Informal Credit and Economic Modernization in Milan (1802-1840)

In Milan, the world of non-institutionalized credit, populated by noblemen, the bourgeoisie, merchants, ecclesiastic bodies and pious entities – typically for the early modern age – expanded rapidly from the last decades of the eighteenth century; the flow of money from the redemption of public debt placed in the hands of thousands of subscribers fresh capital, which was invested in an economy undergoing deep transformation. Notaries emerged as the backbone of this market, not only as certifiers of the legality of loan agreements: thanks to the rich capital of information accumulated from their clients and increasing returns from the successful completion of transactions, they progressively, reliably and efficiently, intermediate supply and demand for credit. With French presence and the consequent liquidation of the few existing financial organizations (Monte di Santa Teresa, Monte di Pietà), the frame of the unofficial credit segment extended wider, contributing to a new social balance; alongside notaries, networks of relatives, proximity and professional relations were built up, creating a mechanism of trust and for verifying reputations which comprised the social base for the provision of credit . On this basis, notaries were able to serve a large portion of society in Milan, including the lower classes; it can be estimated that in 1840 almost a fifth of the households in the city had obtained notarized loans; using consolidated information rather than generic guarantees and collateral, these intermediaries moved large sums and provided medium and long-term finance for the most up-to-date entrepreneurial activities, which the Cassa di Risparmio was not willing or able to fund. This bank, which did not have the same detailed information available, worked on the basis of the scrupulous evaluation of property used as collateral and hence ended up lending only to aristocratic landowners and city authorities. As in France, examined by Hoffmann, Postel-Vinay and Rosenthal, in Milan too, the bank was no substitute for notaries, ”if anything, they were complements” . The two sides of the credit world, formal and informal, coexisted, complementing each other and, later, crossing over into the terrain normally occupied by the other; after 1861, much of the detailed information provided by notaries and the ability to monitor informal credit networks, became working methods adopted by the banks. This does not mean that compared to the evolution of new banking institutions, able to bring together liquidity and risk pooling, notaries who dealt only in information, weren’t, in effect, making the best of an old job ; it merely suggests that an interpretation of credit transformation from the old regime to the industrial age based on a scalar process is entirely inadequate; the new banks that emerged did not, nor did they wish to, wholly replace conventional credit mechanisms, but moved by their side and learnt significantly from them; similarly, before the emergence of the new banks, financial innovation and credit activities were often carried out informally and privately, fostering progress and economic growth, as well .