Liquidating government debt and creating a secondary asset market: trading patterns, market behavior and prices on government liabilities in Sweden, c. 1719–1765

This article studies a previously unknown asset market in eighteenth-century Sweden. It emerged as a result of a partial default in 1719, when large amounts of recently released fiat coins were converted into government liabilities. These could only be redeemed as a customs duty on international trade, the licent. As merchants had to acquire such assets to conduct their trade, tens of thousands of transactions were carried out on a secondary market over a period of more than 45 years. Networks of local merchants bought assets from initial holders and sold them on to intermediaries or merchants, who deposited the liabilities with a newly established government agency, the Debt Office. Here, hundreds of account holders could transfer the value of their deposits between them. When a licent payment was due, the amount was deducted from the merchant's account. Prices on the liabilities were low and sometimes volatile, but the long-term trend was rising. We have distinguished three types of market participants: a small group of very active users, most of them professional dealers or brokers; merchants who traded on a regular basis as they needed to pay the licent, or when a favorable opportunity appeared; and finally, those who traded sporadically. The emergence of this market was part of a financial expansion that occurred in many European countries at the same time, the closest equivalent being the segmented default in France after the abolition of John Law's system. This study aims to broaden our understanding of eighteenth-century financial developments, which have rarely been studied in a semi-peripheral European economy.

preceding three years in order to finance the continuance of the Great Northern War (-).In the first stage of the default, the value was written down by  percent.Second, the fiat coins were exchanged for so-called assurance notes.These non-interest-bearing notes could only be redeemed as payment for customs duty on international trade, the licent, which merchants had to acquire to conduct their trade.In the default's final and most protracted stage, merchants and other actors purchased assurance notes from holders at a discount to pay the customs duty.This process did not end until the mid s.Due to the abundance of notes in circulation and the demand for duty payments, their market price was significantly lower than their nominal value.A relatively large secondary market for assurance notes, in which tens of thousands of transactions were conducted over more than  years, ensured that buyers and sellers could meet even if they were not involved in international trade.
Previous research has essentially ignored this process.Scholars have characterized it as an administrative issue that was solved by the setting up of a Debt Office in  (Riksens ständers kontor), without realizing that the process resulted in the creation of a major asset market, which reached all parts of Sweden and involved thousands of participants (Åmark , pp.-).
Although local circumstances framed the liquidation process and the rise of an asset market, the process took place at the same time as other European states were dealing with expansion and reduction of financial instruments, as well as with market bubbles (e.g.Dickson ; Neal ; Murphy ; Condorelli and Menning ).The closest equivalent to the Swedish developments is France after the collapse of John Law's system.Here, a segmented default was implemented, separating investors from speculators and smallholders from larger proprietors to provide the two former categories with better terms.Like in Sweden, holders received liquidation certificates traded at a heavy discount.However, unlike in Sweden, the process was rapid, and holders of liquidation certificates could turn them into interest-bearing life or perpetual annuities (Neal , p. ; Velde , pp.-).
By placing the Swedish case in the broader context of the aftermath of the Mississippi and South Sea Bubbles, we will broaden our understanding of the mechanisms used by policy-makers in domestic defaults and liquidating government debt instruments during the eighteenth century.Scholars have primarily focused on developments in Britain, France and the Dutch Republic while often neglecting the fact that financial developments also occurred in other European regions around the same time (e.g.Dickson ; Neal ; Carlos and Neal ).We, therefore, have very limited knowledge about how markets for government debt liabilities functioned in more peripheral European economies.
This study aims to analyze how this secondary market for financial assets functioned and how it developed over time.In doing so, we have distinguished three fundamental aspects.The first is the scope of the market and the institutions and regulations that constituted its prerequisites.The second is market behavior and strategies deployed by actors in the market.The third is how prices developed over time.The investigation is conducted by a combination of descriptive statistics and a qualitative analysis of a variety of primary sources.Thus, by approaching the market from very diverse types of sources, we can present an overview that a purely quantitative study of specific sources or series of data cannot provide.
Theoretically, the analysis is influenced by two concepts, namely transaction costs and information asymmetries.Because the secondary market involved many different actors with varied social backgrounds and living in disparate geographic locations, we cannot presuppose that everyone had access to the same information or that transactions were smooth to conduct.There were many economic, social and geographical hurdles that actors had to overcome, which can be characterized as transaction costs, for the secondary market to function.There were also information asymmetries associated with these hurdles.Moreover, there were intermediaries who could profit from transaction costs and information asymmetries by trading in financial instruments or by providing assistance to others to do so (e.g.Akerlof ; North ; Li ).
