Priceless Markets: The Political Economy of Credit in Paris, 1660-1870 (review)

Priceless Markets challenges the view that credit expansion in early modern Europe was the result of such major institutional innovations as representative government and consolidated government debt. The challenge is mounted on the evidence of notarial credit in Paris over a period extending from the reign of Louis XIV through the Second Empire. Old Regime notaries dominated long-term private borrowing and lending, through their capacity to concentrate asymmetric information about their clients gleaned from cumulative past practice. Armed with this informational advantage, notaries led the way in generating an enormous expansion in private borrowing and lending, which attained levels in the 1780s that would not be equalled until the 1860s. They centralized credit in the kingdom, widening social and spatial access to include women, non-Parisians, and foreigners as lenders. Their creative financial intermediation allowed credit to thrive in a regime of official interest-rate caps that kept it "priceless."

The secret of the notaries' success was an ingenious cooperative mechanism of information sharing that provided just enough competition to keep them honest. The French Revolution radically altered the conditions supporting this entrenched "information structure," however (296). Besides the negative impact of inflation, default, and devalued currency on the public's willingness to lend at long term, revolutionary reform undermined notaries' role as financial intermediaries in Paris. The institution of public mortgage registries (hypothèques) removed their informational advantage over such competitors as bankers and, especially, the new mortgage bank Crédit Foncier, founded in 1852. Notaries retained their foothold only in the more socially inclusive credit markets of rural areas and small towns. Thanks to the Revolution, credit growth was dampened for more than a half-century and access narrowed in favor of borrowers seeking larger loans.

This study artfully combines sophisticated quantitative analysis with a judicious appeal to economic theory, especially recent theory of imperfect markets. Loan and loan repayment records in ten notarial études from 1660 to 1869 provide the core data. Samples of complete entries for select years and months give even closer readings of trends over the entire period for seven of these études. The data enable the construction of long-term series of loan quantity, size, type, and geographical and social distribution, making possible both comparative analysis and the assessment of institutional change with quantitative measures. Interpreted with a variety of high-order statistical techniques, the latter complements historically sensitive institutional analysis. One brilliant example is the use of cross-sectional data of all notarized loans in a given year to test outcomes predicted by game theory, in a model of notary-client interaction addressing issues of information sharing and client loyalty. In this context, quantification enables the choice of one equilibrium position that best explains the cooperative behavior among notaries responsible for their success in the eighteenth century.

The authors recognize the limitations of their data, in particular the absence of equivalent series for nonnotarized bankers' loans, for which the archival evidence is lacking. They are also careful to specify the exact terms in which their conclusions are firm or tentative, as well as the numerous questions that their research raises. Such considerations do not hold them back from sweeping aside, with iconoclastic delight, received views on matters both large and small. That they do so in clear, plain language within the reach of a broad scholarly audience is not the least of the merits of this remarkable study.