The bond market is the great innovation that distinguishes western capitalism from previous economic systems.
Bonds issued by Renaissance Italian city states, such as the prestanze of Florence or the Venetian prestiti, proved to be ﬁnancial innovations of the ﬁrst order, in that they created debt securities that had the same status as traditional ﬁxed property. In time they came to be called ‘mobile property’ (as in the later French innovation of credit mobilier).
The initial issuer had to have the power to compel uptake of the bond issue (as in the ﬁrst cases, where the bonds were a form of tax) or the sovereign status to inspire conﬁdence that an assurance of paying ﬁxed interest for a period of years would be guaranteed.
Eventually the bond market expanded to accommodate issues from private ﬁrms (debentures) backed by the reputation and market strength of leading merchant banks (like Barings in London, or Goldman Sachs in New York) which acted as their underwriters.