The scope of the market is studied by consulting the ledgers of the Debt Office, which administered the liquidation process.The general ledger (Huvudbok) provides information about the liquidation of notes, which has been used to create a quantitative overview of developments over time.In another ledger (Licentmemorialbok), the payments of the licent were administered.Most merchants opened an account with the Debt Office, in which they deposited notes.When the licent was paid, the amount in question was deducted from the merchant's account.Hundreds of accounts were opened, and non-merchants were also welcomed.
Moreover, there was a very lively trade between account holders, as the deposits could be transferred from one to another within the Office's ledgers.Not all transactions are visible in the ledgers since holders can buy and sell notes without registering the transfers.The ledgers provide an important, but not exhaustive, view of the secondary market.These sources have never before been consulted by research.
Market behavior is also primarily investigated through the ledgers of the Debt Office, where the activities on the holders' accounts are a valuable indicator of their relation to the market.Rather than analyzing all transactions in all accounts, which would be an enormous task, we have focused on the activities of some key market participants selected by a process of empirical generalization.When possible, we have picked market actors who have left behind other types of source material that provide complementary information about their activities.Thus, we have distinguished three types of actors on the market.First, some were very active and traded on a weekly basis.Second, some traded when needed or when a favorable opportunity appeared.Third, some traded very infrequently, perhaps just a few times over a long time period.Sources from the Debt Office give a rather accurate picture of the concluding part of the market, i.e. when assets were transferred between accounts and subsequently redeemed.Still, transactions preceding deposits with the Office are difficult to trace.However, in a few cases, transactions are recorded on the back of notes and bills.Also, merchants' probate inventories can reveal business contacts in the form of debts and claims in bills and notes.Finally, the minutes of the board of the Debt Office sometimes record discussions of non-standard transactions or market sentiments.Such discussions can shed light on the circumstances of the dealings and reveal how account holders procured their assets.
The development of prices on assurance notes and salary bills is more difficult to explore.There are no price courants, and the transfers between accounts in the ledgers of the Debt Office only record nominal values.It is also rare that records of merchant activity from eighteenth-century Sweden have been preserved.However, we have managed to source the bookkeeping of a Stockholm merchant who traded in assets and in which market prices are recorded.As a complement, we have gleaned information from merchants' probate inventories and a substantial number of account books from parishes, where individual sales of assurance notes are recorded.

I
Under the pressure of prolonged warfare, a new system of government finance was created in Sweden during the s.In the first nine years of the Great Northern War (-), the state relied on traditional forms of finance: taxation; seizing resources on enemy territory; and borrowing from the Bank of the Estates (Riksbanken) (Lindegren ; Glete ; Björklund ).Following the defeats at Poltava in  and at Tönning in , the war was increasingly financed by credit, as the absolute monarch Charles XII sought new ways to fund his military efforts.The issue of around . million daler silvermynt (dsm) worth of salary bills as payment for officers and civil servants in , and the more than . million dsm worth of government bonds, were such innovations.Both salary bills and bonds were interest-bearing and could be traded on a secondary market.However, the backbone of the government's efforts to meet military demand was the release of large numbers of very light fiat copper coins.Their value of one dsm had no connection to their metallic content or to any specific backing.Thus, they constituted an equivalent to paper money.The fiat coins were primarily used as payment for military supplies, billeting and transport, of which the peasantry, artisans and merchants received the lion's share.The peasants were legally obligated to provide such services for free to the military.However, the huge scale and the need for unobstructed campaigning meant they had to be paid for their efforts.At the end of , more than  million dsm of fiat coins were circulating, and they were accepted as payment in all types of transactions, including tax payments.This can be compared to the annual average release of minted coins between  and , which amounted to about . million dsm (Lindegren , pp.-; Ericsson and Winton  passim, esp.p. ).
At the death of Charles XII in November , royal absolutism was abolished and replaced by a regime that based its power on the Estates (Riksdag).The war policy was ended, and with it, the old regime's financial system.The value of the fiat coins plummeted as a consequence of uncertainty regarding the new regime's commitment to the coins.At the Riksdag, leading nobility and clergy representatives advocated a  default, while the peasantry and the burghers tried to resist.But the latter groups were unable to build a working alliance around a continuation of the previous regime's policies.Also, the peasants were isolated and excluded from the decisive debates.Merchants and retailers were accused of profiting from the old financial system, which made it hard to counter the arguments from the traditional elites, who claimed that the system was harmful to society and the social order and fiscally impossible to maintain. 1 In April , the new government initiated the default.It declared that all fiat coins should be exchanged for non-interest-bearing assurance notes at / of the original denomination.The coins were then returned to the owners, but now going as small change at a value of  öre (/ dsm.).For many holders, especially peasants and burghers, the decision was a devastating blow.The exchange of fiat coins for assurance notes took place in June .Around , transactions were executed, and over  million fiat coins were handed in.The holders received a single assurance note in exchange for their coins.Unlike the salary bills, they were not interestbearing.The new depreciated total worth of the assurance notes amounted to about . million dsm in nominal value (Ericsson and Winton , pp.-).
