Like Zuan Francesco Priuli in 1577 (not) solved the problem of the public debt of Venice

by Davide Gionco

In 1577 the coffers of the Republic of Venice were increasingly in bad shape. The Serenissima came from years of wars against the Ottoman Turks, with the defeat in the Cyprus war (1570-1573), and had just emerged from an epidemic of plague (1575-1577) that had hit almost all the territories of the Republic.
The noble Zuan Francesco Priuli had received in October 1574 the appointment of administrator over the municipal assets and for some years he had been trying to make ends meet in the public budget.

In 1577 Priuli decided to tackle once and for all the age-old question of interest on the public debt, which in 1577 had reached the sum of 514'983 ducats per year for mint deposits, and almost 200'000 ducats for the consolidated debt. . At the time, the Venetian public debt was referred to as a "mountain". There was the oldest debt, the "Monte Vecchio", which had been going on for centuries. There were also the "Monte Nuovo", the "Monte Novissimo" and "Monte Sussidio". In addition to this there were the "Mint Deposits", which were the largest debt.
On balance, one third of the Republic's tax and income receipts had to be used to pay interest to creditors. Priuli, as a financial expert, concluded that this problem had to be eliminated at its root. It was also scandalous that the Republic, through this mechanism, would contribute to making the rich ever richer, at the expense of the poorest who paid taxes.
The rulers of Venice thought that not only the financial health of the Republic was at stake, but also the image of the Venetian aristocracy which for centuries had always guaranteed the separation between public interest and private profit.

Zuan Francesco Priuli decided to face first of all the debt of the "Mint Deposits" (4 million ducats): he prepared a twenty-year plan made up of tax increases, recovery of tax credits and sales of public properties (what he does Italy for 30 years to reduce the public debt). The plan was convincingly approved by the "council of ten" and implemented.
Things went much better than expected. on June 15, 1584 the Senate declared that all debts opened in the Mint (the public debt) had been repaid. Later, during the mint's debt relief program, in 1579 Zuan Francesco Priuli had proposed another plan to attack the debts of the "mountains" as well. In this case, however, the plan was not approved, as too many Venetian patricians had protested the lost possibility of investing their money in the mother country.
According to the forecasts of the Priuli, the payment of the public debt should have made it possible to reduce taxes, as the Republic would have freed itself from the burden of paying high interest.
The Senate, however, decided that the tax revenues that were previously used to pay interest on the debt, were set aside and deposited in a "Large Deposit", which would serve as a financial reserve for the Republic in case of need. The Venetian state had decided, like any good family man, to "save".

Subsequently, in 1595, the patrician Giacomo Foscarini, a staunch supporter of the line of his predecessor Priuli, had 3 new supervisors appointed for the freeing of the Monti Novissimo (2.4 million ducats) and Sussidio (1.2 million ducats). Also in this case, the tax collection and the disposals of public assets were funded. In the year 1600 the “Monte Vecchio” (0.9 million ducats) began to be reduced with the same mechanisms.
It seems that around the year 1620 the repayment of all debts had been completed.
Between 1574 and 1620 Venice had put about 8.5 million ducats back on the "private market".

The dream of all European rulers of the 21st century, that of paying and extinguishing the public debt , was concretely implemented for the first and only time in history by the Republic of Venice.
But everything that ends well is not always good.

The rich Venetian merchants, who for centuries invested their money by depositing them in the Mint at interest (essentially buying government bonds, as we would say today). Previously, the proceeds of trade flowed to the Mint, but also the gifts of the wives. And the dowries of the daughters for the future marriage were deposited there.
Given the growing difficulties of trade with the East, caused by the obstacles posed by the Ottoman Empire, but also by the competition suffered by the trade with the Americas managed by Spaniards, English and Dutch, more and more Venetians had sought refuge in risk-free investments in the Public mint.
But now the public service of the Mint was no longer available.
Therefore the rich Venetians were obliged to invest their wealth differently.
Priuli had foreseen that that money would be invested, as in the old days, in commercial activities. But he was wrong. Those times were ending.
The wealthy Venetians chose, instead, to devote themselves to real estate investments on the mainland. We cite the example of a certain printer Lucantonio Giunti, after having devoted himself all his life to other economic activities, between 1585 and 1601 he invested in the purchase of at least 225 fields and urban properties, to the point of doubling within only 16 years the land he had inherited.

Other funds were simply invested in other financial assets. They came into contact with the Florentine and Genoese bankers who profited from the foreign exchange and "international" credit markets, lending money to various sovereigns throughout Europe. Or they simply deposited their money in the coffers of other cities: Rome, Florence, Genoa, Milan, Naples, Vienna. Or they ended up financing usury credit activities.
To suffer the most were the ecclesiastical bodies, which were not structured to diversify their investments in money, buying real estate funds and entrusting their funds to financial institutions in other cities.

