- Research Department
P. O. Box 834
Chicago IL 60690
USA
Francois Velde
Federal Reserve Bank of Chicago, Economic Research, Department Member
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Lottery loans were widely used in the 18th century. Instead of buying a long-term bond of known face value, investors entered a lottery which determined the face value (or size) of the bond. The largest prizes were several orders of... more
Lottery loans were widely used in the 18th century. Instead of buying a long-term bond of known face value, investors entered a lottery which determined the face value (or size) of the bond. The largest prizes were several orders of magnitude larger than the smallest (and most common). At a quarter of median household income, the ticket price was sizable; the identity of lottery winners reported in newspapers confirm that participants were educated and well-to-do. The prices of these lottery loans reveal curious investor behavior. The expected rate of return was lower than on non-random bonds. Drawing the lottery took several weeks; tickets were traded as it unfolded and prices were reported in newspapers. I collect these prices as well as the changing distribution of remaining prizes to evidence the market's preferences over probability distributions.
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Virtual currencies like bitcoin are protocols that maintain consensus among participants about legitimate ownership of assets; ownership is transferred by modifying the consensus appropriately. In monetary applications the asset is a... more
Virtual currencies like bitcoin are protocols that maintain consensus among participants about legitimate ownership of assets; ownership is transferred by modifying the consensus appropriately. In monetary applications the asset is a chain of transactions in scarce supply because the initiation of valid chains is restricted. Similar protocols, using a variety of methods to establish consensus, could facilitate simple or complex transfers of financial assets and reduce transaction and record-keeping costs, but doing so will require costly changes. Distributed ledgers replace trust between counterparties with trust in the protocol. Regulators will need to adapt their frameworks to ensure that the actors in payments and markets abide existing rule and do not create new risks, but also to protect the trust in the new protocols.
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This paper studies a remarkable experiment in monetary policy. Because of the peculiarity of the French monetary system, the government was able to engineer overnight appreciations of the currency in terms of silver of 100% over a few... more
This paper studies a remarkable experiment in monetary policy. Because of the peculiarity of the French monetary system, the government was able to engineer overnight appreciations of the currency in terms of silver of 100% over a few months, with the explicit goal of lowering the price level. Instead, a sharp recession resulted, which I document using biannual data on woollen production across France, as well as data on volume of transactions and commercial interest rates from regional fairs. The failure of prices and wages to adjust to the currency appreciation was attributed at the time to expectations of further appreciations which led agents to hoard goods and drive up prices
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Preliminary and rough draft. Between the era of the great Colbert and the the French revolution, French public finance was far less static than commonly thought. I focus on the period of the last wars of Louis XIV and the early reign of... more
Preliminary and rough draft. Between the era of the great Colbert and the the French revolution, French public finance was far less static than commonly thought. I focus on the period of the last wars of Louis XIV and the early reign of Louis XV, and I follow the Paris brothers, famous but poorly known financiers of the era, to show the wealth of innovation and experimentation that took place in public finance, including multiple attempts at establishing a source of credit for the government, innovations in book-keeping and monitoring of the flow of public funds in real-time, debates over the merits of tax-farming versus direct collection, etc. In the end, the relatively poor performance of the French government in comparison with its Dutch and British rivals is not a matter of tools or instruments.
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A debt is a promise to perform a certain action (make a payment) in the future. A default is a failure to perform the action when the time comes to do so. If performance of the action were always in my interest, the promise to perform it... more
A debt is a promise to perform a certain action (make a payment) in the future. A default is a failure to perform the action when the time comes to do so. If performance of the action were always in my interest, the promise to perform it would be superfluous. When we promise to do something, it is precisely because we may well not want to do it. Debt usually takes the form of a contract, which courts can enforce. But sovereign debt (debt issued by governments) is harder to enforce, because governments aren’t easily constrained by courts. How can sovereign governments make promises and be believed?
On December 14, 2006, the United States Mint announced new regulations to limit the melting and exportation of pennies and nickels. The goal is to prevent a shortage of small change in circulation. This article looks at the problem in... more
On December 14, 2006, the United States Mint announced new regulations to limit the melting and exportation of pennies and nickels. The goal is to prevent a shortage of small change in circulation. This article looks at the problem in historical context and suggests solutions.
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This article looks at eight centuries of monetary history and asks: What happened and what have we learned? Money evolved from commodity-based to purely fiduciary, and in the trial-and-error process, governments learned some basic truths... more
This article looks at eight centuries of monetary history and asks: What happened and what have we learned? Money evolved from commodity-based to purely fiduciary, and in the trial-and-error process, governments learned some basic truths about price stability and the management of a sound currency.
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Research Interests: Profitability and Coinage
This paper describes aspects of the French Revolution from the perspective of theories about money and government budget constraints. We describe how unpleasant fiscal arithmetic gripped the Old Regime, how the Estates General responded... more
This paper describes aspects of the French Revolution from the perspective of theories about money and government budget constraints. We describe how unpleasant fiscal arithmetic gripped the Old Regime, how the Estates General responded to reorganize ...