In comparison, the value of the credit notes issued by Stockholm Banco in the s only reached . million dsm (Edvinsson , p. -).The assurance notes could only be redeemed as payment for a new customs duty on international trade, the licent.Owners could utilize the notes' nominal value when such transactions were carried out.Moreover, they could be divided into smaller values by the issuance of transfer notes (transportsedlar), and they could be transferred to new holders without any registration.2Due to their limited use, they cannot be characterized as money that could easily circulate in the economy.Instead, they constituted a form of government debt instrument with limited negotiability, which could be rather liquid among merchants in the major towns but more difficult to use among other sections of the population.
As stated above, the liquidation of the public debt was administered by the newly formed Debt Office controlled by the Riksdag.The Office was provided with earmarked government revenues, of which the most important was an extraordinary tax levied on every household (Lön-och betalningsavgift), and the part of the licent paid in specie.These resources were used to liquidate other parts of the public debt, which had not been targeted in the default, such as the bonds, claims from crown suppliers, and claims from officers and civil servants for unpaid salaries.These claims were recognized after various government bodies had scrutinized them.The Debt Office divided the recognized claims into  categories, indicating the order in which they were redeemed.This part of the debt amounted to  million dsm in .However, it had increased to over  million dsm in  after more claims, many of which dated to before the war, had been recognized.These arrangements meant that the Office had to monitor several different claims and record their liquidation while overseeing the specific revenues utilized to pay the claimants (Åmark , pp.-).This article focuses on the claims liquidated through the licent, leaving the recognized claims being paid with cash aside.It should be emphasized that the Debt Office had no relation to the Bank of the Estates, except that it, like all other government agencies, held an account with the Bank through which its funds were channeled.It should also be noted that the Office used an established communication system to promulgate information about all the decisions to the population through the churches, and the decisions were also printed in a state newspaper (Reuterswärd ; Ericsson ; Linden Pasay ). 3rom the start of the system in , it was stipulated that at least half of the licent should be paid with salary bills, and the rest could be cleared with assurance notes.In , the Riksdag decided that foreign merchants had to pay the licent in specie, while the licent on foreign goods transported on Swedish ships was paid half with specie and half with notes or bills.Concurrently, it was determined that salary bills were no longer a requirement.In , it was decreed that a quarter of the licent on Swedish goods on Swedish ships was to be paid with specie and three-quarters with notes or bills.These decisions were partly a consequence of a policy of promoting Swedish merchants and shipping and partly due to the need to increase the revenues of the Debt Office (Åmark , p. ; Müller , pp.-).
In , the Riksdag decided that the Debt Office should focus on paying all the outstanding capital debt while leaving the unpaid interest aside for a later date.However, claimants who held interest-accruing instruments, such as bonds, received interest notes (intressesedlar) as a substitute for interest payments.In , the Estates decided that such notes could be liquidated by paying the licent.Before that, in , the Estates resolved that a limited number of assurance notes per year could be liquidated with cash if the holders accepted a heavy discount of  percent.Later, this restriction on the amount was removed, which increased the number of cash liquidations of assurance notes (Åmark , pp., ).Table  summarizes the timeline of the licent.
The licent constituted between  and  percent of the value of imported and exported goods, depending on the product.It was imposed on almost all imported goods, but on exports, it was limited to copper, iron, steel, furs, wood products and grain (Åmark , p. ).The size of the licent compared to other costs associated with the import and export of products is demonstrated in Table .It shows what the merchant house Carlos & Claes Grill in Stockholm paid in October  when they exported  skeppund of bar iron and  tar barrels.The largest cost was the regular customs (. percent).The licent constituted around  percent of the total duties in nominal terms.
Figure  demonstrates the impact of the political decisions of the s on the relationship between the total licent paid and the part of the licent that was paid with salary bills and assurance notes.While the two curves converge in -, when all of the licent could be paid with notes and bills, the gap between them increases when specie had to be used for parts of the payment.Consequently, the level of licent paid with salary bills and assurance notes in - was never reached in subsequent periods.
Still, the payment of the licent with bills and notes constituted a considerable sum of around ,-, dsm per year during four decades.In comparison, the available part of the Swedish state's revenue amounted to . million dsm in  and . million dsm in  (Åmark , pp.-).The bulk of the revenues, much above and beyond such numbers, were tied up locally, financing the military.
