Kitabı oku: «El sistema financiero a finales de la Edad Media: instrumentos y métodos», sayfa 3

FOREIGN INVESTMENT IN PUBLIC DEBT IN THE NORTHERN LOW COUNTRIES, FIFTEENTH TO SIXTEENTH CENTURIES

Jaco Zuijderduijn Lund University

I

For many historians, polities’ capacity to borrow was crucial for the development of financial markets. Polities were usually among the most important borrowers in financial markets, and it has also been suggested they provided the investing public with a relatively safe haven for their savings. However, few studies have been able to establish how big the attraction of public debt was, and what effect this had on the redistribution of savings in emerging financial markets. This article asks to what degree public debt created by late-medieval polities helped to move savings from one place to another, and thus helped to bring together the supply of savings, and the demand for loans. To this end we focus on the geographic spread of creditors of several towns, and demonstrate how these towns managed to borrow from both citizens and non-residents. Late-medieval towns were not only active in local markets, but also had access to financial markets in their surroundings, and even those abroad. In theory such access to various financial markets should have brought about price convergence. To study whether this was the case, we also look at the interest rates polities paid on their public debt. Interest rates were quite similar, both towns, and even between towns and villages, which suggests that most polities had reasonably good access to at least several financial markets.

Interest rates on public debt gradually converged from 1300-1800: S.R. Epstein demonstrated a decline in interest rates in several regions of Europe, and more importantly, a convergence between these regions.¹ This would suggest the existence of structures that in the long run helped to smooth spatial differences in supply and demand of savings. To be sure: why interest rates declined is still debated. Some scholars have suggested that this was due to an increase in coins per capita, at first because of depopulation in the wake of the Black Death,² later because of improvements in silver production and due to increased mining activity in Central Europe, and the America’s after 1492.³ Others, following the seminal article by Douglass North and Barry Weingast on the English financial revolution, have claimed that interest rates could drop because improvements to the institutional framework of financial markets caused a reduction of risks and/ or the gradual integration of markets. Later, North even claimed that the level of interest rates is altogether the best indicator for the development of market structures.⁴ In this respect, some have also pointed at the gradual integration of financial markets, for instance due to the emergence of monetary unions.⁵ The latter views all assume savings were moved around more efficiently due to improved market structures.

A recent contribution to the latter strand of literature is David Stasavage’s study States of credit. Size, power and the development of European polities. Stasavage discusses one of the major puzzles of financial history: why did medieval city states and towns manage to borrow at lower cost than territorial states? He argues that the latter suffered from what we might call «diseconomies of scale»: due to large distances, it took relatively long to organize a meeting of the representative bodies responsible for debt management. In city states and towns, this could be done much faster, causing representatives to meet much more frequently. This allowed them to keep a close eye on public finance, which according to Stasavage made lending to city states and towns less risky. As a result these could borrow more and at better conditions than territorial states. Representatives of city states and towns also had a good reason to monitor public finance because they themselves were often major investors in public debt. These stakeholders thus had incentives to attend council meetings, and due to the low distances they had to cover, they could do this without much trouble. Stasavage’s main example is the General Council of Siena, which in the thirteenth century was also known as «Council of the Bell» because its members could simply be assembled by chiming a bell.⁶ Public finance, in Stasavage’s study, was a strictly local affair: polities borrowed from their citizens, investors lent to their city state or town. This may have been usual in polities such as Italian city states, where investing in public debt (via the so-called Monte loans) either was a privilege of citizens, or a duty weighing upon the wealthiest inhabitants, who were forced to lend.⁷ Under such circumstances the group of creditors indeed coincided with citizens. However, this was not at all the case in the late-medieval Northern Low Countries, where towns also borrowed from foreigners living out of town, and often even outside the province. Here, financial markets allowed for savings to be moved around, from places where supply was high, to places where demand was high.

