Abstract and Keywords
From at least 1300, European princes fought their wars with borrowed money, using revenues to pay lenders. Since consent to taxation was vested in representative assemblies made up of nobles and burghers, direct taxation of wealth and property was not common. When large loans were needed at once, one turned to consortia of bankers (fiscal intermediation), although the interest rates they demanded were not supportable for long. One alternative, especially in states that lacked a strong central government, was long-term, low-interest loans marketed to the public, and guaranteed by town governments or local parliaments (fiscal intermediation). In some states, notably Venice and the Dutch Republic, a system like this worked well for centuries, but it could not cope with nearly exponential increases in the cost of war. During the Napoleonic era, a centralized state that monopolized the power to raise and spend money, as in England, became the European norm.
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