Figure  shows how the salary bills and the assurance notes had a similar significance during the first liquidation period through the licent.However, most of the salary bills had been liquidated by .After that period, the process was dominated by the assurance notes.When a large portion of the insurance notes had been liquidated by the s, interest notes were accepted.In the last period, they came to dominate the payment of the licent.
During the more than  years that this system was in place, the supply of liabilities was greater than the demand.This fact is highlighted by Figure , which demonstrates the divergence between the total nominal value of the liabilities deposited at the Debt Office and the amount deducted from the accounts in order to pay the licent.In the first years, many accounts were opened, and large sums were deposited.For the next  to  years, the deposits exceeded the amounts needed to pay the licent by more


than a million dsm.The number of deposits fell in the s as the supply of assurance notes was reduced.Deposits increased again in the s when interest notes were permitted as payment for the licent.

II
We now turn our attention to how the market functioned.To give a reference for the prices accounted for below, a farmstead with noble privilege was usually valued at between , and , dsm at the beginning of the period. 4n important aspect of the market was that liabilities flowed from their original holders in the countryside to merchants or intermediaries in towns with international trade.A common pattern was for the initial holders to sell assets in their local community.For instance, the customs official in Vadstena, Samuel Päppelman, sold three salary bills to merchant Hans P. Lindh from Gothenburg in June .Lindh was active in the region of Östergötland, where he purchased many salary bills before selling them to Gothenburg or Stockholm.Päppelman's notes ended up in Gothenburg, where they were redeemed in  by merchant Johan Busch.5  Similarly, the customs inspector in Helsinki, Petter Wetter, redeemed four transfer bills in , initially issued in , to four men serving with a Finnish cavalry regiment.The following year, he redeemed two more transfer bills issued to men in the same regiment. 6Likewise, merchant widow Anna Schröder from Gävle, the commercial and administrative center of the province of Västernorrland, dealt with many bills and notes issued in the province.In , she liquidated  transfer bills issued in this province to soldiers serving with the Ostrobothnia infantry regiment.On the same day, she also redeemed five assurance notes from Västernorrland.She continued the same practice the following year when she deposited four assurance notes from the same province.7Although many transactions occurred in the s, not all bills and notes were liquidated promptly.In the northern province of Västerbotten,  of the , assurance notes issued in  did not reach the Debt Office until -.Hence, for around  percent of the notes, it took more than  years to be redeemed. 8Most ended up in Stockholm in the hands of merchants, brokers or shipping agents.An assurance note issued in  to the merchant Erich Johansson Orre in the town of Luleå was transferred in  to another merchant, Johan Orre, in Finspång in Östergötland before it was deposited in Stockholm in  by yet another merchant, Christian Hebbe.Likewise, notes issued in  to the peasants Olof Nilsson in Bygdeå, Per Larsson in Råneå and Pär Pärsson in Skellefteå were purchased by Peter Hamgren in April  before they were redeemed by the merchant Peter Helin Johansson in Stockholm a month later.However, not all notes ended up in the capital.Three notes issued in Umeå in  arrived in the Finnish town of Vasa in , where they were handled by the alderman Nils Töhlberg.9This slowness can be interpreted as a consequence of transaction costs, which made it difficult for many peasants to liquidate their notes.
Intermediaries like Lindh, Wetter, Schröder, Töhlberg and Orre dealt with relatively small volumes.However, they played an instrumental role in the flow of notes and bills from the countryside to the commercial centers in the provinces.Put differently, they reduced transaction costs.Such intermediaries were active in all provinces.Some of the notes and bills stayed in the provinces.They were liquidated as payment of the licent in towns such as Norrköping, Helsinki or Gävle.However, many notes and bills moved from these locations to Gothenburg and Stockholm, where the demand was greater since trade volumes were larger.Merchants or brokers in Gothenburg and Stockholm mainly directed this flow and dealt with the largest volumes of bills and notes.For instance, the broker Mathias Lafransen in Stockholm sought to benefit from the regulation in , which gave holders the right to redeem assurance notes for cash at a discount of  percent.He handed in , assurance notes from all parts of the country, valued at , dsm, in one giant deposit in .Lafransen could not have managed to collect all these on his own.Instead, he relied on associates to deliver him the notes.No payments were made until the notes were liquidated, meaning the transactions were based on Lafransen's pledge to reimburse his associates when he was paid.Because of the huge number of notes, the clerks at the Debt Office complained that it would take three to four weeks to expedite the payment.The delay worried Lafrensen, as it threatened his credit and his ties to his associates.Eventually, a compromise was reached, A similar pattern of having associates in various parts of the country can be identified when studying the activities of merchant Jacob Leonard Almacher in Stockholm.In , he deposited  salary bills valued at , dsm, while he deposited assurance notes from Stockholm and the southern provinces of Blekinge, Kalmar and Östergötland valued at , dsm.He also sold assurance notes to merchants in Karlskrona and Malmö.At his death in , Almacher had  creditors that he owed , dsm for transactions in assurance notes. 11The geographic range of the relations and the amounts involved show that Almacher relied on a network of associates that provided credit and supplied bills and notes.Only with the help of his network could Almacher reduce transaction costs.The number of transactions and the amounts involved imply that his associates also viewed the trade in government liabilities as a business opportunity.