Such «foreign investment» is important for our understanding of polities’ access to credit, and hence the way they were able to position themselves in negotiations with rulers. Since there were always far more savings available outside a polity than inside, a polity that was able to convince «foreign» savers to invest in its public debt could improve its political position. In doing so it might even achieve a comparative advantage over its competitors: the ability to borrow money from abroad may have allowed relatively small polities to match the financial muscle of larger polities. In this way the capacity to create public debt can be linked to processes of state formation: according to Charles Tilly access to financial markets allowed polities to negotiate rulers’ demands, and to receive privileges in return for funding.⁸ Also, polities’ access to financial markets has been regarded as a driving force in altering relations between rulers and subjects, and the emergence of supra-local institutions, such as parliaments where various polities cooperated in negotiating with rulers.⁹ To understand why over time some polities expanded, overtaking others in the process, it is important to look at to what degree they managed to attract «foreign funds» –and at what cost they did this–.

This article investigates to what degree financial markets in the late-medieval Northern Low Countries helped to move savings around from one polity to another. It also asks whether it feasible that this contributed to the gradual convergence of interest rates, by smoothing supply and demand. We will demonstrate that a considerable part of the creditors of towns in the Northern Low Countries consisted of «foreigners», and that these foreigners were usually among the more important investors in public debt. These were not citizens who could exercise direct control over their investments via participation in representative councils. Yet, they lend handsome sums of money to foreign public bodies at relatively low interest rates. This finding suggests that apart from the mechanism Stasavage described, and that allowed for investment by members of a polity, there were others in the late-medieval economy allowing for «foreign investment». These will be discussed in section II, providing an overview of the financial instruments used to move savings around, and the market structures that allowed for this. Next we proceed by studying foreign investment by looking at the geographic distribution of investors in public debt of the towns of Leiden in Holland (in the west of the present-day Netherlands), Groningen in the Ommelanden (in the northeast) and Nijmegen in the duchy of Guelders (in the east) (section III). We then proceed with the question of the efficiency of markets: did this moving around of savings contribute to price convergence? To get an impression of this we look at interest rates on the public debt of hundreds of towns and villages in Holland, in 1514 (section IV).

II

In the middle ages sovereigns, such as the kings of England, frequently borrowed large amounts, thereby relying on the services of Italian bankers. Rulers in the Low Countries did the same, borrowing not only from bankers but also from family members, fellow royalty, noblemen, and towns.¹⁰ However, besides this international system of «high finance» there were other ways to move money around, such as through the issuing of public annuities. Since the thirteenth century towns and villages in much of the Low Countries sold life annuities and redeemable annuities. Life annuities provided the buyer with a pension to be paid for the remainder of his or her life, redeemable annuities had to be paid until the principal was repaid, which was at the discretion of the seller. These annuities emerged in the North of France in the thirteenth century and quickly became a major type of funding in Northwest Europe.¹¹ They allowed creditors to lend their savings to debtors on the payment of an annual premium that we today would call interest.¹² In the late Middle Ages these became the instrument of choice of public bodies in the Northwest of Europe: in the Low Countries, the North of France, and the German Empire, towns and villages «borrowed» by selling life annuities and redeemable annuities.

Although annuities were important in redistributing of savings, there were other techniques available in the late Middle Ages as well: money was moved around via networks of moneylenders, itinerant merchants used financial techniques such as the bill of exchange, and there emerged early banking institution –such as the Monte dei Paschi di Siena, founded in 1472–. This was also a time of expansion of financial markets: instead of having money lay idle, savers began to invest, causing money to be reallocated in a more efficient way.¹³ However, the redistribution of savings was not self-evident, as it could be severely hindered by usury laws, prohibiting the taking of interest, and thus interfering in processes of price making. Initially usury legislation seems to have been quite harsh in the Low Countries.¹⁴ However the introduction of annuities probably gave an impulse to the redistribution of savings because the Church did not regard these as usurious: pope Innocent IV already sanctioned annuities in 1252.¹⁵ Since these instruments obviously allowed for the circumventing of usury laws, some theologians continued to question whether annuities should be allowed. Until the fifteenth century several popes spoke out on the subject; all sanctioned annuities.¹⁶

Annuities became a generally accepted financial instrument in the later middle ages. But still, taking high interest rates, even by means of selling annuities, was considered usurious, and authorities sometimes applied price ceilings participants in financial markets were not to exceed. Particularly emperor Charles V (r. 1515-1555) was quite active in this respect, setting the maximum interest rate at 12 % per year in 1540.¹⁷ These maximum interest rates had little effect in practice though, because they were set well above the premiums that were usually paid in financial markets, about 5 % to 6 % for redeemable annuities (table 1) and c. 10 % for life annuities. Thus, the interest rate ceiling did not interfere with pricing.

