Two Portrayals of Public Debt in the Formation of Modern Italy: From the Ancien Régime to Modern Capitalism

By now, scholars agree that public debt originated in mediaeval Italy. ¹ The development of this instrument in its most archaic form shows the financial dynamism of Italian city-states, particularly from the fourteenth century onwards. It is hardly a coincidence that capitalism first emerged in this part of the world, where public debt was established as one of the first technical-financial instruments to mobilise resources and accumulate capital. ²

Mediaeval capitalism was a capitalism of the few, namely of those who – as Fernand Braudel noted – managed large transactions in the fields of long-distance trade and credit. This form of capitalism did not extend to all sectors of society, as the latter remained anchored in the feudal system up until the turn of the nineteenth century. The economic system in force comprised two levels: an upper, capitalistic level (also known as the ‘anti-market’), and a lower system (but the second floor), known as the market economy. The first level fed itself by draining resources from the lower level, and used credit circulation to ensure profits. The second level was instead based on everyday exchanges and transactions whereby limited, short-term, and expensive credit was used to ‘grease the system’ as much as was required to keep trade alive. ³

The need to resort to public debt, then, arose from the ‘upper level’ in those Italian city-states where the business world and the political supported and nourished each other. ⁴ In these mediaeval cities, financial and political elites – which roughly coincided – were reluctant to become tax patrimonies (i.e., to resort to forms of direct taxation), as this would largely have meant taxing themselves. Therefore, to meet increasing financial expenses, the only course of action that remained open was public debt, even though the practice of forced loans was also common. Certainly, each city-state and territorial entity adopted its own reference model and a particular way of managing public revenues. For example, Genoa managed its public debt in a decentralised manner, whereas in the Papal States, bonds were exclusively granted to bankers. In Venice, by contrast, even small investors could invest in public debt. Given its many peculiar forms, public debt emerges as a protean phenomenon. Generally speaking, however, it played a consistent role in the transformation of the modern state and of the establishment of a typically capitalistic credit system. ⁵

By the late 16th or early seventeenth century, Italy ceased to be the main hub for the evolution of financial techniques and was replaced by Flanders, the Netherlands and finally England. ⁶ However, public debt continued to play a relevant role in the mobilising of resources in the Italian peninsula. Italy lost its leading position in European financial development and withdrew to a more local dimension, passively receiving subsequent innovations in public finance. It nonetheless continued to excel in certain economic areas: let us think of Genoa and its advanced credit system in the seventeenth century, or of the circulation of banknotes in Naples. ⁷

On the whole, though, Italy lost its innovative and dynamic drive. Particularly from the second half of the seventeenth century onwards, we witness the ‘low tide’ of Italian capitalism: a dwindling of capitalist relations between the bourgeois classes and the rest of society. Among the many causes of this decline, one must mention the bankruptcy of the Spanish and French monarchies in the 1560s, which had European-wide effects (although it involved floating rather than consolidated debts), the progressive marginalisation of Italy and the Mediterranean as the Continent's economic centre, and recurrent military invasions, which increasingly turned the peninsula into a European political province. ⁸ These factors hampered the rise of the capitalist bourgeoisie, favouring instead the absolute monarchy, which was based precisely on a balance between the bourgeoisie and the nobility. ⁹ As aristocrats and landowners came to replace tradesmen and the haute bourgeoisie as the rulers of cities, the anti-market lost much of its scope of action to the benefit of a very small-scale market economy. This, in turn, favoured the predominance of social classes connected to the land and the feudal sphere. Certainly, each Italian state experienced its own ‘tide’, but overall, in the second half of the Early Modern Age, Italy approached a more static and less dynamic economic existence. Within this context, the structure of public debt, which had been developed in relation to a form of ‘advanced’ capitalism in the age of city-states, was adapted to suit the needs of an ancien régime society. ¹⁰

In the Grand Duchy of Tuscany, we witness the consolidation of a patrimonial state in which the public treasury and the Grand Duke's private patrimony merge and become indistinguishable. ¹¹ The use of debt, through the well-known instrument of monti, is due to the considerable rigidity and fixedness of the Grand Duchy's revenues over the course of the seventeenth century. ¹² Genoa remained the only Italian market to preserve a capitalist high ‘tide’ over the course of the seventeenth century. Here, it was not monti that managed public debt but the well-known Banco di San Giorgio, which exercised this function from its founding in 1407 right down to its suppression on Napoleon's orders in 1805. ¹³ Not even Venice experienced such a high ‘tide’ in the seventeenth century. As the Most Serene Republic already showed signs of decline by this period, its government proved increasingly reluctant to reform the financial system, fearing that this might threaten the social order that ensured its survival. What we find is a progressive decay of the city's long-standing commercial and financial spirit and the emergence of a society of rentiers and landowners based on the mainland. ¹⁴

