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Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830

Published online by Cambridge University Press:  01 September 2009

Marc Flandreau  and
Juan H. Flores
Marc Flandreau*
Affiliation:
Professor, The Graduate Institute, Geneva, P.O. Box 136, 1211 Geneva 21, Switzerland; and Research Fellow, Centre of Economic and Policy Research, London. E-mail: marc.flandreau@graduateinstitute.ch.
Juan H. Flores*
Affiliation:
Assistant Professor, Department of Economic History, University of Geneva, 40, bd du Pont-d'Arve, CH-1211 Geneva 4, Switzerland. E-mail: juan.flores@unige.ch.
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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.

“A good name is worth more than a gem.”

Yiddish proverb

Type
ARTICLES
Information
The Journal of Economic History , Volume 69 , Issue 3 , September 2009 , pp. 646 - 684
Copyright
Copyright © The Economic History Association 2009

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