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Research Interests: Economic History and Law
This paper studies a remarkable experiment in monetary policy. Because of the peculiarity of the French monetary system, the government was able to engineer overnight appreciations of the currency in terms of silver of 100% over a few... more
This paper studies a remarkable experiment in monetary policy. Because of the peculiarity of the French monetary system, the government was able to engineer overnight appreciations of the currency in terms of silver of 100% over a few months, with the explicit goal of lowering the price level. Instead, a sharp recession resulted, which I document using biannual data on woollen production across France, as well as data on volume of transactions and commercial interest rates from regional fairs. The failure of prices and wages to adjust to the currency appreciation was attributed at the time to expectations of further appreciations which led agents to hoard goods and drive up prices
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This paper describes aspects of the French Revolution from the perspective of theories about money and government budget constraints. We describe how unpleasant fiscal arithmetic gripped the Old Regime, how the Estates General responded... more
This paper describes aspects of the French Revolution from the perspective of theories about money and government budget constraints. We describe how unpleasant fiscal arithmetic gripped the Old Regime, how the Estates General responded to reorganize ...
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Nicolas Dutot (1684–1741) is an important figure for the history of economic thought, as a pioneer in monetary theory and price statistics, and for economic history, as a chronicler of John Law’s System. Yet, until recently, very little... more
Nicolas Dutot (1684–1741) is an important figure for the history of economic thought, as a pioneer in monetary theory and price statistics, and for economic history, as a chronicler of John Law’s System. Yet, until recently, very little information about him was known, some of it incorrect. I present extensive research that reveals a remarkable career rising from humble origins and full of surprises. He spent his formative years in the ranks of the “ancienne finance” he was thought to despise, and then worked for the Chamber of Justice that he so decried in his writings, only to be sent to the Bastille for corruption. After working for Law’s Bank and then retiring quite comfortably, he continued to socialize with his pre-System financier and banker friends, at least for a while. He also joined a short-lived learned society and accumulated a substantial library that reveals much about his tastes and affinities. The portrait that emerges is at odds with the image of an honest accountant he tried to project, but also richer and more engaging.
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The French government currently honors a very unusual debt contract: an annuity that was issued in 1738 and currently yields €1.20 per year, payable to the descendants of its original recipient. I tell the story of this unique debt, which... more
The French government currently honors a very unusual debt contract: an annuity that was issued in 1738 and currently yields €1.20 per year, payable to the descendants of its original recipient. I tell the story of this unique debt, which serves as an anecdotal but symbolic summary of French public finances since the eighteenth century. Created by a powerful nobleman for one of his servants, it survived the turmoil of the French Revolution, became part of the public debt and has been scrupulously honored to this day, even though its value has been eroded away by decades of inflation.(Received December 01 2009)(Revised February 21 2010)(Accepted February 24 2010)(Online publication July 29 2010)
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VERY PRELIMINARY Burns and Mitchell (1946, 109) found a recession of "exceptional brevity and moderate amplitude." I confirm their judgment by examining a variety of high-frequency data. Industrial output fell sharply but rebounded within... more
VERY PRELIMINARY Burns and Mitchell (1946, 109) found a recession of "exceptional brevity and moderate amplitude." I confirm their judgment by examining a variety of high-frequency data. Industrial output fell sharply but rebounded within months. Retail seemed little affected and there is no evidence of increased business failures or stressed financial system. Cross-sectional data from the coal industry documents the short-lived impact of the epidemic on labor supply. The Armistice possibly prolonged the 1918 recession, short as it was, by injecting momentary uncertainty. Interventions to hinder the con-tagion were brief (typically a month) and there is some evidence that interventions made a difference for economic outcomes. * The views presented here do not necessarily reflect those of the Federal Reserve of Chicago or the Federal Reserve System. I thank without implicating Gadi Barlevy, Jeff Campbell, and François Gourio for very helpful discussions; Chris de Mena for gallant service beyond the call of duty; Matthew Song and Richard deThorpe for outstanding research assistance.
I examine the Neapolitan public banks, a group of non-profit institutions that emerged in the late sixteenth century, in the context of the early public banks that existed elsewhere in early modern Europe. In terms of size and stability... more
I examine the Neapolitan public banks, a group of non-profit institutions that emerged in the late sixteenth century, in the context of the early public banks that existed elsewhere in early modern Europe. In terms of size and stability they compare well with their peers, in spite of a difficult political and economic environment. They were also remarkably financially advanced for their time. Their success is likely due to their ownership structure, governance, and well managed relationship with the monarchical authorities .
I study the business practices of the Comédie française, the main theater in Paris, between 1680 and 1793. The theater was an actors’ partnership and operated within a (contested) oligopoly. Newly available data provide revenues by price... more
I study the business practices of the Comédie française, the main theater in Paris, between 1680 and 1793. The theater was an actors’ partnership and operated within a (contested) oligopoly. Newly available data provide revenues by price category for over 32,000 performances. Attendance varied considerably from one performance to the next. Total revenues increased in the second half of the 18th century as demand for entertainment in Paris boomed. The increase came in part from box rentals (by performance or by season). Pricing practices changed over time, as premium pricing for high-demand events made way for premium pricing on specific weekdays, and ultimately constant pricing. The repertory consisted of proven classics to which successful novelties were added. As demand grew, the theater provided more variety and more novelty.