The Papal States constitute an altogether different case. One of the few sovereign states not to have de facto declared bankruptcy, Rome employed the instrument of debt not in order to put resources to productive use, but rather to develop public projects and to streamline its state machinery. ¹⁵ Even when it comes to papal legations, debt was used to preserve the social and state balance, which was concentrated in forms of self-government. Here, a predominant role was played by the municipality as opposed to the central state – that is, by decentralisation as opposed to centralisation – and by the ‘aristocratic element within urban society’. ¹⁶ The Holy See, therefore, resorted to public debt to preserve the social order. While this was a ‘low-tide’ capitalist society, public debt allowed the circulation of limited capital in the hands of the economically more dynamic classes: shopkeepers, merchants, and wealthy craftsmen, which is to say the haute bourgeoisie. ¹⁷ As in Rome, the function of public debt in Naples must be viewed within the framework of a ‘low-tide’ capitalist society, which was chiefly dominated by the kind of social relations typical of the ancien régime. In both cities, structural reforms of public finances occurred first in the eighteenth century – under the Corsini and Lambertini popes in Rome, and under Charles III of Bourbon in Naples – and then under the French following the Napoleonic invasion. ¹⁸ The action undertaken by the French reformers to liquidate the debts that had accrued over the course of the eighteenth century led to a sort of reform of public finances that triggered an economic process, which led to a rise of the ‘capitalist tide’ through the progressive liberalisation of society and emancipation from the strictures of the ancien régime. With the launch of this modernisation process, the use of state loans became an increasingly necessary instrument, along with the sale of state bonds and the construction of a public credit system. As Eugenio Di Rienzo noted, the latter brought the government system increasingly in contact with the moneyed class, offering both the government and the elites opportunities to increase and consolidate their power. ¹⁹

However ambitious and significant, the French plans to modernise Italy failed to trigger a local movement capable of bringing about a genuine economic and social revolution. It was not until 1861, with the creation of the Kingdom of Italy by the Kingdom of Sardinia, that a progressive and full-fledged – and at times strained – top-down social transformation occurred. This also entailed the establishment of a public finance structure based on the modern capitalist model, a structure sprung from the major changes that occurred in Piedmont, from the Statuto Albertino to Cavour's liberal reforms.

1. The leading capitalistic state: The uniqueness of the Kingdom of Sardinia

More than any other state, the Kingdom of Sardinia succeeded in making the most of the potential for a great ‘leap forward’ provided by the modern capitalist model of northern European and especially British inspiration. Piedmont was able to capture the most innovative aspects of eighteenth-century reformism – compared to the other Italian states, sans those under Austrian control. ²⁰ The introduction of the land register – which began to take shape in Austrian Milan in 1718 and in the Piedmont of Vittorio Amedeo II of Savoia in 1728 – proved to be an excellent tool to increase tax revenues and thus state control over the economy. ²¹ Piedmont's uniqueness in the Italian context was due to certain characteristics that distinguished the Kingdom of Sardinia from other Italian states: political independence; a strategic geographical position; the extensive use of the French language in the administration; political proximity to Great Britain, the liberal country par excellence; and enmity towards Austria, an empire with ancien régime characteristics.

Following the 1815 restoration, Piedmont presented itself as one of the most reactionary states on the European continent. Its administration and public finances were seriously flawed, and the iron fist of Carlo Felice of Savoy (1765–1831) was ready to crush any form of opposition not only of Jacobin origin, but also of moderate-liberal nature. ²² How did such a reactionary country turn into one of the leading avant-garde liberal states in Italy? Carlo Felice and especially Carlo Alberto (1798–1849) realised that, after the 1820/1821 uprisings, the main goal was to preserve the Kingdom's integrity. To achieve it, a whole range of political, economic, and administrative reforms were required. Carlo Alberto recruited men who had acquired extensive technical-administrative experience and know-how in the Napoleonic period. He also proved willing to heed some of the demands made by the new, rising bourgeois class by gingerly taking some steps towards free trade. The Savoy absolute monarchy began to progressively establish the kind of capitalistic social relations that were the hallmark of a burgeoning bourgeois society.

With the issuing of the Statuto Albertino in 1848, the monarchy accepted a new civil – as well as military – form of state administration that left room for the independent management of economic matters. Liberal ideas, which underpin several sections of the Statuto Albertino, demolished the old absolutist political structures, paving the way for the bourgeoisie and a constitutional state according to the mantra of new ‘economic liberties’. ²³ As Niccolò Rodolico explained, ‘[l]iberal economic culture proved a most effective means of shaping the bourgeoisie's spirit. Italian and foreign intellectual currents penetrated into Piedmont and fostered confidence in the individual's own powers, and in the need for freedom of action against state paternalism, against privileges, and against protectionism’. ²⁴

