[발췌] The Financial Market and Government Debt Policy in France, 1746-1793

• 출처: Francois R. Velde and David R. Weir. The Financial Market and Government Debt Policy in France, 1746-1793. The Journal of Economic History. Vol. 52, No. 1 (March 1992).
• 자료: http://piketty.pse.ens.fr/files/capitalisback/CountryData/France/Other/PublicDebtFR/VeldeWeir92.pdf

※ 발췌 (excerpt):

( ... ... ) A more complete quantitative history of the financial market is also needed to help resolve a number of persistent contreoversie.[주]3

Contoversies persisted because the stakes are high. ( ... ) The result has been a distortion of the history of population, argicultural productivity, living standards, and most especially public finance.[주]4  ( ... ) All historical discussion of policy and policymakers has carried this awesome weight: who was responsible for the deficit that opened the door to the French Revolution?

Most of the debate centers around the two stongest finance ministes of the reign of Louis XVI. ( ... ... )

In our view, the question itself is wrong. The financial crisis that brought down the Old Regime repeated a pattern observable in previous episodes. It stands out because of what followed it, not what brought it on. The repeated crisis of the Old Regine owed more to institutional, even constitutional, flaws thatn to errors by individuals. ( ... ... )

The most important controversy over debt policy concerns the life annuities (rentes viagères). They were the major sources of new loans after 1750 and the largest component of the debt by 1789.[주]11  Historians are unanimous in condemning these loans as too expensive, especially the life annuities sold after 1770 at a flat rate for lives of all ages.[주]12  The case was made with admirable clarity in 1794 by Joseph Cambon, the man charged with restructuring the national debt, in his report to the ^Convention Nationale^. After a lengthy and sophisticaed descriptio of the financial and actuarial techniques used by investors to extract the highest possible yields, he concluded "c'est ainsi qu'on se jouait de l'imbecillite de notre ancien governement."[주]13  Cambon's conclusion that the market had outsmarted the government persists, even if some of his actuarial expertise has not.[주]14

[주]12. We discuss the history of life annuity pricing in detail under "Life Annuities."

That conclusion was drawn and endorsed without reference to market data. To prove that life annuities were a bad asset choice for the government, one would need to show an alternative source of new borrowing with a lower market rate of return. Cambon and many of the historians who have followed him compared the life annuities with the legal maximum interest rate of 5%. To prove that the official government prices for life annuities offered excessive yields, one might hope to show that the market was willing to pay a premium for them. Untilnow, no one has looked closely at the secondary market for government life annuities.

( ... ... ) The article concludes with some implications for understanding the origins of the French Revolutioin.


AN HISTORICAL PERSPECTIVE ON PUBLIC FINANCE AND DEBT POLICY


AN INTERNATIONAL COMPARISON OF THE LONG-RUN INTEREST RATE


ASSET PRICING


LIFE ANNUITIES

1) Government Pricing Policy in Historical Perspective

Life annuities (rentes viagères) were first used by the French government during the Nine Year's War (1688-1697), the same time that tontines were introduced. Large amounts were also created during the liquidation of John Law's Systeme, to retire the masses of banknotes issued in 1719 and 1720. Life annuities became a more significant component of the debt after the 1740s. By the end of the century they had become the major method of borrowing. Table 3 summarizes the amounts of new cash raised through life annuities and tontines.

Life annuities were created by loan edicts, which specified the total amount to be sold. If the market was unwilling to buy them the total might be less, but only rarely did the government accept oversubscriptions. When the government sold a life annuity, it set a price that was a multiple of the annual annuity income. We will refer to the inverse ratio (income to price) as the nominal yield.

The effective yield, or internal rate of return, would be lower than the nominal yield by a margin that would depend on the duration of payment (length of life). The development of actuarial science in the 19th century was very much related to the question of pricing life annuities by age. There is a reason to doubt whether either the public or the government could accurately evaluate the cost of life annuities before 1746.[주]70  All doubt vanishes with the publication that year of Deparcieux's book in Paris.[주]71  He integrated an exposition of the formal mathematics of the pricing of life annuities and tontines with a new empirical life table solidly based on the mortality experience of subscribers to the French tontines of the 1690s.[주]72  He provided simple tables of prices by age and effective interest rates that could be used even by those unable to make calculations for themselves.

