Published by EH.NET (December 2011)

David Stasavage, States of Credit: Size, Power, and the Development of European Polities. Princeton, NJ: Princeton University Press, 2011. xi + 192 pp. $40 (hardcover), ISBN: 978-0-691-14057-7.

Reviewed for EH.Net by Mauricio Drelichman, Department of Economics, University of British Columbia.

States of Credit revolves around a single, clearly articulated claim. In the Medieval and Early Modern periods, access to sovereign credit largely depended on the presence of a representative assembly with strong powers of control over the sovereign. This type of representative assembly was in turn more likely to emerge in the absence of substantial geographical barriers to travel. And, among comparable representative assemblies, those who were dominated by a merchant oligarchy were more likely to secure better access to credit.

Sovereign debt emerged in Medieval Europe and by the sixteenth century there were few polities that had not dabbled in it in one form or another. There was, however, enormous variation in the size and characteristics of the loans that different political entities were able to command. It is this variation that David Stasavage exploits to construct and support the argument in the book. In the process, he builds one of the most extensive databases available on both the characteristics of sovereign debt and of representative assemblies in Western Europe between the thirteenth and the eighteenth centuries. These data alone represent a major contribution, one on which economic and political historians will draw for years to come.

After an introductory chapter that states the central claim and summarizes the structure of the book, Chapter 2 sets out to establish the differences in access to credit between city states and territorial states. To do this, Stasavage builds on Larry Epstein?s database of interest rates, adding both polities and data sources in a welcome and useful expansion. The analysis yields two main stylized facts: 1) city states developed a national debt earlier than territorial states, and 2) in the period when both city states and territorial states had access to credit, the former enjoyed substantially lower interest rates. Stasavage terms this ?the city state advantage.? Because of the nature of the data, however, the size of loans is not incorporated into the analysis. While knowing that city states paid lower rates than territorial states is useful, it is also true that territorial states often borrowed much larger amounts, which likely influenced the rates they paid.

Chapter 3 provides a broad overview of the nature of representation in Medieval and Early Modern Europe. Here Stasavage collects data on the existence of representative institutions across 31 polities, coding whether a representative assembly existed, whether it had to consent to raise taxes, whether it had a role in administering taxes, and whether it had a role in overseeing spending. Data on the frequency of meetings are also collected. The data are presented at 50 year intervals between 1250 and 1750, with city states scoring significantly higher than territorial states in every measure and in every period. Stasavage also delves into who was represented at these assemblies, showing that merchants held a large proportion of seats in city states — in some periods, even a majority — while merchant representation in territorial states was much more limited. Finally, a straightforward statistical analysis is employed to show that the frequency of meetings was inversely related to the territorial scale of the polity. While the analysis here fails to exclude the possibility that a higher meeting frequency is a city state characteristic rather than a result of a smaller geographic area, this is done for the central hypotheses tested in the following chapter.

Chapter 4 is the beating heart of the book. Here a game theoretic setup and a thorough empirical investigation are combined to support Stasavage?s central claim and rule out most of the alternative explanations. The model posits a world where the executive might choose more or less risky courses of action, which in turn affect the probability of default. An assembly with monitoring powers might be able to force a corrective action if the executive heads down a risky path, but monitoring is costly. As a result, monitoring is more intensive and credit is cheaper where monitoring costs are lower. Stasavage convincingly argues that the most significant factor in monitoring costs in the Medieval and Early Modern periods was geographic scale. Next, three sets of regressions reinforce the claim. In the first one, each coded characteristic of representative assemblies is shown to be positively correlated with the likelihood of a state creating public debt. Next, for those states that had created a public debt, the same characteristics are shown to be associated with lower borrowing costs. Finally, the same outcomes are shown to hold when the sample is restricted to include just city states, thus eliminating the possibility that the results are being driven entirely by the difference between city states and territorial states.

Chapter 5 takes a step back, asking what determined the emergence of city states in the first place. After showing that the data do not fully support existing conjectures, Stasavage constructs a hypothesis of city state emergence linked to the partition of the Carolingian empire at the treaty of Verdun in 843 AD. For idiosyncratic reasons, the ?Middle Kingdom? of Lotharingia was much weaker than those of East and West Francia (that would in time become Germany and France), and collapsed soon after its creation. In 870 it was divided between the two other kingdoms according to a line passing through the city of Meersen. Areas formerly in Lotharingia remained farthest from the central control of their respective kingdoms, and were hence fertile ground for the emergence of city states with a strong independent character. Distance from the Meersen line is therefore proposed as an instrument for the likelihood of city states to emerge in a particular area, and, in the main positive finding of the chapter, it is shown to be correlated with city state development after including a number of controls. Once the distance from the Meersen line is introduced in IV regressions along the lines of chapter 4, however, the results are essentially unchanged from the standard OLS and probit specifications. Perhaps as a result of trying to combine a bold conjecture with an ambitious empirical claim, this chapter reads somewhat weaker than the rest of the book. The reader would have expected a more thorough historical analysis after the introduction of a sweeping macrohistorical hypothesis such as that of the Carolingian partition, which, if true, might well warrant its own monograph-length study. That the quantitative analysis fails to yield significant results only contributes to a sense of incompleteness. The conjecture is nonetheless intriguing and not devoid of elegance, and Stasavage must be commended for a first attempt at what might well be fertile ground for future research.

Chapters 6 and 7 each provide three case studies of city states (Cologne, Genoa and Siena) and territorial states (France, Castile, and the Dutch Republic). The purpose of the case studies is to provide microevidence for the book?s central claim. In this, they are certainly successful. The city state case studies illustrate how the presence of a merchant oligarchy was correlated with access to credit. Where merchant control existed, as in Cologne and in certain periods of the Genoese Republic, credit was abundant and cheap. When merchants were ousted from government, as in Siena in 1355, credit fell (and with it, Sienese prominence as well). The territorial state case studies serve to provide support for the role of geographic scale. Particularly convincing is the comparison between Castile and the Dutch Republic. Both shared very similar representative institutions (and indeed the same monarch before the Dutch revolt). While in Castile traveling to the site of the Cortes could take months, however, almost any point in the Dutch Republic was within one or two days of canal travel. This enabled the delegates to both exert a tighter control over the executive, and to refer back to their constituencies on crucial matters. Castile did manage to create an enormous public debt, but that of the Dutch Republic was even larger in per capita terms, and substantially cheaper as well. The case studies are illuminating but, just as with the Carolingian Partition hypothesis, the novel historical interpretations presented in Chapters 6 and 7 would have perhaps deserved a more detailed treatment. While it is hard to imagine that any correction to Stasavage?s interpretation of historical events could fatally damage his main argument, a deeper, richer historical background would have done much to enhance the appeal of the book to a wider audience.

Overall, States of Credit is a novel, solidly argued contribution that lies at the intersection of several dynamic fields of study. There is much to learn from it for political scientists, economic historians, and public economists, as well as a rich new data trove to mine. Though historians may be eager for more detail, they will surely appreciate the novelty of the historical conjectures presented, as well as their careful blending with both economic and political theory. Finally, the text is concise and accessible enough to be easily adaptable to upper level undergraduate courses, as well as to graduate discussions in both economics and politics.

Mauricio Drelichman is an Associate Professor of Economics at the University of British Columbia, and a Scholar in the Institutions, Organizations, and Growth program of the Canadian Institute for Advanced Research. He is co-author of ?Lending to the Borrower from Hell: Debt and Default in the Age of Philip II,? Economic Journal, December 2011 (with Hans-Joachim Voth).

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2011). All EH.Net reviews are archived at