TABLE 1

Public debt in Holland in 1514 (annuities, in guilders of 20 stuivers)

Source: Informacie, author’s calculations.

Yet, not all public debt was issued through the market: forced loans were not unheard of in the area under investigation here, the Northern Low Countries, where cash-strapped towns occasionally forced wealthy subjects to buy annuities. But based on our sources, it seems that towns only did so in emergency situations.¹⁸ Moreover, a glance at map 2 makes clear that public bodies also sold annuities to foreigners, who could not be forced to buy in any way. It therefore seems that the market was the most important instrument used to create public debt.

So, by the later Middle Ages, in the Low Countries there were only few obstructions to the redistribution of savings through the market. How did towns find savers and negotiate interest rates? To cut costs and reduce risks, they usually preferred to sell annuities to inhabitants and people living nearby.¹⁹ Only when their demand for savings exceeded local supply, they turned to large towns in their surroundings and abroad, using brokers to investigate possibilities to sell annuities. Thus, in 1413 the town government of Leiden met with a broker, who apparently advised them to enter capital markets in Brabant. Next, the town sent representatives to Antwerp to sell annuities.²⁰ How they proceeded in Antwerp is unknown, but again it seems likely that they made use of the services of local brokers.²¹ Representatives of towns usually entered financial markets with a mandate to sell annuities at a certain interest rate, which was probably based on earlier communications with brokers. When they did not manage to sell sufficient annuities at this interest rate they simply could improve their offer. When the government of Leiden found out, in 1472, that demand for life annuities at interest rates of 10 % (one life) and 8,5 % (two lives) was low, it reacted by offering inhabitants of Leiden resp. 11,1 % and 9,1 %.²² In other instances we also encounter price making: some elderly people looking to buy life annuities from Leiden managed to negotiate higher interest rates –presumably to compensate for their low life expectancy–.²³ A claim by the large village of Noordwijk also hints at the adjustment of interest rates to sell annuities: the village claimed to have offered interest rates as high as 16,7 %, 20 % and even 25 %, but did not manage to find buyers, presumably because of a lack of creditworthiness.²⁴ Further evidence of price making is presented in figure 2, which will be discussed in more detail later in the text. Towns and villages sold redeemable annuities at interest rates ranging from 4,8 % to 12,5 %, although by far the most were sold in the range of 5,6 % to 6,7 %.²⁵ This range of interest rates also confirms that sovereigns did not yet impose maximum interest rates at levels that interfered with market prices: there was ample room to negotiate interest rates acceptable to creditors and debtors.

The interest rates presented here are nominal interest rates. They are likely to reflect the risk of inflation and currency manipulation. Apart from this interest rates consist of a) compensation for the time the creditor cannot use the money, b) a premium that reflects the expected increase of overall expected income, and c) a default risk premium.²⁶ Considering that Holland was in a monetary union with the regions of Flanders, Brabant and Zeeland in this period, the risk of inflation was more or less the same everywhere in large parts of the Low Countries. In theory the default risk premium may have varied from one public body to another: as explained earlier, towns that had earlier defaulted on annuity payments and therefore lacked creditworthiness, had to offer higher interest rates to investors. Their «credit rating» is thus likely to have affected pricing, although it must be added that towns that had reneged usually did not succeed in selling any more annuities, or stopped borrowing altogether.²⁷

Another element that determined default risk was the institutional framework of financial markets. How much expenses could a creditors expect to make when trying to enforce interest payments from reneging towns? Towns usually secured annuities relying on a community responsibility system that allowed creditors to hold all inhabitants liable for defaults.²⁸ In theory this may have meant that lending to large towns was less risky than to small towns and villages: the community responsibility system depended on the number of liable subjects frequenting the creditor’s residence. For the latter, the chances of encountering an inhabitant liable for public debt was greater in the event they had invested in the public debt of a large town with a substantial group of itinerant merchants. In practice creditors will therefore have selected debtors based on the probability that they would be able to hold someone liable –hence the relatively limited geographical scope of village debt and the much larger scope of urban debt, an issue that will be discussed further on–.