Between 1832 and 1848, navigation and trade treaties were signed with almost 26 countries, including England, Switzerland and many German states. Through the port of Genoa, the Kingdom of Sardinia sought to make the most of the strong commercial expansion that was underway. ²⁵ Its integration into the capitalist world economy also entailed the construction of modern infrastructures – road networks, harbours and railway lines – and of new industries, in addition to the promotion of the silk industry, which had long been flourishing in northern Italy. From the perspective of an international division of labour, the Kingdom of Sardinia acquired the role of supplier of foodstuffs – thanks to a modern system of agrarian capitalism – and importer of high-added value goods, particularly from Britain. Through the port of Genoa, Piedmont was de facto destined to become a kind of retailer of British products in Central Europe. The connection with London favoured the penetration of liberal ideas, also – and especially – in the economic field. ²⁶ After Carlo Alberto's turn, further acceleration came with the Count of Cavour (1810–1861): the ‘capitalist tide’ of Piedmontese society thus began to rise considerably. The Piedmontese statesman's action paved the way for state administration of the bourgeoisie, which de facto marked the transfer of public powers into the hands of the rising new social class. As promising as it looked, this reformist action found only limited application in the administrative and legislative fields, not least because of the opposition of conservative magistrates and of Catholic sentiments, which were rife in rural districts. In the economic field, by contrast, Cavour's reformism proved highly successful. Cavour's faith in liberal economics led him to favour direct intervention more in the economic sphere than in the administrative and legal one. In 1851, customs duties on approximately 605 products were lowered, while tariffs on colonial commodities and many artefacts were cut respectively by 25% and 20%. The new agrarian bourgeoisie in Piedmont de facto won its battle against the old landowning aristocracy. ²⁷ Albeit in a different form, Piedmont experienced what England had undergone with the abolishing of the Corn Laws in 1846.

Even the credit and public finance system conformed to this trend. Indeed, the founding of the National Bank as a private joint-stock company in 1849 reflects this ongoing institutional and social change. ²⁸ Moreover, owing to the favourable international economic circumstances and the introduction of recent capitalist methods of agrarian production, Piedmont witnessed a progressive increase in the quota of savings that could be reinvested into productive activities. This increase in savings primarily benefited the state and its spending power. Indeed, much of Piedmont's public debt was in the hands of the burgeoning bourgeois class, whose interests were freed from the control of an absolute monarch and increasingly guaranteed by the Statuto Albertino. ²⁹ Debt guarantees were actually set forth in this statute: ‘The public debt is guaranteed. Every obligation of the state to its creditors is inviolable’ (art. 31). In addition to this guaranteeing of the public debt, one's home, property, and the national debt were regarded as inviolable goods, just as the person of the King. ³⁰ The Statuto established the capitalist system as the economic driving force of the Kingdom of Sardinia. Following the creation of the Kingdom of Italy, instead of drafting a new constitution, the Statuto Albertino was introduced, which thus extended this liberal-capitalist legislative structure to the rest of Italy.

Based on data on hand, the public debt of the Kingdom of Sardinia at the start of 1848 amounted to 130 million lire, of which only 15 million pertained to the actual territory of Sardinia. In 1861, in the wake of Italian unification, the Savoy public debt had risen to 1315.2 million lire, 96% of which was redeemable. In 1865, 66% of all bonds issued were bearer bonds. ³¹ As we shall see, the number of these bonds compared to registered ones – the sort that was prevalent in the Kingdom of the Two Sicilies – reveals whether the use and conception of the public debt was based on a modern capitalist system or an ancien régime one: in the case of Piedmont, public debt was used as an instrument to grease the economic system and tailor it to the rising new bourgeois class's need for capital accumulation; in the Neapolitan Kingdom, it was instead functional to the established social order's preservation.

2. The challenges and problems of public debt at the time of Italian unification

With the unification of Italy and the extension of the Piedmontese bureaucratic-administrative structure to the rest of the peninsula, entire regions with a dominant or semi-dominant ancien régime social and state system found themselves suddenly having to embrace the new liberal-capitalist order that characterised the Kingdom of Sardinia. The ‘capitalist tide’ rose so swiftly that entire social sectors in certain areas, such as the former Kingdom of the Two Sicilies, proved quite unprepared to face it and were therefore swept away by the rising tide. This triggered negative social reactions that, among other things, gave rise to brigandage. ³² Whole strata of society underwent profound transformations. But before we turn to consider this point, it is necessary to provide an overview of the challenges, problems, and difficulties inherent in Italian economic unification.

According to the available data, which the historiography often presents in discordant ways, on the eve of the 1859 war – which is to say at the very beginning of the Second Italian War of Independence –, the total revenue of what was to become the Italy of 1861 amounted to roughly 550 million lire. After the unification, it experienced a sharp drop as it plummeted to roughly 134 million lire. Gino Luzzatto attributes this drop to the suppression of internal customs duties and of certain direct taxes, namely those on incomes and patrimonies, as a response to contingent war requirements. ³³ Certainly, a crucial role in this tax reduction was played by the extension of the Kingdom of Sardinia's liberal customs policies – and agreements – to the newly-founded country. The new state of Italy developed within the framework of the Kingdom of Sardinia: it inherited not just its bureaucratic-administrative structure, but also – and especially – an ideology inspired by modern Cavourian liberalism. ³⁴ As far as fiscal matters were concerned, the Kingdom of Italy essentially adopted the Savoy tax system, which had largely been established before 1853. Obviously, confidence in this system was high: between 1850 and 1859, tax revenues rose from 91 to 164 million lire. ³⁵ The adopted liberal-capitalist economic model led to the closing down of a number of local industries that were incapable of effectively competing on the international market. It is therefore hardly surprising that customs revenues fell so rapidly. This drop in revenues, combined with rising expenditure needs, threatened the new state's survival. ³⁶ Given the huge deficit, the only available course of action was to resort to public debt: draconian steps that were taken aimed at the ‘concession of railway lines and the sale of state properties, in order on the one hand to reduce the treasury's liabilities and, on the other, to increase its assets.’ ³⁷

