How a Hostage Crisis in Twelfth Century Venice Led to the Birth of Government Bonds

Trumped-Up Charges, Conflict, Deceit, a Plague, and an Angry Mob

Stephen Foerster
12 min readJan 24

Imagine of medieval Venice
Ponte di Rialto en Palazzo dei Camerlenghi te VenetiëForum, Wikimedia Commons, Creative Commons CC0 1.0 Universal Public Domain Dedication

Today, we take bonds as an investment vehicle for granted. Bonds — along with stocks — are known as traditional investments because they’ve been around for many centuries. Governments borrow when current spending needs exceed current revenue. Investors tend to get steady returns. So it’s a win-win. Bonds are considered to be a relatively safe investment, particularly when the issuer is a government. Government bonds are also liquid. After a government bond is issued, there’s an active secondary market for buying or selling.

But who invented government bonds, when, and why? To answer those questions, we go back to twelfth century Venice. That’s where the precursor to government bonds, as we know them today, were issued in 1172. They were accidentally born out of necessity and failure, during a time of political strife. Our story involves trumped-up charges, conflict, deceit, a plague, and an angry mob. The birth of bonds is a happy story for today’s investors. Unfortunately, it wasn’t a happy ending for our protagonist, Doge Vitale Michiel.

Doges of Venice
Venice was established in the fifth century, around the fall of the Roman Empire. Nearby refugees flocked to its marshy islands to get away from Germanic and Hun invasions. The eastern half of the Roman Empire survived as the Byzantine Empire. In 565, Byzantine Emperor Justinian I conquered Venice and made it the westernmost post of the Byzantine Empire.

In the late seventh century, Venice was facing an internal crisis. Various family feuds and go-getting leaders from twelve different settlements had led to bloody clashes and the plundering of churches. A general meeting of Venetians was called to try to preserve the churches and maintain public order. It was proposed that all of the regions delegate powers to a chief, known as the doge, be elected for life. Except for a short six-year interruption, the Dogeship of Venice endured for eleven centuries.

The doges had immense powers. They could nominate, degrade, or dismiss all public officials. They could convoke or dissolve general meetings. They could…

Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)