The Cost of Credibility: The Company of General Farms and Fiscal Stagnation in Eighteenth Century France

Abstract:     
The Company of General Farms was a quasi-private organization responsible for collecting about half of French Tax Revenues during the eighteenth century. It was also one of the largest lenders to the Crown. The relationship between the Crown and the General Farms resembled modern models of Sovereign Debt as a "Contingent Claim." Positive lending is sustained in these models when the Lender credibly commits to withhold funds from the Sovereign in case of default. The General Farms maintained this commitment through its monopsony over taxation and lending activities. As the Revolution approached, however, the efforts of the Company to protect this monopsony significantly reduced the ability of the Crown to reform the fiscal system. The history of the Company of General Farms adds to our understanding of the literature on sovereign debt by identifying how an equilibrium, like the one described in the Contingent Claims literature, may raise the cost of engaging in legitimate reform.

Number of Pages in PDF File: 22

Keywords: Economic History, France, Old Regime

JEL Classification: N23, F34, D73

Accepted Paper Series