The activities of Lafrensen and Almacher indicate that credit played a role in the transactions on the market for government liabilities since sellers were often only paid when buyers liquidated the assets.This interpretation is strengthened if we turn to the actions of shipping agent Petter Frisch in Stockholm.In , he promised to help innkeeper Jonas Biörn to liquidate two salary bills and three salary bills belonging to Anders Öberg.Frisch deposited four of the notes at the Debt Office, while the fifth was deposited by Cornelius Bruynvisch later in the same year.However, Biörn claimed that he still had not been paid for his bills in  when Frisch passed away.Frisch had also promised court sexton Theodorus Flumenius to help him liquidate four salary bills in .According to Flumenius, Frisch had said receiving two-thirds of their nominal value was possible.However, the sexton stated that he would settle for  percent.Although Frisch deposited the four bills at the Debt Office in , Flumenius claimed he had not received any money.All he had taken delivery of was some herring and a couple of sausages as part payment for the bills. 12hese episodes highlight that holders sometimes had to provide at least short-term credit to merchants, brokers or shipping agents to liquidate the notes.It could remain uncertain when the holder would receive the money.They also indicate that intermediaries such as merchants, brokers and shipping agents in Stockholm were contacted by numerous people who wanted to liquidate their assets but had no previous interactions with them.Such interactions tended to be short-term and market-driven rather than social network exchanges that focused on trust and the reproduction of the relationships (cf.Müller ).Certainly, social networks played a role in the trade with bills and notes, especially between merchants, but 11 SNA, Rsk, Kammarkontoret, Jacob Leonhard Almacher's account in Licentmemorialbok , vol.
far from all transactions were part of existing relations within the mercantile community.Consequently, merchants in many cases had an information advantage compared to other market participants.They knew the procedure; they held information about current prices and had the contacts necessary to turn bills and notes into cash.This information asymmetry could be used to profit from price variations and the credit provided by the previous holders (cf.Li ).
The fact that the major traders in bills and notes utilized both their existing business associates and interacted on the open market with parties they had limited dealings with becomes visible if we turn our attention back to the activities of broker Mathias Lafrensen in Stockholm.Intermediaries like Lafrensen paid licent and transferred bills and notes to other market participants.They also procured large numbers of bills and notes from various holders.Their activity shows that the trading was not just about acquiring sufficient amounts of bills and notes to pay the licent but that it was done with the rationale of providing a service others had to pay for.In other words, they profited from reducing the existing transaction costs for other actors.
As shown in Table , Lafransen was active for  years.During that time, he purchased liabilities with a total nominal value of , dsm, which averaged , dsm a year.At the same time, he sold or paid licent with government liabilities with a nominal value of , dsm, which averaged , dsm annually.Moreover, he made , purchases of government liabilities.He either procured them from holders who did not have an account with the Debt Office, in which case he made the deposits himself, or he made purchases from other account holders, in which case an amount was transferred to Lafransen's account.Less than half of his purchases were of the latter kind; the rest were conducted through his network of associates.Lafransen also frequently sold salary bills and assurance notes to other account holders.His sales and licent payments amounted to , transactions during his active years.A comparison between his purchases/deposits and his sales/payments reveals that he deposited large values.In contrast, his sales and licent payments were subdivided into smaller parts.
As city broker, Lafrensen was prohibited from conducting trade. 13He was, therefore, paying the licent on behalf of his clients.Thus, merchants paid for his knowledge of the market, and his activities spared them the costs and efforts of engaging in it themselves.One of the firms that solicited his services was the leading merchant house Carlos & Claes Grill in Stockholm, which paid him over , dsm in commission in  for his assistance. 14Lafrensen was not the only one providing such services.The ledgers of the Office reveal around a dozen brokers and shipping agents whose accounts have similar alignments, although most of them are on a smaller scale.The volume of their businesses was on a par with the activities of brokers and notaries in the Dutch Republic around the same time, which shows that trading in financial instruments in Stockholm could be relatively intensive (cf.van Bochove ).
