The alchemy of gold: interest rates, money stock, and credit in eighteenth‐century Lisbon

Abstract

This article addresses the partial equilibrium functioning of the short-term credit market in eighteenth-century Lisbon and its response to massive gold inflows from Brazil. Gold inflows were a colonial rent, and thus a source of income and a financial asset that increased the liquidity supply in a credit market populated by both (direct) participants and non-participants in the colonial trade or in mining. As a source of income it would induce a positive upward pressure on interest rates, while as a financial asset it would lead to the opposite. A method is developed to extract interest rates from notarized personal credit, unbundling the aggregate and the idiosyncratic components of risk pricing. The results show that interest rates in Lisbon did not differ critically from those observed in other cities at the core of the premodern European economy, which were spared from devastation by the earthquake that struck Lisbon in 1755. A simple model relating the market interest rate series to gold stock variations finds that the liquidity channel dominated over the endowment channel, which explains the downward trend in interest rates up until 1757 when the interest rates were freely settled. Mild credit rationing may have been introduced by a 5 per cent ceiling on interest rates that was imposed after 1757.'Antónia Margarida Leonor said she needed one million réis, and for that reason, she asked Luis António da Rocha whether he was willing to lend such an amount under her obligation . . . ; [because] he agreed, he delivered the said million réis in gold coins in front of me [the notary]'. 1 This was a common wording in notarized credit contracts in eighteenth-century Lisbon. It reports one particular use of the * Authors' Affiliation:

Institutional investors in the Portuguese credit market (1550–1800): The case of the Misericórdias

“…10 Portuguese government bonds were sold at 8 per cent in the mid-16 th century, 6.25-5 until the mid-18 th century, and 4 per cent in 1770 (Costa et al 2021). The same steadily declining trend held for obligations (Costa et al 2018b), and it was only in 1757 that a 5 per cent cap was fixed for all private credit contracts. 11 Until then, rates for private loans ranged between 6.25 and 0 per cent.…”

“…Although bonds were generally sold at par, there is evidence that buyers occasionally paid extra (referred to as pitanças) to guarantee the business. 8 For short-or medium-term investments, creditors could rely on obligations, generally used for consumption needs and rollover of debts (Costa et al 2018b). Unlike in France, obligations in Portugal often stated the date of repayment and the interest rate (Hoffman et al 2019).…”

“…For short- or medium-term investments, creditors could rely on obligations, generally used for consumption needs and rollover of debts (Costa et al . 2018b). Unlike in France, obligations in Portugal often stated the date of repayment and the interest rate (Hoffman et al .…”

Introduction to the Thematic Dossier | Economy and Society: politics, practices, agents, and institutions

“…Different topics have been considered to explain the national long-run economic performance. The efficiency of the judicial system (Reis, 2010, the relevance of the empire (Costa, Palma and Reis, 2015), the private and public interest rates (Costa, Rocha and Brito, 2018), the female participation in the labor market (Silva and Carvalhal, 2020), or the political institutions' quality (Henriques and Palma, 2020) are some of the hot topics. It is also worth mentioning that all these studies take a comparative approach.…”

The imperceptible financial (r)evolution of the censo

“…Yet, on the basis of archival sources and a myriad of local and regional studies, economic historians have challenged these reductionist theories by showing that there is little empirical evidence of that absence of financial services. They have proved that credit worked effectively and was easily accessible in regions like Spain (Andrés Robres, 1986;Atienza López, 1993;Grafe, 2012Grafe, , 2020Milhaud, 2019), the Spanish America (Burns, 1999;Wobeser, 2010;Levy, 2012;Zegarra, 2016Zegarra, , 2017Wasserman, 2018), and elsewhere in Southern Europe (Costa et al, 2018;Hoffman et al, 2019).…”