Bonds_and_Brands_Foundations_of_Sovereig

Bonds_and_Brands_Foundations_of_Sovereig - Bonds and Brands...

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1 Bonds and Brands: Foundations of Sovereign Debt Markets, 1820-1830 Marc Flandreau and Juan H. Flores Graduate Institute, Geneva Department of Economic History Centre of Economic and Policy Research, London University of Geneva August 31, 2008 Abstract How does sovereign debt emerge? In the early nineteenth century, intermediaries’ market power and prestige served to overcome information asymmetries. Relying on insights from finance theory, we argue that capitalists turned to intermediaries’ reputations to guide their investment strategies. Intermediaries could in turn commit or else they would lose market share. This sustained the development of sovereign debt. This new perspective is backed by archival evidence and empirical data, and it suggests why strong but undemocratic states could borrow. . Financial support from Chaire de finances internationales, Sciences Po (Paris), Universidad Carlos III (Madrid) and the Bank of France is gratefully acknowledged. This paper developed over a number of years and places. The authors are grateful to archivists from ING-Baring, Guildhall Library, Rothschild London, and Euronext (Paris Bourse) for their kind cooperation. We especially thank James Khedari for excellent research assistance. Larry Neal helped locate early editions of Wetenhall’s Course of Exchange, and in many other ways, providing feedback, insights, and more. Lars Frederik Oksendal kindly provided data for Danish bonds quotes in Hamburg. We are grateful to European Historical Economics Society Lund Conference participants (June 2007) where this paper was first presented, to seminar and conference participants at the University of Venezia Summer School (September 2007), the University of Zürich (September 2007), the Princeton University Conference on Globalization (September 2007), the Harvard Center for Latin American Studies Seminar and the Harvard Business School Seminar (both October 2007), the Workshop on Economic History at the University Carlos III (October 2007), the First Latin American Economic History Congress in Montevideo, (December 2007), the Economic history seminar at Oxford University (March 2008), the Financial History Seminar at Rothschild (April 2008), and the Economics Department Seminar at Tel Aviv University (May 2008). Olivier Accominotti, Vincent Bignon, Jorge Braga de Macedo, Lawrence Broz, Forrest Capie, Youssef Cassis, Jerry Cohen, Barry Eichengreen, Rui Esteves, June Flanders, Giorgio Fodor, Jeff Frieden, Norbert Gaillard, Aurora Gomez, Harold James, John James, Clemens Jobst, Carlos Marichal, Aldo Musaccio, Larry Neal, Pilar Nogues- Marco, Joaquim Oliveira Martins, Patrick O’Brien, Hillel Rapoport, Giuseppe Tattara, Stefano Ugolini, Jeff Williamson and Frédéric Zumer volunteered comments, insights. They should be thanked for their contribution but absolved from our shortcomings. The suggestions of three referees are gratefully acknowledged. Detailed comments and editorial advice from Philip Hoffman proved most helpful.
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