A similar picture emerges if we go back to the activities of the merchant Jacob Leonhard Almacher in Stockholm.In , he deposited , dsm of bills and notes in his account at the Debt Office but did not make a single licent payment.The following year, he made  such payments with an average value of  dsm.However, he also continued to acquire bills and notes so that he had , dsm in salary bills and , dsm in assurance notes in his account at the end of the year.At the end of , his balance had been reduced to  dsm in bills and , dsm in notes, but these were more than enough to cover his  licent payments, which averaged  dsm in .Ten years later, his balance had increased to , dsm in assurance notes, while he only made six licent payments that averaged  dsm. 15These numbers show that Almacher was an active trader in notes and bills, and the trade had a minimal correlation to his licent payments.Instead, he used his position to provide bills and notes to other merchants and profit from the trade.Thus, like Lafrensen, he benefitted from his capacity to reduce transaction costs for other actors.
Although very active traders, like Lafransen and Almacher, are highly visible in the sources, most actors traded on a more modest scale.Such an actor was the merchant and alderman Johan Andreas Olbers in Gothenburg.In , his only visible market activity was a deposit of  salary bills into his account at the Debt Office, at a value of , dsm.He had purchased most of the bills from military officers in Gothenburg and Landskrona as early as  and .In May , he deposited eight assurance notes issued in Gothenburg, denominated at , dsm, and one assurance note from Stockholm, denominated at  dsm.A part of these assets was used to make two licent payments, each amounting to , dsm, in , and one licent payment in  of  dsm.In , Olbers made no payments but deposited three salary bills and two assurance notes.He exhibited similar activities until  when he liquidated most of his deposits by selling them to other account holders.His sale of bills and notes corresponded with smaller licent payments:  dsm in ,  dsm in  and  dsm in .Olbers passed away in , but his relatives did not liquidate the assets until  (Millqvist , p. ). 16here were also passive participants in the market who conducted very few transactions.Such an actor was unmarried noblewoman Helena Wrede, who, in , deposited two salary bills originally issued to Colonel Axel Duwall at the nominal value of  dsm.Three days later, she made a small licent payment of  dsm.The following year, Wrede deposited ten assurance notes with a face value of  dsm while liquidating the salary bills.In , she sold off  dsm of her assurance notes and deposited four more assurance notes valued at  dsm.After these transactions, the activity in her account stopped, but she did not sell off the assets.Instead, she kept  dsm in her account until the s. 17nother group of passive participants consisted of foreign merchants from Amsterdam, Hamburg, Lübeck and Rostock who had traded with Sweden during the war and received fiat coins as payments.Following the default in , they deposited their assurance notes with the Debt Office, probably intending to be able to use them when paying the licent.For instance, the merchant Abraham van Wylich from Amsterdam deposited four notes valued at , dsm in .He kept the notes until , when he sold them to another merchant, Gerhard Niclas Deurs in the town of Varberg.18III Crucial to our understanding of this asset market is the development of prices.According to the governors of the Debt Office, the low exchange rate for insurance notes resulted from the fact that the volume of notes in circulation exceeded the demand for them. 19Despite the vast number of transactions, market prices in the sources are hard to come by.In a rare instance, a detailed account book from the merchant house Johan Suck & Son in Stockholm is preserved, in which prices from the s are documented.Like many merchant houses in the Swedish capital, Johan Suck & Son was primarily engaged in imports of grain and exports of bar iron.In , Suck & Son deposited ten salary bills and four assurance notes at the Debt Office with a nominal value of , dsm.After making two licent payments, they had a balance in the ledgers at the end of that year of  dsm in salary bills and , dsm in assurance notes.They valued the salary bills at  percent of their nominal value and the assurance notes at . percent.They calculated that they had made a profit of , dsm by using discounted notes and bills when paying the licent. 20uring  and , Suck & Son continued such market activities.At the end of , their salary bills were valued at . percent, while their assurance notes were valued at . percent.Thus, the market prices had fallen, and the value of the salary bills had decreased quite dramatically.However, it seems that the fall was temporary.In May , the bills were valued at  percent; in August of the same year, the price had gone up to  percent. 21n Table , the prices of the salary bills that Suck & Son acquired in the period - are displayed.Prices initially hovered around - percent of their nominal value until they increased to first  and then to  percent in .In , the price had reached  percent.The increase indicates that the supply of salary bills had subsided, and Suck & Son stopped purchasing the bills after , as they were no longer required for the licent. 22he prices on assurance notes fluctuated more than on salary bills.Figure  demonstrates that prices circled around - percent of the nominal value in the first years of the period before increasing slightly to  percent in  and then up to  percent the following year.In -, prices fell back to - percent.However, there were exceptions to this general trend.In May , for example, Suck & Son bought a note at  percent, and in June , they bought notes at almost  percent of their nominal value.However, in the latter case, the purchase was made from a member of the Suck family.In other cases, they purchased from market actors, such as the Stockholm merchant Mikael Hising, with whom they already had dealings.This indicates that profit maximization was not necessary in every transaction.A higher price could be acceptable if it benefits a long-term relationship (cf.Müller ). 23he price information in Suck & Son's account books can be complemented by account books from some parish churches.The congregation of Klara in Stockholm owned an assurance note valued at , dsm.In , the church sold it to the broker Eskil Lindfors in Stockholm for . percent of its nominal value. 24Another example is from the parish of Borg in the province of Östergötland.In , the parish owned an assurance note valued at around  dsm, which was sold for . percent in  to the merchant Isaac Cellsing in the local mercantile center Norrköping. 25These prices were slightly lower than what Suck & Son paid in  and , but they followed the general trend of an increase from  to .