III

Our first exercise concerns the spatial distribution of investors in urban public debt. Our sample is based on three towns for which an elaborate administration of public debt has been preserved –including the residences of creditors–. The latter information is scarce: towns generally kept a good administration of their public debt, but many usually sufficed with listing the names of their creditors, and the interest they were due. Town accounts of Leiden, Groningen and Nijmegen do provide such information though (map 1).

Leiden was one of the main towns of the county of Holland. It was well known for its textile production, and had a population of c. 10.000-15.000.²⁹ Leiden stands out as one of the few towns that allows us to investigate the spatial distribution of public debt over a longer period of time. Although the town’s accounts go back to 1390, the first to offer an overview of the residences of creditors is from 1434. By that time the town government had apparently realized that a more thorough recording of public debt was necessary to prevent any errors in annuity payments, which were easily made considering the number of annuities Leiden owed.³⁰ Apart from the account of 1434, we have sampled accounts from 1449, 1500 and 1548.³¹

Figure 1 gives the spatial distribution of the town’s public debt. The figure shows that Leiden initially paid out the greatest part of annuities to its inhabitants: in 1434 these were worth no less than 8.541 guilders out of a total of 10.059 guilders (85 %). However, this figure dropped over time, to 54 % in 1449, and 31 % in 1500, when Leiden had come to rely more on funding coming from out of town. By 1548 the proportion of creditors from Leiden had increased again to almost 50 %.

FIGURE 1

Geographic dispersion of creditors of Leiden (15^th-16^th centuries)

Source: J. Zuijderduijn: Medieval capital markets, p. 178.

Several things are worth discussing in depth. Initially the majority of foreign funding came from the Duchy of Brabant, to the Southeast of Holland. In 1434 the value of annuities Leiden was due in Brabant was 1207 guilders (12 %), and this share more or less stayed the same over time, peaking at 18 % in 1500. Foreign funding coming from Brabant is in line with the the prominence of financial markets in the Southern Low Countries. A wealthy area, in Brabant supply of savings was probably much higher than in Holland, and it seems that Leiden had little trouble selling annuities over there. The almost complete absence of creditors from equally wealthy Flanders is a bit puzzling though.

A second thing that stands out is the increasing importance of financial markets outside Leiden, but within the county of Holland. The value of annuities Leiden was due elsewhere in Holland rose from an almost negligable 33 guilders in 1434 to 2528 guilders in 1449. The town entering financial markets elsewhere in Holland went hand in hand with a gradual diversification: in 1449 creditors from Holland lived in main towns Dordrecht, Haarlem, Delft, Amsterdam and Gouda, in The Hague, and also in Noordwijk, a rather large village to the Northwest of Leiden. In 1500 creditors were also to be found in Rotterdam and a number of small towns and villages (map 2). Finally in 1548 the spatial dispersion had again declined, probably due to the fact that Leiden sold fewer annuities in the sixteenth century, due to severe financial problems that resulted in a low credit rating,³² and also because of the emergence of provincial debt after 1515, causing the representative council (Staten van Holland) to start selling annuities on behalf of the towns of Holland.³³

