Debt: The First 5000 Years - autonomous learning

AGE OF THE GREAT CAPITALIST EMPIRES 339
raise all sorts of questions about the legal and moral relation between
people and government. Ultimately, the commercial classes in those
mercantile republics that pioneered these new forms of financing did
end up seeing themselves as owning the government more than they
saw themselves as being in its debt. Not only the commercial classes:
by r6so, a majority of Dutch households held at least a little government
debt.78 However, the true paradox only appears when one begins
to "monetize" this debt-that is, to take government promises to pay
and allow them to circulate as currency.
While already by the sixteenth century, merchants were using bills
of exchange to settle debts, government debt bonds-rentes, juros,
annuities-were the real credit money of the new age. It's here that we
have to look for the real origins of the "price revolution" that hammered
once-independent townsfolk and villagers into the ground and
opened the way for most of them to ultimately be reduced to wage
laborers, working for those who had access to these higher forms of
credit. Even in Seville, where the treasure fleets from the New World
first touched port in the Old, bullion was not much used in day-to-day
transactions. Most of it was taken directly to the warehouses of Genoese
bankers operating from the port and stored for shipment east. But
in the process, it became the basis for complex credit schemes whereby
the value of the bullion was loaned to the emperor to fund military operations,
in exchange for papers entitling the bearer to interest-bearing
annuities from the government-papers that could in turn be traded
as if they were money. By such means, bankers could almost endlessly
multiply the actual value of gold and silver they held. Already in
the rs7os, we hear of fairs in places like Medina del Campo, not far
from Seville, that had become "veritable factories of certificates," with
transactions carried out exclusively through paper.79 Since whether the
Spanish government would actually pay their debts, or how regularly,
were always slightly uncertain, the bills would tend to circulate at a
discount-especially as juros began circulating throughout the rest of
Europe--causing continual inflation. 80
It was only with the creation of the Bank of England in r694 that
one can speak of genuine paper money, since its banknotes were in no
sense bonds. They were rooted, like all the others, in the king's war
debts. This can't be emphasized enough. The fact that money was no
longer a debt owed to the king, but a debt owed by the king, made it
very different than what it had been before. In many ways it had become
a mirror image of older forms of money.
The reader will recall that the Bank of England was created when a
consortium of forty London and Edinburgh merchants-mostly already