The Financing System of Governments

At first sight a marked difference between the Italian governments of the early Renaissance can be seen: the means of financing their deficit. There were, on the one hand, communal cities and republics raising money from citizens through the system of forced or voluntary loans; and, on the other, princes and lords who exploited the services of bankers and merchants. These two different systems of borrowing bring about significant financial and political variations. In this paper I will examine the main features characterizing the two mechanisms of indebtedness and the implications concerning the emergence of a true financial market connected with state bonds.

As far as we know, the first loans in cities were made on a voluntary basis. Pressed by urgent – usually military – needs, the commune requested the wealthiest citizens to lend a given sum and committed itself to pay it back in a short time. The social group of lenders was composed of merchants, bankers, Jews and sometimes foreigners. The government usually granted tax proceeds or domain revenues as guaranty. This practice took place from the beginning of the twelfth century, as the cities seized control of taxing rights from feudal lords and ecclesiastical institutions.

The availability of loans, however, was not adequate for the growing financial needs of city governments engaged in an expensive territorial expansion. Governments thus requested both forced and voluntary loans. The system relied on fiscal documents (estimi and catasti) that assessed all citizens for the amount of their wealth or income. According to these documents, the government assigned the amount each citizen had to lend. In this case loans usually were short term and with a modest interest rate. This system considerably enlarged the social sector of lenders; all the citizens, apart from the poorest ranks, were requested to put money into the commune's coffers. Likewise, the Jewish community was obliged to lend to the government. Although the government debt was characterized first and foremost by the participation of city dwellers, it is nevertheless worth noting that in some cases subject communities were involved in the system.