The situation was so serious that, with the support of a host of bankers and financiers, France offered to take up the burden of managing Italian government spending. This pretext was a good one, and the gravity of the situation made this request seem less bitter and humiliating than it really was. This suggestion was presented as a cynical way of reconciling Emperor Napoleon III's dreams of glory – which were still quite modest compared to most people's expectations, who unfavourably compared him to his ancestor – and the more material interests of bankers, businessmen, and industrialists, who sought to reap as many advantages as possible from the Italian market. ‘Napoleon [III] suggested putting the treasury into his financiers’ hands, since the Italians seemed to act like children to him, having mistaken their country for the Danaids’ inexhaustible barrel’. ³⁸

It goes without saying that this wretched course of action would have mortgaged the new Kingdom's destiny, turning it – in its incomplete 1861 form – into a perpetual appendix of France. This proposal showed the lack of faith in the Italian capitalist system, which was still immature and incapable of mobilising the resources required to make the newborn state self-sufficient. Among other things, this external superintendence would have entailed liens on the most important revenues to pay off debt interests. It would have ensured considerable profits for French businesses, for example through exclusive contracts in the railway, communication and infrastructure sectors, which stifled any form of national industrial development in Italy. ³⁹

Historians have not adequately discussed this threat and how the hard-line policy of the Historical Right, i.e., the politicians belonging to the old Piedmontese liberal-conservative class, helped prevent this financial mortgage, which – as other examples show – would have easily turned into a form of political control as well. It was a matter of survival, and of actively preserving the new State's sovereignty.

The restructuring of old debts thus became a crucial condition. It entailed a rather in-depth administrative restructuring of the old management, accounting and service systems. This was a far-from-simple task, considering the varied structure of debts in pre-unification Italy. Except in the southern provinces, debts were managed by so-called monti, which kept balance sheets listing assets and liabilities. Debts were often a municipal matter and were not managed in an accurate way and in concert with the government authorities. As already noted, with the exception of Genoa, where the Banco di San Giorgio acted as a monte as far as the recording of debts was concerned, all Italian states had a rather imprecise way of managing public debts, at least until the Napoleonic invasion. ⁴⁰

With all due caution, it may be argued that everything that occurred in the field of public finances after the Congress of Vienna was a consequence of the effort made by the French to put things in order. The Great Book of the Italian Public Debt itself is merely a copy of the Great Book adopted in France following the fiscal reorganisation of 1793. ⁴¹ The fiscal restructuring, which was promoted by Italy's first Finance Minister, Pietro Bastogi, represents an initial effort to bring the Italian public accounts ‘into order’. Thanks to this initiative, not least through the debt conversion of bonds into consolidated debt with 5% and 3% interest rates, the overall debt accrued amounted to roughly 3000 million lire. ⁴²

It would certainly be possible to invoke here the kind of lengthy disquisitions that have led many scholars of Southern Italy's condition to regard the creation of the Great Book as marking the beginning of an unequal distribution of the costs of inherited debt burdens. Certainly, 57.22% of the consolidated debt came from the Kingdom of Sardinia, and only 29.4% was from the Kingdom of the Two Sicilies. Furthermore, while the per-capita debt amounted to 69 lire on average, this figure is found to vary considerably depending on the pre-unification state to which individuals belonged. For example, while the per-capita debt was 142 lire in Piedmont, in Tuscany it was 67, in Naples 63, in Lombardy 56, and in Sicily 49. ⁴³ Public debt amounted to roughly 40% of the GDP: a figure that is not particularly high. The problem rather lay in growth and stability variables, as well as in the revenues on which the payment of interest was based. The situation of constant insecurity and deficit made these figures always likely to increase, and the state lacked any real capacity to limit the growth of public debt by relying on the fiscal revenues it had accrued thus far – indeed, as we have seen, these revenues dropped dramatically. This financial instability was due more to the lack of confidence in the Kingdom's political and economic future than in the figures that had emerged in the wake of unification.