In the s, market prices had increased, but there were still variations.In , the German congregation in the naval town of Karlskrona sold a note with a nominal value of , dsm.The administrators, with close ties to the merchant community, argued that selling it for . or . percent should be possible.Eventually, the note was purchased by the merchant house Strübing & Müller in Karlskrona for  percent, which was significantly higher than the perceived market price. 26The fact that the merchants belonged to the congregation probably helped the church to get a better price.This interpretation is strengthened when compared with the price that Dillnäs parish in the province of Södermanland received in .The vicar assigned a local peasant to travel to Stockholm to handle the transaction.He sold the note in the capital for . percent.He also sold a note owned by the neighboring parish of Gåsinge for the same price. 27This shows that the administrators in Karlskrona were not far off in their assessment.It also indicates a limited market for the notes in rural parishes in Södermanland.
Prices slowly continued to improve in the late s and in the s.For instance, the parish of Torstuna in the province of Uppland received . percent when it sold an assurance note to the spice merchant Laurent Gahm in Stockholm in .The neighboring parishes of Altuna and Simtuna received . percent for their notes when sold in Stockholm to broker Matthias Lafrensen in . 28However, there were also lower prices paid.In , the parish of Film in Uppland received only . percent when selling its holdings to the merchant Hinrich Steinhausen in Stockholm. 29A decade later, Björnlunda parish in Södermanland received . percent for a note sold to a merchant in the town of Nyköping.In , the admiralty church in Karlskrona obtained . percent when the administrators sold four assurance notes directly to the Debt Office. 30ome organizations were irritated by the difference between market and nominal values and the need to seek the assistance of intermediaries.The hospital proprietors in the town of Uppsala contacted the governors of the Debt Office directly in  to inquire if the hospital could obtain a better rate than what was available on the market.The Office was willing to pay  percent in cash for the hospital's assurance notes, which was a little better than the market price of around  percent.The proprietors were not impressed, but in , they eventually sold their notes to the Office, receiving  percent. 31Similarly, all the churches in the diocese of Skara were granted permission in  to sell their insurance notes directly to the Office at  percent.This decision was preceded by a request from the diocese to receive a better rate than what the market offered. 32he actions of welfare institutions and churches show that primarily those with administrative and political influence tried to alter the liquidation system.At the same time, the many holders from the peasantry remained silent.This passivity is probably best explained by the transaction costs involved in liquidating assets and in the process of raising grievances and the limited benefit any potential redress could result in for each peasant.

IV
In conclusion, the partial default in Sweden in  and the subsequent liquidation process first entailed a unilateral reduction of principle that affected all holders of fiat coins and then a second reduction of the new principle by a market mechanism that separated holders of salary bills and assurance notes.For intermediaries such as merchants, brokers and shipping agents the instruments were useful and could be traded.Other actors were preoccupied with holding on to or selling their assets at an appropriate time, since the bills and notes had a more limited utility for them.Tens of thousands of transactions were carried out on a secondary market over a long period when networks of local merchants bought assets from initial holders and sold them to intermediaries or merchants.Such holders deposited the liabilities with the Debt Office, which opened in  to administer the liquidation of the government debt.Hundreds of account holders with the Office could, with little effort, transfer the value of their deposited liabilities between themselves or redeem them as payment for the licent.
Merchants and brokers drew on their existing networks and channels of trade and credit to acquire and to sell assurance notes and salary bills.These networks normally used bills of exchange to arrange payments between the participants and to link Sweden with the outside world (cf.Müller ).Thus, merchants and brokers were used to dealing with various forms of paper assets in their daily operations, and it was not difficult for them to incorporate government liabilities in their transactions.This fact affected the Swedish state's decision to choose the payment of the licent as the method to liquidate parts of the government debt.In other words, there are no indications that the merchants had difficulty acquiring notes and bills or objected to the liquidation arrangement.