These capital flows outside the Serenissima led to the reduction of liquidity in the state coffers, therefore to the reduction of public investments and business in the city, and therefore of tax revenues. For this reason, new taxes were gradually introduced to make ends meet.
No advantage came from the extinction of the public debt, neither to the Venetian citizens, nor to the wealthy of the patrician class.

Meanwhile, pressure from wealthy investors continued to ensure that the Venetian state was no less than Genoese "competitors" in lending to foreign sovereigns. For example, in the years 1616-1617 the money from the "Great Deposit" was used to make a loan of 1.75 million ducats to Duke Carlo Emanuele I of Savoy to finance his war against Spain. The business had turned out to be quite profitable, so the rich Venetians themselves asked to be able to pay their funds into the "Deposito", so that they could be used to make interest-bearing loans to various European sovereigns.

For these reasons, in the years following 1620, gradually, but by great demand, the public debt service was restored, which made it possible to keep taxation low enough and to offer a public savings service appreciated by many. However, the damage had been done. The decades of "austerity policies" (as we would call them today) and the large capital losses suffered by Venice left permanent marks, contributing to the inevitable decline of the Republic that had thrived as the richest city in Europe for 1000 years.

Finance expert Zuan Francesco Priuli and his successor Giacomo Foscarini did not understand the function of public debt in a state. The state is not a family that has to pay off debts. It is not a family that has to save for the times to come.
The "public debt" is nothing more than a common fund into which savers pay their savings. On the one hand, citizens benefit from a risk-free public savings service, useful for those who are not financial investors by trade. On the other hand, the State has a common fund to which it can draw to finance its activities for the benefit of the community, which makes it possible to keep the tax burden low.
To understand the concept it is sufficient to look at the budget of the Italian state.

In 2021, the forecast is to collect a total of 579,980 million euros.
The expenses "useful to the people", which are current expenses plus capital account expenses, are equal to 580'095 + 111'860 = 691'956 million euros.
It is true that the public debt "costs" 81'507 million in interest, but if there were no public debt, 691'956 – 579'980 = 111'976 million euro that comes from the "fund would be missing common fund ”of public debt.
If we did not have public debt, Italians would have to pay 112 billion euros more in taxes. If tax revenues today are 505 billion euros, it would mean a 22% increase in taxes compared to today, knowing that Italy is already among the first places in the world in terms of tax burden.

Furthermore, if there were no public debt, Italians would not know where to make safe and risk-free investments.
If the Italian state, as was the Republic of Venice for centuries, is a public savings service provider, then the reduction or cancellation of the public debt would mean the cancellation of the public savings service.
As if all the banks where we keep our savings are returning them to us saying “keep your money back, do what you want with it”. At that point, savers could only turn to foreign banks or foreign nations to request a similar savings service.
In such a situation, much less money would turn to Italy for private investments supported by banks and we would consequently lose all the benefits deriving from the realization of those goods and services, becoming poorer.

So whoever proposes to "reduce the public debt", if not to pay it off, demonstrates that they do not understand what public debt is, just as Zuan Francesco Priuli did not understand it.
Those who, with the notion of cause, proposed and obtained that the European treaties provide for the reduction of public debt, did so precisely to push investors to turn to the savings and private investment sector or to private banks, to the full advantage. of the financial groups that own them.

As had already happened in Venice, the result of 30 years of public debt reduction policies has been a progressive increase in taxes, combined with the disposal of public assets, the reduction of public services and the increase in circulating liquidity in the "foreign finance ".
If in the early 1600s "foreign finance" were other cities than Venice, today "foreign finance" are the international financial markets, the places where investments make the most, which are generally the places where investors do not they pay taxes, they don't have to respect human rights, they don't have to worry about respecting the environment. Exactly the factors that allow you to maximize your annuities.
If, on the other hand, investments were centered on public finance, we would have the possibility of directing them according to the political aims of redistribution of wealth (which is the purpose of taxes), of respect for human rights and the environment.

In conclusion, the public debt is not that "bad thing" that they talk about every day on TV and newspapers, but it is a precious tool for the community, to be safeguarded and managed in the best possible way, perhaps with the support of a public central bank, as was the Mint of the Serenissima.

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The article How Zuan Francesco Priuli in 1577 (not) solved the problem of the public debt of Venice comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/come-zuan-francesco-priuli-nel-1577-non-risolse-il-problema-del-debito-pubblico-di-venezia/ on Thu, 13 May 2021 16:11:48 +0000.