Bastogi therefore immediately forced the government to take measures to ensure a greater and swifter collection of new taxes in order to meet the growing expenses. The minister had Parliament pass laws for the unification of registration fees, stamp duties, and inheritance taxes, as well as taxes on mortmain goods. Levies on salt and tobacco were increased, extending the state monopoly to the whole country. ⁴⁴ The economic policies adopted by administrators with a liberal-conservative Savoy background can be summed up in the two following key points: the administrative centralisation of public finances and their complete integration into the economic mechanisms of free-trade capitalism. ⁴⁵

The unification of the Italian peninsula under the Savoy flag was a far-from-easy task, even from an economic perspective. The extension of the Piedmontese juridical system to the whole Kingdom of Italy, just like the free trade policies adopted, caused major upheavals from an administrative and social point of view in those regions with the lowest ‘capitalist tide’, such as the Kingdom of the Two Sicilies. What held these two distinct worlds together were their respective financial elites: while the Piedmontese elites were more modern and the Neapolitan more traditional, they were both confident that they could benefit from a broadening of the liberal-capitalist market, namely the anti-market sphere, beyond the market economy below it. Essentially, those individuals who were already active within the web of capitalist relations – bankers, big tradesmen and the haute bourgeoisie – accrued immediate advantages simply from the creation of a single national market shaped by the rules of modern capitalism. By contrast, those who chiefly operated in the field of the market economy – unproductive landowners, rentiers of various sorts and the owners of small- and medium-scale agricultural estates – paid the highest price for this rapid change in the economic paradigm. ⁴⁶

As Paolo Macry recalls, ‘credit represents an essential cornerstone not just for the market, but for a whole system of social relations’. ⁴⁷ The extension of the principle of moderate liberal capitalism to the Kingdom as a whole was achieved thanks both to the prevalence of a political class of Piedmontese extraction and to the small number of voters, all of whom belonged to the wealthiest strata of the country, i.e., those who benefited the most from the new economic path. Although the first electoral reform of 1882 broadened the voting base to the urban middle classes, at least up until 1914, Italy remained an oligarchy ruled by money rather than a democracy ruled by the people. ⁴⁸ The acknowledgement of the old public debts of the pre-unification states also contributed to preserving the interests of the local elites by ‘buying’ political consensus for the new state. As Franco Bonelli notes, with the issuing of domestic public debt securities according to the liberal-capitalist public finance model, the new Italian government de facto ensured that liquidity reserves would be available within the new national boundaries, and especially in the South. In such a way, I should add, the government contributed to mobilising the growing amount of capital accumulated from 1848 onwards, particularly thanks to a favourable international economic situation. ⁴⁹

3. The public debt problem in Naples: From the ancien régime to modernity

The thriving market for public debt securities in Naples was nothing new – nor was the city's importance and dynamism as a financial market. Innovation in the banking sector had manifested itself in Naples in the form of so-called fedi di credito, a kind of paper currency avant la lettre that greased the cogs of the trade system, favouring the emergence of one of the first financial structures drawing upon some of the defining features of capitalism. ⁵⁰

With the dawning of the Modern Age and the incorporation of Naples into the heterogeneous Spanish Empire, the credit market of the Southern Italian Kingdom was nourished by the need to contribute to the considerable military expenses that the Spanish Crown had incurred. ⁵¹ Therefore, from the early Modern Age onwards, the mobilising of Neapolitan capital and the issuing of public debt securities were used not just to increase and support international trade, as in the United Provinces, but also to contribute to the vast public spending, chiefly for military purposes, of the Catholic monarchy. ⁵² In the eighteenth century, the Kingdom of Naples became independent from Spain. As a consequence, its public revenues likewise acquired an autonomous dimension suited to the Kingdom's social, political and economic development. They were used not so much to increase public investments by promoting trade, but to support or improve its subjects’ everyday living conditions by guaranteeing a secure income. The Kingdom's public debt, therefore, obeyed its own logic. ⁵³

However, some form of public debt transformation occurred before the demise of the Kingdom. During the seventeenth and eighteenth centuries, there was an increase in investments in public debt securities. According to Luigi De Rosa, this was a consequence of a downturn in the profitability of agricultural output. However, the ever-increasing debt investments required a reorganisation of public finances: a task that the Spanish, the Austrians, and Charles of Bourbon did not managed to accomplish entirely. Charles’ reformism failed to have much effect on Neapolitan public finances. ⁵⁴

In the years of the Neapolitan Republic, from the end of the eighteenth century, an attempt was made to initiate a modern reform of public debt. However, great difficulties were encountered due to the countless forms of debt security on the market. The lack of reliable accounting and a concrete debt amortisation plan made it difficult, if not impossible, to reorganise finances that conformed to a model peculiar to the ancien régime system. ⁵⁵

However, in August 1806, a financial operation was launched to redeem the old bonds and replace them with new ones consolidated at 5% interest. To facilitate this financial operation, the new government recognised all the old creditors. It was an exchange of securities that enabled the registration of the new titles in the newly created Gran Libro del Debito Pubblico. According to John Davis: ‘[t]his was the largest single operation undertaken by the French administration and resulted in a complete overhaul of the finances of the ancien régime. The institutions of the ancien régime monarchy had collapsed, but were not yet replaced’. ⁵⁶

Indeed, no efficient model of public debt management was introduced to replace the ancien régime system. Although new, forward-looking institutions were created, there was a widespread incapacity to make society receptive towards these new modern changes, even in public finance. This is evidenced by the fact that at the time of Murat's arrival in Naples, in 1808, only a small proportion of creditors had de facto accepted the exchange for the new bonds. It was not until 1815 that the Kingdom's debt was consolidated, allowing for a conspicuous debt reduction of around one third. ⁵⁷ Financial losses due to the debt conversion were mainly incurred by rent-seekers, such as religious institutions and various corporations, which adhered to the ancien régime system. ⁵⁸

