Back to the Future

• Author: Alexandre Chailloux
• Position: Assistant to the director, IMF Statistics Department
• Pages: 58-58

58 FINANCE & DEVELOPMENT | June 2019

BOOK REVIEWS

Philip T. Hoffman, Gilles Postel-Vinay

and Jean-Laurent Rosenthal

Dark Matter Credit: The

Development of Peer-to-

Peer Lending and Banking

in France

Princeton University Press,

Princeton, NJ, 2019, 320 pp., $39.95

Back to the Future

PEERTOPEER LENDING, information net works,

collateralize d loans, and shadow bankin g sound

like financial innovations that flourished only on

the heels of the digital re volution. But Philip T.

Hoffman, Gilles Postel-Vinay, and Jean-Laurent

Rosenthal show that, contra ry to traditional eco-

nomic thinking , peer-to-peer lending (or banking

without banks) dominated credit market s in 17th

century France. One-third of French households

used this ty pe of credit in 1740. By 1840, peer-

to-peer-originated mortgage cred it in France was

as large as mortg age credit in America in 1950 as

a share of GDP.

is book, based on a new data se t of French

regional notarial a rchives spanning centuries,

shows how credit originated long before bank

networks had a meani ngful presence outside

of Paris and other large cities. W hile banks

focused on financing high-wealth individuals

and merchant activities in citie s, public notaries

in France were the backbone of development of

peer-to-peer lending. Owing to regul ations dating

back to the Middle Ages a nd the population’s low

literacy level, public notaries in France drew up

most marriage contracts, certified land sa les, and

served as fisca l agents in a variety of private trans-

actions. Notaries were able to collect la rge amounts

of information on the wealth of their customers.

is insight into potential borrowers’ and lenders’

financial hea lth supported an active loan brokering

role among individuals that dominated credit in

the mortgage market. It is only when the French

government in the second half of the 19th centur y

decided to boost mortgage lending by granting

state guara ntees to a nationwide institution (named

Crédit Foncier) that peer-to-peer mortgage lending

started to recede a s a share of total lending.

is original a nd enlightening book questions

the connection between ba nk networks and eco-

nomic growth. Whi le banks play a unique role in

pooling and manag ing risk, they can price a nd

supply loans properly only if adequate information

on debtors’ creditworthiness is read ily available.

e paucity of public information on creditwor-

thiness is one reason for repeated ba nk failures

throughout the 19th century, and for notaries’

edge in matching lenders and borrowers wel l into

20th century Franc e.

e book also offers interesting polic y takeaways

for contemporary observers of financial markets.

History shows that a diversified credit ecosystem

is one way to ensure the resilience of credit in the

face of large shocks. e bo ok demonstrates in par-

ticular that t he uncertainty and hyperin flation that

bankrupted most fina ncial intermediaries in t he

first years of the French Revolution were somewhat

mitigated by the existence of t his “paleo shadow

banking sy stem” and explains why lending resumed

quickly in the first yea rs of the Napoleonic regime.

e authors also have an importa nt message

for anyone interested in financial development or

other similar topics: focusing on new, alternative

data sources may uncover visions of f uture finance

in past events.

ALEXANDRE CHAILLOUX, assistant to the director, IMF

Statistics Department