Writings, notes and papers > Genoa and the history of finance: a series of FIRSTS? > Chapter 2   Chapter 2: Government Bonds Abstract The amount of money needed by local government is usually too much for a single investor to lend. A large number of subscribers with equal rights to interest and repayment of capital has to be brought together to provide the entire sum. In order to simplify calculations on such large sums of money and attract investment, the capital is divided into shares with the same nominal value and the same privileges, and the subscriber can sell them on to a third party in exchange for cash. The earliest record of this practice is again to be found in Genoa: during the early XIII century public debt (“compere”) was divided into shares (“luoghi”, in Latin “loca”, sing. “locus”) with a nominal value of 100 lire. The “luoghi” could be disposed of at the owner’s will and, shortly after their issue, became tax-free and could not be confiscated by the state. Definition Bond. A certificate issued by a government or a public company promising to repay borrowed money at a fixed rate of interest at a specified time (The New Oxford Dictionary of English edited by Judy Pearsall). “Luogo di monte” or simply “Luogo”. It  was the term given from medieval times onwards to describe the different tranches or shares which composed the capital of monti ..., that is belonging to subscribers to public loans (Lessico universale italiano di lingua lettere arti scienze e tecnica, Istituto della Enciclopedia Italiana Treccani). Documentation (1) Amongst the notarial deeds existing in Genova for the XII and XIII centuries (the oldest and most complete collection in Europe) is a document dated 22 January 1214, 8 which reads: «Bonifacius Iacobi de Volta et Lanfrancus Rubeus de Volta fatentur habuisse a Wilielmo Strejaporco £ 300, scilicet dictus Bonifacius habuit £ 200 et dictus Lanfrancus £ 100, pro quibus ei vendunt tres loca in pedagio novo de Portuveneris, sicut eos emerunt a Communis Ianue». Whereby Bonifacio de Volta, son of Giacomo, and Lanfranco Rosso de Volta declare to have received from Guglielmo Streiaporcus 200 and 100 lire respectively in exchange for three “loca” in the new Portovenere toll, which they purchased from the municipality of Genoa. Over and above the detail of the particular transaction, two things stand out: 1) The municipality of Genoa had established a toll in Portovenere so as to pay off the interest on a “compera” (or loan) imposed for budgetary reasons. 2) The compera was divided into shares of 100 lire each, called “loca”. The shares represented credits of equal value for money lent to the municipality and they could be bought and sold by private citizens via a notary public. Documentation (2) It is not unusual to find a tariff of the following kind in the Archives of the House of St George, written as a reminder either on the front page of accounts ledgers or set out in other prominent places: 9 1474 die tertia iunii. Precia locorum et pagarum pro ut capi debent: Loca Sancti Georgii ad £ (ibras) 40 Loca Tunetis veteris £ 65 Loca nova Tunetis £ 40 Loca Meteleni £ 60 Loca compere Chii £ 55 Loca compere securitatum £ 50 Loca darsine £ 35 Loca comperularum vini £ 60 Loca Raibetarum £ 70 ...     The “loca” of the “compere” were not only items to be bought and sold, but were also the preferred form of guarantee to others: debtors had to allocate to the House of St. George a certain number of “luoghi” as a guarantee for their debt and even the employees of the House had to do the same at the start of their employment. As shown in the document above the “luoghi”, each of a nominal value of 100 lire, were valued by St George in proportion to the actual income of their respective “compere”. Historical background At the beginning of the XIII century the system of “compere” was common currency in Genoa. A new term now appeared in financial jargon, one which had been commonly used to measure the shared ownership of a ship and that now became used to describe participation in a “compera”. The term was “locus” (later “luogo”) which we come across for the first time in the aforementioned document dated 22nd January 1214. 10 This term now began to appear more and more frequently, especially in the second half of the century. Public debt was therefore divided into “luoghi” with a standard nominal value of 100 lire; these shares could be further subdivided into smaller tranches or could be added together, as the subscriber desired. The amount of interest was referred to the standard value of the share itself. Hence, a “compera” with a nominal value of 30,000 lire consisted of 300 luoghi and a profit of 7 lire on each “luogo” meant a 7% profit. Basically the currency-to-“luogo” ratio was 100:1 to simplify the administrators’ calculations. The same 100:1 ratio can be found in many financial instruments negotiated, up until the Second World War, both in Europe and in the United States. Significant examples of securities with a nominal value equal to 100 times the local currency are the French “rente”, the English and the American consols, the Italian “rendita” (the bulk of state debt from 1861 onwards) and the majority of private financial instruments issued in the XIX century. The “luoghi” were not material instruments in that their existence was simply validated in writing within the public debt ledgers (XY loca tres, sive £ 300) and subsequent spin-off documents relating to purchases, legacies, etc. However, the “luoghi” were very similar to modern bonds because they were registered, transferable and encumbered at the owner’s will. Furthermore, thanks to the fact that the state could not confiscate them, the “luoghi” became popular instruments of exchange, sought-after (as investments or speculation) by the upper class, religious institutions and private organisations. The market for “luoghi” would survive more than five centuries until the fall of the republic of Genoa. Notes: 8 A.S.G., Manuscript, n. 539, c. 668. ^ 9 A.S.G., Archivio di San Giorgio, serie “Rggdvs02”, n. 92. ^ 10 Apart from the transaction quoted in note 11, see the one dated 23 March, 1222 in which Alda Boleta sells Ansaldo Galeta half a «luogo» at £ 47.05 , that is at 47,25 % of nominal value ((Liber magistri Salmonis sacri palatii notarii, 1222 - 1226, a cura di Arturo Ferretto, in "Atti della società ligure di storia patria", vol. XXXVI, Genova 1906). Several other transactions of the same kind can be found at the Società Ligure di Storia Patria (Wolf, Estratti di documenti) and in the state Archives of Genova (mmss Richeriani). ^