With the arrival of the Austrians, the Rothschilds acquired a large part of the debt after issuing a new loan. ⁵⁹ The latter had to meet the financial needs of the Kingdom, which was further burdened by the military costs of the Austrian occupation. ⁶⁰ However, with the Bourbon restoration, little was done to reorganise public finances. Modern innovations in this field came to a halt with the French influence. On the eve of the Piedmontese's arrival, tax revenues had been at a standstill since 1830 and consisted mainly of rents typical of an ancien régime economic system - land taxes, customs, excises and millstone duties. Absent were all taxes reflecting the dynamism of a rising capitalist society, such as taxes on trade, professions and various financial rents, as well as direct taxes [see the appendix.] As far as public debt is concerned, the changes that took place under French influence did not become structural in Neapolitan society. Modernity in the economic sphere remained limited to the creation of some economic institutions such as the Great Book of the Italian Public Debt.

The banking system, too, was run according to a typical early modern modus operandi. The Banco delle Due Sicilie, for example, was a deposit bank, and Southern banks typically acted as pawnshops. Compared to the Banca Nazionale, the Banco delle Due Sicilie was not strictly an issuing bank but issued transferable deposit notes. Moreover, the bank could also make advances on public securities, if required. ⁶¹ However, the important issue concerns the different uses that were made of bank credits. While Southern banks were generally more cautious in the issuing of such credit, Northern banks were more unscrupulous, and would lend money to private customers depending on the available liquidity. ⁶² This attitude shows that Northern banks embraced the dynamism of a modern capitalist banking system. Indeed, in the centre-north of the country, savings banks, too, became widespread. Notoriously, these banks, which were modelled after the German ones and began to spread from the end of the eighteenth century, had the particularity of promoting savings as a typical bourgeois value. It is no coincidence that these institutions never managed to take root in the Kingdom of Naples. ⁶³

Let us now return to the issue of public debt, which is the focus of this article. Following the establishment of the Kingdom of Italy, the Piedmontese model for the use of public debt and its approach to the financial system clashed with the Neapolitan system on account of their incompatibility in terms of debt management and use. ⁶⁴ The rift between these two models became apparent with the absorption of the public debt of the Kingdom of the Two Sicilies – sprung from the unification between the Kingdom of Naples and that of Sicily in 1815 – into the Kingdom of Italy's public debt. In Naples, the latter was understood more as a commodity or a material asset, which could become a financial security, if desired. The agreement with the Rothschilds of January 1861 allowed a first change of securities from nominal to bearer. The Italian government sold the French bankers some 850,000 ducats of Neapolitan annuities at 5% for 74 ducats, allowing them to earn the difference in addition to registration costs, etc. This operation led to the acquisition by the Bank of new bearer bonds worth 294,880 lire. The problem was that the new securities issued by the Direzione Generale del Gran Libro del Debito Pubblico to the new purchasers of the Italian annuity could not be given as a foreclosure. Traditionally, some Neapolitan public debt securities could instead be pledged as collateral – as was the case with objects at the Monte dei Pegni – to meet other economic needs. The debt instrument was used as further financial leverage. With bearer bonds, this system came to a standstill, which created problems, especially among small and medium-sized bondholders. ⁶⁵ But let's see how this exchange of titles also created problems for small exchanges and everyday economic life in Naples, as a consequence of the modern, capitalist understanding of public debt.

While the Bourbon treasury's mode of operation with respect to the use of borrowed capital came to an end, the way in which the population of the former Kingdom envisaged its use did not change. Thus, in the wake of unification, various complaints were addressed to the Direzione Speciale del Debito Pubblico (Public Debt Directorate) in Naples – which was operating on behalf of the Italian Public Debt Directorate. The complaints pertained to the acknowledgement of old bonds after 15 May 1863 had been set as a deadline to apply for their conversion into new bonds. ⁶⁶ Serious objections were presented by the directors of the local Chamber of Commerce, headed by Tito Cacace, a distinguished lawyer with legal and financial connections – for instance, with the Banco di Napoli. ⁶⁷ These complaints concerned precisely the conversion of bonds, as the old registered bonds were being changed into bearer bonds. It was alleged that this change made the bonds far harder to sell: ‘more than any other [it was] intended to meet the requirements for easy, immediate circulation’. ⁶⁸ This might seem paradoxical where it is not that many holders of registered bonds, explicitly bearing their name, were distrustful of the proposed exchange and de facto blocked the circulation of such bonds. Thus the government's action, which was intended to increase the circulation and saleability of bonds, actually reduced it on account of people's distrust of the new financial instrument. The Neapolitans had misgivings about the new bearer bonds: ‘the suspicion which reigns even among members of the same family is such that people are reluctant to keep in a chest a piece of paper which they know can easily and readily be sold if removed from it’. ⁶⁹ The possible theft of a bearer bond of this sort, which would often amount to a small fortune for a family, could turn into a real tragedy.

