Rent Dissipation or Government Predation? The Notes Issuance Activity in Italy 1865-1882
The aim of the paper is to examine the hypothesis of rent dissipation in the case of the Italian banking system during the suspension of gold convertibility. The major bank of the new born state of Italy – the Banca Nazionale nel regno d’Italia – experienced over the period 1866-1881 a decrease in its profitability inconsistent with the suspension of convertibility exclusively granted to its notes until 1874 but consistent with rent-seeking activity. The Banca Nazionale d’Italia was giving up present profit in order to maximize its chance to get the monopoly over money issue. Under these circumstances the rent seeking cost is not represented by the bribes offered to civil servants but by the forgone profit borne by shareholders. The complex relationships between banks and government in order to capture the benefits of seignoriage lead to a rent seeking game with evolving rules. The government changed the rules, and adopted an opportunistic behavior.
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