Figure 5 shows how the IRR varies by age when the nominal yield is a single flat rate for all ages, calcaulated from Deparcieux's life table. It also shows that to provide an internal rate of return of 6%, for example, the nominal yield should be set at about 7% at age 7, 8% at age 40, 9% at age 50 , and 10% at age 55.

One might suppose that the growth in life annuity borrowing was a result of the development of pricing technology. Quite the contrary: the massive life annuity loans of the 1770s and 1780s not only ignored the detailed age-grading information available, they were nearly all at flat rates for all ages. Cambon's remark about the Old Regime's "imbecility" was meant to imply that the flat-rate pricing scheme was due to incompetence, stupidity, and sloth. A closer look at the history of pricing policy suggests something more deliberate.

The life annuities of the 1690s had a rough structure of age grading, based more on common sense than on any rigorous calculation. The flat rates on life annuities of the early 18th century were arbitrarily set to liquidate debt; they provide little insight into actuarial knowledge or intent.[주]73  Age grading reappeared with the loan of November 1740 and carried on through the War of the Austrian Succession and the peace that followed the Treaty of Aix-la-Chapelle. The eight life annuity loans in the 15 years between 1740 and 1754 were all graded for age, at rates that came close to being actuarially fair.[주]74  Moreover, as is evident in Table 2, the government could manipulate the prices and enrollments by age to raise and lower the overall yield in accordance with market conditions, without abandoning acturarial fairness.

Age grading was abandoned during the Seven Years' War, beginning with the November 1757 loan. The finance minister who initiated the return to flat-rate pricing was Jean de Boullongne, born of a family of a important court painters but making his own long career in varioius offices of government finance.[주]75  11 years earlier, Antoine Deparcieux had dedicated his masterpiece on life annuities and tontines to this same Jean de Boullongne, then an ^Intendant des Finances^, in gratitude for his attention and support given to his work. Ministerial competence had certainly not taken a turn for the worse. The fiscal health of the monarchy, however, clearly had. It would seem that fiscal pressure in the form of war borrowing influenced life annuity pricing policy.

Of the 14 major life annuity loans raised over the last 30 years (1757-1787) of Old Regime policy, only three had any age grading at all, and even those were clearly not designed for actuarial purposes.[주]76  The implications of flat-rate pricing for the government's cost of borrowing depended on the age structure of annuitants. Technological changes on the demand side of the market for life annuities made the flat rates increasingly costly over time.

Who Bought Life Annuities?

In the 1750s an 1760s flat-rate pricing had relatively little impact on the total cost of government borrowing because most life annuity purchasers continued to be adults who bought on their own live, their spouses', or their adult servants'.[주]77 The flat-rate prices gave near-market yields on adults aroung the age of 50. Older adults were discriminated against by the flat-rate prices. There were few major alternative suppliers of life annuities, so the government may have profited from public demand for assets to smooth out life-cycle consumption.[주]78

To earn a higher yield, annuities had to be bought on the lives of children.[주]79 There was no legal restriction on naming third parties as contingent lives. The two main impediments were (1) the risk that all the income would be lost to the investor if the third party dier and (2) the transactio costs involved in documenting survival of the third party every year to collect the annuity.

The technical solution to the problem of investing on children's lives emerged in the early 1770s in a famous scheme known as the "trente demoiselles de Geneve"[주]80  It began as the exclusive domain of Genevan banks, through their branches in Paris. The banks developed lists of young girls from Genevan families to name as contingent lives. The families were selected for their record of health and longevity. The girls were mostly between the age of five and ten, and were selected only after surviving smallpox (or after inoculation, which was introduced in the 1780s).

( ... ... )

The invention was first tested on Terray' June 1771 loan, spread rapidly with the Necker loans, and probably accounted for a majority of flat-rate life annuity subscriptions in the 1780s. ( ... ... )