Annual Conference Pierre du Bois 2024

Barry Eichengreen is George C. Pardee and Helen N. Pardee Chair and Distinguished Professor of Economics and Professor of Political Science at the University of California, Berkeley. He is a Research Associate of the National Bureau of Economic Research and Research Fellow of the Centre for Economic Policy Research. In 1997-98 he was Senior Policy Advisor at the International Monetary Fund. Professor Eichengreen is a fellow of the American Academy of Arts and Sciences (class of 1997). He is a distinguished fellow of the American Economic Association (class of 2022), a corresponding fellow of the British Academy (class of 2022), and a Life Fellow of the Cliometric Society (class of 2013). He has held Guggenheim and Fulbright Fellowships and been a fellow of the Center for Advanced Study in the Behavioral Sciences (Palo Alto) and the Institute for Advanced Study (Berlin). For 15 years from 2004 he served as convener of the Bellagio Group of academics and officials. He is a regular monthly columnist for Project Syndicate. Professor Eichengreen has been awarded the Economic History Association’s Jonathan R.T. Hughes Prize for Excellence in Teaching and the University of California at Berkeley Social Science Division’s Distinguished Teaching Award. He is the recipient of a doctor honoris causa from the American University in Paris, and was the 2010 recipient of the Schumpeter Prize from the International Schumpeter Society and the 2022 recipient of the Nessim Habif Prize for Contributions to Science and Industry. He was named one of Foreign Policy Magazine’s 100 Leading Global Thinkers in 2011. He is a past president of the Economic History Association (2010-11). His most recent book is In Defense of Public Debt with Asmaa El-Ganainy, Rui Esteves and Kris Mitchener (Oxford University Press 2021.

Summary of the Conference:

This year the Geneva Graduate Institute hosted the 15^th edition of the Pierre du Bois conference. The conference was held on September 26^th and 27^th and gathered 23 contributors coming from Europe, North and South America. Fourteen presented original research, while eleven acted as discussants. The organizers made sure that the program included both senior and junior scholars (nine), and aimed at a gender balance. The conference was open to the public and the conference dinner was held at La perle du lac, while the second day ended with a cocktail dînatoire at La terrasse.

The title of the conference “Debt and Taxes. A History of Innovation” gestured to the long history of public debt. Though marred by crises, this is mostly a history of innovation. Debt, an instrument that allows us to trade with our future selves, is one of the most important financial innovations in history. States have been among the main borrowers through history and for a number of good reasons—from funding public goods and social infrastructure to providing a safety net against large shocks, such as natural disasters or pandemics. But as individuals have problems of time inconsistency, so do states and that is reflected in an equally long history of debt crises. States tried to make debt credible by creating new taxes to fund it. The way governments tax has changed over time, partly to meet the needs of their growing debt stocks. Therefore, debt and taxes have had a symbiotic history. Moreover, the importance of this relationship continues to be particularly pressing today. Public debts have soared in the wake of the Global Financial Crisis and the COVID-19 pandemic. On both occasions, public debt levels rose by about 15 percent of world GDP and are now close to 100 percent. At some point, governments will seek to find ways of managing this growing debt stock and taxation will certainly be on the agenda.

The first session of the conference covered debt in the Early Modern period. Larry Neal (Illinois Urbana-Champaign) gave a talk about the Louisiana purchase by the US in 1803, which is mostly remembered for the political acumen of Thomas Jefferson and Napoleon’s pragmatism. The speaker revealed how the deal would not have been possible without the financial engineering of two European merchant bankers. Perhaps this is why Jefferson famously stated that banks “are more dangerous than standing armies.” Christiaan van Bochove (Utrecht) then spoke about the debt management strategies of Holland in the 18^th century. Specifically, the author showed how Dutch authorities set up a functioning secondary market for their debt securities through the skillful design of the trading structure. The Anglo-Dutch Premium Auctions identified by the author were especially useful for more illiquid securities. Auction theory is equally important today in helping debt management offices and central bankers with increasing the effectiveness of their interventions in the debt market. The second session gathered two presentations on the same period, one by Regina Grafe (Cambridge) and the other by Pamfili Antipa (LSE). Prof Grafe offered a refreshing view about the institutional foundations of successful public debt and financial systems. She specifically questioned whether the ‘three Bs’ (Banks, Bonds and Bourses) were necessary for financial development. Based on her extensive research on Spanish America, she argued that a different set of ‘four Cs’ (Convents, Confraternities, Consulados and Cajas) were equally effective at allowing Spanish colonial authorities to borrow and financial transactions to develop. This perspective alerts us to the danger of historical blind spots. Even if Northwest Europe emerged as more successful economically and politically than Southern Europe, that is not necessarily because its institutions were superior in some sense. Dr Antipa continued in the same vein by unpacking the often-told assertion that parliamentary control over the public purse was a key advantage of the British fiscal system. Even though having politicians-bondholders helped make public finance credible, the author shows that it also opened up the avenue for conflicts of interest. British MPs used their privileged knowledge about fiscal policy to make profitable transactions in the stock exchange ahead of revealing that information to the public. This form of insider trading is today ruled out in most jurisdictions, even though recent accusations against the presidents of two US Federal Reserve Banks reveal that it continues to remain a challenge.