MAP 1

Map of the late-medieval Low Countries

Initially Leiden did not sell many annuities in other provinces of the Northern Low Countries: in 1434 and 1449 the town only owed annuities in the town of Utrecht, in the Nedersticht, located to the East of Holland. Utrecht was the largest town in the Northern Low Countries at the time. In 1500 Leiden had also entered financial markets elsewhere in the Northern Low Countries, having sold annuities in smaller towns and villages in Nedersticht and Oversticht (to the Northeast of Holland). Also, the town owed annuities in Zeeland, to the South. Alltogether the accounts of Leiden suggests that spatial dispersion of public debt increased in the later middle ages: initially most annuities were owed in Leiden, and some in Brabant. Later the share of inhabitants of Leiden decreased, giving way to funding coming from Holland, and eventually also other provinces of the Northern Low Countries. Leiden’s public debt was particularly diversified in 1500 when creditors lived in many towns and villages in Holland and other parts of the Northern Low Countries (see map 2); evidence from other towns in Holland, Haarlem and Gouda, indicates a similarly large spatial dispersion of investors in public debt around 1500.³⁴

MAP 2

Geographic dispersion of foreign public debt of Leiden (1500)

To get an impression of the integration of capital markets elsewhere in the Northern Low Countries, we have gathered some evidence from two towns, Groningen, in the Northeast, and Nijmegen in the East (map 1). Groningen had about 12.500 inhabitants in the mid-sixteenth-century. Even though its public debt was quite modest compared to that of Leiden, yet it was geographically diversified. In the city accounts the magistrates distinguished annuities they had to pay out in the province of Groningen and outside. For instance, in the account of 1535-1536 the magistrate paid 36 annuities within Groningen and 34 outside. Foreign creditors came from places like Kampen, Hamburg and Cologne and the same goes by and large for the account of 1548 (42 inside and 37 outside). Also, in both years annuities paid outside Groningen were much more valuable than those paid inside.³⁵

The public debt of Nijmegen, a town of 10.000-12.000 inhabitants in the mid-sixteenth-century, was less spatially diversified: in 1543 the town paid 60 annuities to inhabitants and 16 to foreigners. Once again, foreign annuities were much more valuable than domestic annuities. Creditors lived in Kampen, Cologne, Duisburg and Venlo among others. These two examples indicate that the credit networks of Nijmegen and Groningen may have been less elaborate than those of towns in Holland. Yet, these towns did rely on foreign capital markets, particularly those in the Northwest and West of the German Empire.

IV

The development of the public debt of Leiden, Groningen and Nijmegen suggests that financial markets helped to redistribute money, from savers looking for investment opportunities, to towns looking for foreign funding. They did this on a local, regional, and interregional level. This finding begs the question to what degree late-medieval financial markets contributed to a more or less efficient reallocation of savings. Although difficult to answer, the question of efficiency is crucial for understanding markets, since these are supposed to bring together supply in demand in such a way that prices converge, and «pockets» where prices are either relatively high or low disappear. To get an impression of «efficiency» we will use a dataset based on a large government survey taken in Holland in 1514, inquiring amongst other things into the public debt towns and villages had created.

In 1514³⁶ Maximilian I (regent 1482-1494, 1506-1515) ordered government agents to investigate into the wealth of towns and villages, in order to come up with a new distribution code for taxation. In Holland the provincial government was not entitled to tax its subjects individually. Instead, the central government ordered each community to pay its share, based on a distribution code, and next local governments taxed its citizens or villagers.³⁷ The government agents talked to representatives of towns and villages and questioned them about the number of inhabitants, the economic situation and the way they usually levied taxes. They also asked about the financial situation, about revenues and expenses, and loans local governments had contracted: which type of loans, under what conditions these had been contracted, when and why.

The investigation has been preserved in a document called Informacie. Since Robert Fruin edited this source in 1866 many historians have used it in research into late-medieval Holland. Some questioned its credibility, pointing out that town and village representatives probably tried to make things look worse than they were in order to get a lower taxation, while others deemed the source to be reliable enough.³⁸ It is certainly so that some representatives of towns and villages overacted, complaining about the horrors of war and natural disaster. And even though they were questioned under oath, some representatives even made false statements. However, fraud seems to have been restricted to statements about the landed property of the villagers.³⁹ This is hardly surprising because landed property was one of the main elements, if not the main element, the distribution code would be based on. The data regarding public debt probably had a much smaller effect on the new distribution code.