearing a lower rate of interest or to accept refund of the bond for its original value (…) The first example of consolidation was performed in England by the Chancellor of the Exchequer, Sir Robert Walpole in 1715 (Enciclopedia italiana, Istituto della enciclopedia italiana fondata da Giovanni Treccani).
The first general ledger produced by the House of St George, dated 1412 (but also including the accounts from 1408 onwards), bears two solemn notes on the first page. 11
The first one reads:
The second note is a list:
These notes are a memorandum for present and future administrators. They summarise the fundamental operations on which the “compere” of Saint George were founded, in other words:
1) A certain number of loans entered into by the municipality of Genoa in previous times were now gathered into one single debt. This meant that all creditors were brought together in one register (made up originally of four ledgers) and that the revenues assigned to creditors were now considered as one single lot.
2) The original rates of interest of 8%, 9% and 10% interest were now reduced to 7%.
The first general ledger of the Bank of St George opens on 2nd March 1408 with the following note: 12
This document explains a decision taken by the 8 prominent and valiant citizens who run the House of St George: from the 2nd March 1408 a Bank was opened, and would continue to exist until such time as the debts of the municipality of Genoa were wiped out and greedy private bankers stopped keeping the price of money so high, thereby putting their own interests ahead of public well-being.
This document marked two very important events in the financial history of Genoa: the creation of a body, which aimed to wipe out public debt (the House of St. George) and the opening of a Bank to repay the transactions without using hard currency.
The creation of the House of “compere” and banks of St George was a crucial step in Genoese finance, but in itself not entirely new to local history.
Right from the beginning the public debt of the state of Genoa had tended to grow through alternating phases of expansion and consolidation. Periods of increase in debt usually coincided with an increase in war activity or, more generally, an increase in the treasury’s financial needs. This was followed by periods of financial reforms: due debts and the existing “compere” were consolidated into one single debt; this single debt was provided with a proper set of tax revenues, interest rates were levelled down with one rate applicable to all the “luoghi” and savings were made on management expenses. The new, unified public debt was still called “compera” and was usually named after a Saint for divine protection. It legally replaced the separate “compere” to which it owed its existence and, like them, had its own legal personality and was administered in the interests of all the creditors.
These reforms, which brought temporary relief to the financial difficulties of the state, led it onto other spurts of expansion followed, inevitably, by further increases in public debt and hence to the creation of new compere to absorb the new debts: and so the whole cycle started again.
The process of public debt reform started in 1274 with the birth of the first permanent consolidated debt, the “compera magna salis” at 8% interest 13. In the past internal conflicts and external wars (specifically those against Frederick II, Pisa and Venice) had generated new, different, “compere” which had been created through either voluntary or compulsory loans, engendering further gaps in public revenue. In 1274, therefore, all the “compere” were gathered together into one with all shareholders to receive identical interest; furthermore, “luoghi” were to be repayable at the discretion of the municipality of Genoa.
Later on, new crises in public finance for the treasury brought about the creation of new debts; subsequently they too were subject to reform. At the end of the XIV century public debt consisted of five large unified “compere”, which had been created at different times by the gathering together of pre-existing debts and “compere”. 14
With similar aims and procedures, in 1407 public debt reform was entrusted to a purpose-built organisation, named after a saint for divine protection and called “Officium Comperarum Sancti Georgii.” Its duties were to merge three fourths of the pre-existing public debt into one debt with a reduced and uniform 7% interest rate, to reimburse those creditors who did not agree with the reforms and to manage an adequate number of tax incomes in order to be able to pay out the contracted revenue to the “luoghi”.
However the newly founded office was neither the first nor would it be the last step in consolidating Genoese public debt. Though not dissimilar from its predecessors, the office or House (“Casa”) of Saint George would have a far greater importance than the previous reformers of public debt. The state granted extensive privileges to the House which were also acknowledged (often in exchange for loans) by foreign rulers. All this translated into a far ranging jurisdictional power for the House of St George with regard to both public debt and taxes. Its work was to doggedly protect the fiscal income stream earmarked for the payment of revenue to the luoghi; this often put it at odds with the general interests of the region and hardened it against all public or private initiatives which might erode its flow of income.
But there is another aspect which is still more relevant: in 1408 the House of St. George was authorised to open a public bank, the first of its type in Italy and the second in Europe to the Taula in Barcelona (1401). The bank accepted deposits, made money transfers between accounts and granted credit secured on current accounts. Its activities grew for a few decades and, in 1440, two more “cartulari” (branches) were opened. Its work was then interrupted in 1445 for monetary reasons, started again in 1531 and continued in different forms (always introducing new developments) until 1805.
The banks opened by the House of St. George became the heart of a financial system, which handled two increasingly different money circuits. The first, which acted as the House's treasury, received income from taxes, paid out revenues to the holders of “luoghi” and fed the grants given by San Giorgio to the state and to public offices in general. The second circuit met the needs of the public by taking deposits, handling withdrawals and transfering money between private citizens.
11. A.S.G., Archivio di San Giorgio, serie “Introitus et exitus Officii Sancti Georgii”, n. 1.
12. A.S.G., Archivio di San Giorgio, pand. 17, n. 7204.
13. Large compera of the salt.
14. Thus the debts from the wars against Pisa and Venezia were gathered into the compera magna mutuorum veterum (large compera of the war debt) of 1303 and those of the successive civil wars (1306-1331) into the Compera magna pacis (large compera of peace) of 1332. In 1340, after the change in political structure under the authority of doge Simone Boccanegra, the administration of all existing compere was also reorganised, keeping them separate but devaluing their luoghi (shares) on the market and assigning to the devalued capital variable interest from 7% to 10%. From this reform was born the compere comperarum Capituli (compere of the compere of the Capitolo), so called because the relevant ledgers were kept in the Capitolo of the Cathedral in order to preserve them from popular revolt such as those of 1339, when fiscal documents were burned. In these compere the state ceded nearly all their income in exchange for a fairly modest fixed payment (lire 20.000) to fund its current expenses (H. Sieveking, Studio sulle finanze genovesi nel medioevo e in particolare sulla Casa di San Giorgio, trad. di O. Soardi, in "Atti della Società Ligure di Storia Patria", vol. XXXV, pt. I, 1905, p. 135). To the compere of the Capitolo yet more compere would be added by merging later debts: in 1368 the compere Sancti Pauli (compere of St. Paul, later called veteres) with 10% interest rate, in 1381 the compere nove Sancti Pauli (the new compere of St. Paul ), with 5-9% interest rate and the compere regiminis with 8% interest rate; in 1395 the compere Sancti Petri (compere of St. Peter), with 8-9% interest rate.