The introduction of assurance notes (and before that of salary bills) after  radically increased the volumes of government liabilities on the asset market.It is also safe to conclude that it brought more people into this market.As the assurance notes reached all parts of Sweden and all social segments of society, not all holders had personal ties with merchants or other intermediaries that could help them with their transactions.In order for the liquidation process to function, there was a need for Dec. , vol.,  Jul. and  Aug. ; Rsk, Kassakontoret, Inlösta fordringar, Handlingar rörande kontant inlösta försäkringssedlar, vol., no..market mechanisms that facilitated the buying and selling of assets between people who did not know each other.Our evidence indicates that holders tended to make temporary contact with people, such as brokers, merchants and shipping agents in the towns, in order to sell their assets.They could also contact officials at the Debt Office and request their assistance (Winton ).The relationship between the parties was unequal because of transaction costs and information asymmetries, especially when compared with the relationships within the mercantile community.However, the arrangement made it possible for non-merchant groups to sell their heavily discounted assets, even if it could be difficult.The fact that there were similar prices in different parts of the realm around the same time strengthens the interpretation that a non-personal market existed that extended beyond the limits of established social networks.Still, social networks play an important role in transactions between merchants.
The emergence of a major market for government liabilities that reached wider sections of the population in the first decades of the eighteenth century can be seen as an important phase of a financial expansion that began in the second half of the seventeenth century with the establishment of Stockholm Banco and then the Bank of the Estates, and which continued later in the eighteenth century with paper money issued by the Bank (Winton ; Pihl ).Although there is no direct link between the assurance notes and notes issued by the Bank, the liquidation process led to an increasing familiarity with financial instruments, especially among groups outside the mercantile community, facilitating the growth of paper currencies.However, this was not an uncontested process since there were always groups who opposed such developments.
In an international comparison, the closest equivalent to the Swedish liquidation process was the segmented default made in France after Law's system.Even if the French liquidation process was less drawn out, holders of French debt received liquidation certificates that could be converted into interest-bearing life or perpetual annuities, and shares in the Indies Company were regularly traded.Like in Sweden, the liquidation certificates were traded with a heavy discount: the average price was  percent of their nominal value in the early s (Neal , p. ; Velde , pp.-).Unlike Sweden, the experiences in France made it very difficult politically for the royal regime to implement a new paper money system.Instead, tontines became an important lending mechanism (Velde and Weir ).Thus, specific local economic and political circumstances structured government borrowing and debt liquidation processes, even though all European states were affected by the same need to fund increasingly expensive military campaigns.In Sweden, warfare led to a public finance system that could mobilize broad sections of the population.Public finance was, therefore, characterized by volatility with periods of expanding liquidity followed by financial instrument retractions (cf.Fregert and Jonung ).Consequently, the main actors on the Swedish secondary market for government liabilities were forced to develop practices that involved trading non-interest-bearing notes rather than expanding their expertise in handling long-term bonds or life annuities.

Figure  .
Figure .Deposits and licent paid in the Debt Office (dsm) Sources: SNA, Rsk, Kammarkontoret, Licentmemorialböcker, -, vols.-; Rsk, Huvudarkivet, Huvudböcker, -.* No annual capital statements are available in the ledgers of the Debt Office for the years  to .** The annual (average) amount of licent paid from  to  can be deduced from the four-year sums presented in the general ledgers from  to .

L
I Q U I D AT I N G G OV E R N M E N T D E B T A N D C R E AT I N G A S E C O N D A RY A S S E T M A R K E T  P E T E R E R I C S S O N A N D PAT R I K W I N T O N  Submitted:  November  Revised version submitted:  October  Accepted:  December  Sources Årstrycket Swedish National Archives (SNA), Arninge, Stockholm

Table  .
Timeline for the liquidation of government debt through the licent, - Foreign merchants to pay licent in specie.Foreign goods transported on Swedish ships paid half in specie and half with notes or bills.Salary bills no longer required to pay licent.
A quarter of licent on Swedish goods on Swedish ships to be paid in specie and three-quarters with notes or bills January Limited number of assurance notes per year could be liquidated with cash if the holders accepted a discount of %.The limit was later removed and the discount lowered to %.Decision in , first implemented in October  Interest notes could be used to pay licent.October  The Debt Office was closed.September  Source: SNA, Riksens ständers kontor, Kammarkontoret, Licentmemorialbok , vol.; SNA, Riksens ständers kontor, Kassakontoret, Inlösta fordringar, vol.; Åmark , pp.-.

Table  .
Matthias Lafransen's transactions with government liabilities in the Debt Office (dsm)