The fear that swept across the trading and financial community in Naples was essentially due to the belief that an end to the buying and selling of these public bonds would lead to a deep economic slump in the local economy. The Italian commissioners were therefore reminded of the fact that the capital invested in the Neapolitan debt came from private patrimonies, including modest ones, that were capable of consolidating the public debt, given the limited development of trade and of a modern entrepreneurial spirit. ⁷⁰

The obstacles to the purchase of registered debentures and the delays in the conversion of old bonds into new ones pushed a large number of small investors out of the market. ⁷¹ Indeed, according to the local community, ‘bearer debentures are not currently as convenient for small purchases as registered debentures’, particularly when they are owned by people who are less informed and less aware of the financial potential of the bonds in their hands. ⁷²

The criticism that the Piedmontese had little understanding of the local market should not be overlooked when assessing the conversion of public bonds, although – and this also applies to other former Italian states – the urgent need to unify all pre-existing debts forced the new state to adopt a single type of bond. In Naples alone, the new administration set out to unify roughly 26 million lire of debentures in the form of approximately 80,000 registered bonds. ⁷³ The conversion into bearer bonds was a matter of serious concern on the local market, particularly for those who traded in bonds and benefited from them through discounts, rediscounts or speculative operations. I am referring here to those small profiteers who carried out the kind of disagreeable yet useful tasks typical of an underground economy. These were the men who enabled the system to run smoothly, yet often operated in a legal grey area. In the varied social world of Naples, these individuals, often called marroni, played an unofficial role as brokers. They lived and flourished through the kind of economic activities that also revolved around registered public bonds. ⁷⁴ At the same time, one can hardly ignore the presence of an underground economic system based on informal relationships. ⁷⁵

As just noted, the structure of the Neapolitan public debt was a problem difficult to solve for most Savoy civil servants, who were certainly well-trained and eager to do their jobs yet not ready to operate in a different social and anthropological context. The previous experience they had acquired in Piedmontese offices was not enough to enable them to understand the different structure of the Neapolitan public debt. These Savoy civil servants failed to grasp the fact that under the Bourbons, Naples had been a ‘very important’ market for public bonds. Although they relied on local bureaucrats most eager to change their uniforms in order to preserve their position and social status, the Piedmontese proved incapable – at least at first – of truly grasping the different social, political, and economic structures of Southern Italy. ⁷⁶

The lack of any prosperous and profitable commercial and industrial enterprises in which to invest led to a shift of available capital into the deep recesses of Bourbon public debt. As already noted, this concerned not only big investors, but also small and medium creditors, who saw public debentures as an opportunity to acquire small dowries for their daughters, to invest in modest patrimonies, or to secure a small pension for themselves. The local market for bonds was therefore awash with brokers, who regarded public debentures as investment assets.

Even the Rothschilds did not miss out on the good deals they could make in Naples already in the post-Restoration period, when they found themselves dealing with a market that was socially dynamic, albeit stagnant from a capitalist perspective. ⁷⁷ Obviously, the financial upheaval caused by the change of power dampened the liveliness of the local financial market. According to a report submitted to the Treasury and to the Minister of Foreign Affairs, local bankers estimated that investments in public bonds had dropped by almost two-thirds, particularly owing to the difficulties in converting registered bonds into bearer bonds. ⁷⁸

This exchange worried both small debenture holders and the plethora of profiteers involved in their trade. However, despite this initial phase of dejection, the conversion of bonds did not prove apocalyptic for the public bond market in Naples. Instead, it witnessed the progressive proliferation of the purchase of Italian bonds by local elites, who were increasingly eager to invest surplus revenues in Italian government debentures, which proved far more profitable than the agricultural and real estate sectors, particularly, from the 1860s and 1870s onwards. Aristocrats also preferred to invest their patrimonies in such bonds, even though returns on capital offered greater opportunities for profit than the ancien régime investment areas, which had traditionally been favoured by the Neapolitan nobility. ⁷⁹

Administrative problems aside, the question of the conversion of bonds – from registered to bearer bonds – was not a matter of mere technicalities. Rather, it represented the severing of that ‘umbilical cord’ connecting the world of public finance with part of its social base. In examining this phenomenon, we must change our observational paradigm, since public debt policies in Piedmont differed from those in the Southern Kingdom in terms of the use and allocation of resources: we must recognise these two as distinct economic models. Turin promoted a debt model that was based on the economic theory adopted by large countries with advanced capitalist systems for the allocation of resources, such as Great Britain, and the deficit only served to support policies that fell within the sphere of modern capitalist relations. By contrast, public debt in Naples was not designed to increase future productivity. At any rate, it only served this function in a very limited way as it was ultimately used to promote the circulation of the kind of credit required to ensure the smooth running of everyday material life. Simply put, it was an instrument for savings and a source of value that was undoubtedly regarded as an investment asset. In the former case, then, debts were accrued only when they served to ensure the future accumulation of capital; in the latter, public expenditure was increased to safeguard the established social order.