The first day of the conference was concluded with an insightful keynote lecture by Barry Eichengreen (Berkeley). Entitled ‘In Defense of Public Debt. An Intellectual Journey in Four Acts,’ the lecture covered the rise of public debt in history and how states learned to harness the power of public borrowing for important social aims. Closer to our time, Prof Eichengreen discussed the reasons why nations have been having difficulty in reducing their debt burdens. In his research only economic growth and political cohesion have been reliably associated with lowering debt levels, both of which are in short supply today. On a positive note, he spoke about the recent success of small nations such as Jamaica, Barbados and Ireland in reining in their debt levels, from a starting position of low political polarization. It is, however, unclear whether their historical experience can be replicated elsewhere, namely in large nations such as the US.

The second day of the conference started with three presentations on debt sustainability. Josefin Meyer (DIW Berlin) showed that there is a strong relationship between world shocks to commodity prices and the cost of borrowing by emerging nations. This has been persistent over 150 years as many developing and emerging nations are very dependent on the export of commodities whose price they do not control. Paula Vedovelli (FGV São Paulo) revealed how credibility brokers emerged in the 19^th century to commodify information about emerging nations’ growth potential for guiding European and US investors where to invest abroad. Prominent in this story was the concept of potential national wealth, based on information about real assets and their prospective future value, estimated by specialist firms in Europe and the US. Finally, Eric Monnet (Paris School of Economics) and Matthias Morys (York) jointly presented their paper on how central banks have been instrumental in maintaining economic and financial stability in the context of world financial shocks. By collecting high frequency data on central banks’ balance sheets since the 1890s, the authors showed that central banks have been an unsung hero of financial stability both in periods of fixed (stabilizing the exchange rate) and floating exchange rates (stabilizing the interest rates). The thematic of the two next presentations was British imperial finance. Leigh Gardner (LSE) presented her research on the decentralization of colonial finances by the British colonial authorities as a way of controlling growing African protests against colonial rule in the interwar. By giving the population a greater say about how taxes were raised and spent, authorities hoped to coopt local elites and defuse challenges to their authority. This research calls for a revised understanding of colonial fiscal institutions and their political implications. Similarly, Coşkun Tunçer (UCL) spoke about the granting of explicit guarantees by London to loans raised by some of its colonies in London. An apparent contradiction—as all colonial bonds were implicitly guaranteed by London—the author discussed the function of these guarantees and the aims pursued by the British government in granting them. Abundant evidence shows that not all colonies borrowed alike and that guaranteed bonds were treated by markets as safe assets.

Two interesting papers formed a session on the infrastructure of debt markets. Geoffroy Legentilhomme (Zurich) presented his research with Marc Flandreau (Penn) on the ‘mathematics of wealth’ as a condition for the development of a capital market in tradable securities in 19^th century England. The increase in accuracy in the rate of return calculations of standard financial assets created, in the authors’ narrative, the conditions for the public to trust and invest in these assets in an open market. This account goes against the grain of the history of science where scientific advances—actuarial mathematics in this case—are usually explained in an internalist framework as purely driven by the disinterested pursuit of knowledge. Sasha Indarte (Penn) followed with a talk about how financial intermediaries (investment banks) can spread financial contagion in the sovereign debt markets. Though instrumental in reducing information asymmetry in normal times, bankers can spread financial panic during crises since the failure of sovereigns associated with them leads markets to reevaluate the worth of the information provided by them on other sovereigns. The problem of contagion generated by ‘parent banks’ was not only present in the pre-1914 period studied by Dr Indarte but also more recently, in the 2008-9 Global Financial Crisis.

A session about the twentieth century was a fitting conclusion to the conference. Wilfried Kisling (WU Vienna) gave a talk about international banks’ business model in lending to Latin America prior to the 1980s debt crisis. Using archival evidence from Lloyd’s bank, the author was able to show that international banks’ lending to Latin American nations was never considered in isolation but in the context of a package of financial relations, particularly involving domestic or international private companies operating in the same nations. Nathan Sussman (Graduate Institute) presented his research on the Eurobond market, which appeared in 1964, grew to become a large component in nations’ foreign borrowing and survived the 1980s debt crisis relatively unscathed. His presentation focused on the post-Bretton Woods period when exchange rate volatility led nations—developed and developing—to experiment with diversifying the currencies in which they borrowed away from the US dollar. This research opens up a forgotten angle in the history of foreign debt in the 20^th century.

A successful conference like this one would not have been possible without the support of many and we are happy to acknowledge them here. First, the Fondation Pierre du Bois for its ongoing support of this conference. Second, the Swiss National Science Foundation, which co-funded the conference. Third, the Geneva Graduate Institute, which provided the venue and the ancillary IT and communications services for the conference. Fourth, the colleagues who formed the scientific committee, the speakers and also the eleven discussants, who generously accepted to read and discuss in detail each of the presentations. These colleagues, drawn from the scientific committee and from Geneva and elsewhere in Switzerland, underwrote the quality of the discussions and feedback to the authors. Last but not least, a special thanks goes to Paul Deshusses, PhD student at the Geneva Graduate Institute, whose creativity and professionalism turned this conference into a very pleasant event.