Abstract

This research project aims to analyse Portugal’s public debt in the early modern period and its impact on private credit. The central issue is the credibility of the commitment of the state in servicing the debt issued in the form of perpetuities. The conjecture is that the state's ability to borrow at decreasing interest rates was possible because colonial rents offered a credible collateral. Defaults could only have occurred at junctures of colonial empire economic contraction. Construction of the following sets of data would provide a confirmation of our conjecture: a) outstanding debt; b) tax revenue allocated to debt servicing; c) interest rates; d) debt management; e) creditors. To analyse the impact of the public credit on the private capital market, this project considers episodes of deferment of interest payments and of major changes in credit regulation conditioning investment decisions. The well-kept account books of Misericórdias (the one in Oporto, among others) provide a vantage point to jointly observe the dynamics of both credit markets.

By considering an uncharted historical case, this project contributes to the elaboration of a more comprehensive history of public debt in Europe, helping to corroborate or refute the state of the art based on the conventional case of success (England and Holland) or failure (Spain, Sweden or France) of the main territorial states.

Most of the historical literature in early modern financial systems addresses private and public credit separately. There is still much to learn about the profound interaction between these markets, considering that they likely targeted the same investors, drew from the same pool of resources and were affected by the same public finance stresses and crises.

The research project Sovereign debt and private credit in Portugal – 1500-1797 [Portuguese Foundation for Science and Technology, PTDC/HAR-HIS/28809/2017] contributes to this discussion by taking Portugal as a showcase. In the present stage of research, three lines of research are carried out.

The first question addresses the modifications on debt instruments throughout different institutional contexts in early modern Europe. Long-term credit instruments had originally been developed in, and, for, the private sector. The transferability of public debt instruments provides a second research problem. While the primary market could be hurt by financial repression, the secondary market was less constrained and, thus, provides a clearer perspective on the credibility and liquidity of the credit instruments. The final issue is the sociological analysis of lenders and their different strategies according to the market in which they participate. The key question is whether governments and private borrowers did depend on the same social groups for funding.

The Shadow of the Sovereign II workshop, hosted by the GHES-CSG, brings together specialists on different national public and private credit markets to address the connections between the two markets. The research presented is expected to contribute to a fresh look on three key problems of financial history.