This distinction between productive and unproductive deficit spending reflects the perspective of the liberal-capitalist model of deficit spending, a system that did not govern the ‘deep structure’ of the Neapolitan public debt in any stringent way. As is widely known, it was the Savoy model that imposed itself on the newly – established Kingdom of Italy.

In more general terms, public debt was envisaged within a productive capitalist framework that was designed to maximise the ascending phase of capital accumulation. Instead, in Naples, this model was foreign to the local tradition.

The distinction between productive and unproductive spendings is typical of a productivist observational paradigm of capitalist inspiration. The creation of the Great Book of the Italian Public Debt, plus the institution of a modern fiscal system, can therefore be seen as yet another step towards the establishment of capitalist social relations typical of the liberal economic order. Only the extension and imposition of a Piedmontese modern administration allowed a structural top-down transformation of public finances in Naples. ⁸⁰ On the European level, these relations emerged in the wake of the 1848 revolutions; in Italy, they took hold from 1861 onwards, and became consolidated through the political turning point of 1876 – with the fall of the Destra Storica and the rise of the Sinistra Storica - and the electoral reform of 1882. ⁸¹

Certainly, it is noteworthy that the elites of the aforementioned Italian state, which – along with the Holy See – were the most reluctant to accept the new political order, purchased many Italian government bonds. However, the Neapolitan elites adapted to the change of the transformation of public debt structure quite quickly compared to the lower and middle classes. This proves that the new model of public annuities inspired by a modern capitalist-style structure was much more suitable for holders of large capital than for small savers. The Piedmontese-inspired public debt model crucially contributed to the new understanding of securities as additional investment tools not only for capital profit-seeking, but also for increasing one's means of payment and thus stimulating economic activity. The new bearer bonds also helped change the class structure of Neapolitan society and spur a new cross-fertilisation of market relations. ⁸² The divisions between social classes increasingly came to be based on financial means rather than status and birthrights. However, the purchase of the new public securities consolidated de facto the Kingdom of Italy's political and economic project, which increased people's faith in it while at the same time driving the last nails into the old Italian states’ coffins.

The credibility of Italian political unification passed through its fiscal consolidation via the austere management of the country's public budget and the pursuit of macroeconomic stability. However, this does not mean that Italy contained public spending. The governments of Destra Storica increased public spending but with productive aims, such as investing in the railways and creating a modern public administration and ports. Such spending helped promote the accumulation of the capital and savings necessary for Italy's momentum as an industrial-capitalist power. The public debt policies pursued by the Kingdom of Italy were certainly not politically unbiased. Capital accumulation was favoured by those social groups that legitimised the Italian governments in office. For example, the liberal-moderate-conservative governments of Destra Storica granted tax benefits to those with interests in the agricultural-capitalist sector. ⁸³ Thus, Italian fiscal policy aided those productive sectors and social classes that enabled Italy to head down the road of full-fledged capitalist development.

4. Conclusions

The stage of the unification of public debts presented a different way of envisaging them based on the criteria of capitalist rationality and efficiency. Ultimately, the functionality of Italian public debt was based on the Piedmontese model, which was, in turn, based on the new Northern European financial technique that saw public debt as an instrument for pursuing goals associated with liberal-capitalist development. Moreover, this system was tailored to the ‘class’ interests of the burgeoning financial bourgeoisie. From a more general perspective, public debt in the contemporary age has been understood within a capitalist productive framework that is intended to maximise the ascending phase of capital accumulation. By contrast, we have seen how this model was semi-foreign to the local tradition in Naples. Instead, public debt was an investment asset that was, on the one hand, intended to meet material needs, and, on the other hand, used for various projects and to promote consensus for the Church. The distinction between productive and unproductive spendings is typical of a productivist observational paradigm that is distinctly capitalistic. Hence, it can hardly be applied without gross oversimplifications to territories in a phase of capitalist ‘low tide’, i.e., ones still marked by elements typical of the ancien régime economic world, such as the Kingdom of the Two Sicilies. The creation of the Great Book of the Italian Public Debt after the unification of Italy was seen as one of several economic-legislative tools that would help establish the kind of capitalist social relations typical of the rising liberal economic world. On the one hand, this radical change fed into the feeling that the South was being robbed of its wealth through the new shift in economic paradigm, which was creating serious problems for the existing social order. On the other hand, however, it unleashed those ‘deep forces’ of Italian capitalism within a field of economic action that was free from any obstacle to the circulation of capital, goods, and manpower. Moreover, the adoption of a modern public finance system enabled the Kingdom of Italy to attract investments from major European capitalist countries both through the sale of public debt securities – which would end up even in the hands of Italian investors – and through the construction of major public and private works. ⁸⁴

In turn, the new Italian state, which was established under the aegis of liberal legislation that favoured capitalist economic development on the public and private levels, encouraged the mobilising of credit through the instrument of public debt, particularly under the governments of the Destra Storica. The success of this action is evident in the rates of growth and prosperity exhibited by Italy from 1861 onwards. ⁸⁵