War Is the Father of All Things, Declared the Greek Philosopher Heraclitus; It Was Certainly the Father of the Bond Market

‘War’ declared the ancient Greek philosopher Heraclitus, ‘is the father of all things.’ It was certainly the father of the bond market. . . . The ability to finance war through a market for government debt was, like so much else in financial history, an invention of the Italian Renaissance.

For much of the fourteenth and fifteenth centuries, the medieval city-states of Tuscany — Florence, Pisa and Siena — were at war with each other or with other Italian towns. This was war waged as much by money as by men. Rather than require their own citizens to do the dirty work of fighting, each city hired military contractors (condottieri) who raised armies to annex land and loot treasure from its rivals. . . .

The cost of incessant war had plunged Italy’s city-states into crises. Expenditures even in years of peace were running at double tax revenues. To pay the likes of Hawkwood [the great mercenary], Florence was drowning in deficits. You can still see in the records of the Tuscan State Archives how the city’s debt burden increased a hundred-fold from 50,000 florins at the beginning of the fourteenth century to 5 million by 1427. It was literally a mountain of debt — hence its name: the monte commune or communal debt mountain. . . .

—Niall Ferguson, The Ascent of Money: A Financial History of the World (New York: Penguin Press, 2008), 69, 70-71.