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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.

The reliability of the data on public debt the Informacie gives can be confirmed by referring to town accounts, such as those of Dordrecht. The interest rates mentioned in both Informacie and town accounts are identical, which means that the survey provides insight in sale conditions, and does not reflect any changes made to contracts afterward.⁴⁰ Furthermore, it has become clear that government agents, during their investigation in 1514, also required representatives of towns to back up their statements with evidence in writing. Even though some town magistrates sometimes showed little enthusiasm to hand over documents such as town accounts, they usually cooperated. It was more difficult to get village governments to present evidence in writing because few villages seem to have kept financial records. Only in one case we have been able to compare the data the Informacie gives with village accounts. The representatives of the large village of Noordwijk claimed they paid an interest of 31½ guilders, and the village accounts support their statement.⁴¹

What does the Informacie reveal about public debt? By 1514 all towns of Holland had created public debt, having sold life and redeemable annuities. Moreover, 60 % of the villages of Holland had done so as well. This public debt was mainly created during the period 1477-1514, during a period of increasing financial pressure due to ongoing state formation and war efforts by the Dukes of Burgundy –in particular Charles the Bold (r. 1467-1477) and Maximilian I. Faced with ambitious rulers, towns and villages used most of the principals to be able to pay taxes and war expenses. In contrast, only a small part of the funds went to such causes as public works.⁴²

Table 1 gives an overview of the annuities towns and villages had to pay out every year. The main towns of Holland were most heavily indebted: the burden of annuities per capita was 2,26 guilders. In other words: here every inhabitant contributed 2,26 guilders –presumably via taxation– to interest payments. In Holland’s many smaller towns the per capita contribution was much lower, at 0,79 guilders. This difference is most likely the result of the main towns increasingly being used by the rulers to gain access to financial markets: the towns thus sold annuities on behalf of the rulers because the latter lacked creditworthiness. The rulers did not use smaller towns to such ends, let alone villages: the latter’s public debt was on average 0,21 guilders per capita.

The Informacie provides detailed information of the interest rates towns and villages paid on annuities –i. e. of the prices they paid in financial markets–. We have decided to focus on redeemable annuities, and to disregard life annuities: pricing of life annuities is likely to have been based in part on the age of the beneficiary and hence the number of years he could be expected to live. Since data on ages is not given in the Informacie, interest rates on life annuities cannot be used as an indicator for pricing. However, our source does give 282 interest rates public bodies paid on redeemable annuities. Most redeemable annuities (219 out of 279) carried an interest rate between 5,6 % and 7,1 %. A rate of 6,25 % was most common (80 of 279 observations).

Based on the data presented in table 1 and figure 2 it seems that towns had better access to financial markets than villages. First of all, the main towns paid on average 6,3 %, the small towns 6,4 %, and the villages 6,5 %. Second, towns rarely paid more than 7,1 %: as we have seen in section III, this may be due to the towns’capacity to participate in various financial markets, in Holland and abroad, and thus being able to pick out markets where prices were low. The highest interest rate paid by a town was 8,3 % by Dordrecht, on annuities sold between 1472 and 1490.⁴³ It is difficult to explain why this town would have paid higher interest rates than the other large towns, but it may have had something to do with the deterioration of Dordrecht’s financial situation after the 1460’s.⁴⁴ Under such circumstances Dordrecht would have had increasing problems selling annuities at favorable interest rates.

FIGURE 2

Premiums on redeemable annuities (1514; N=279)

Main towns: Dordecht, Haarlem, Delft, Leiden, Gouda, Amsterdam. Small towns: Beverwijk, Alkmaar, Hoorn, Enkhuizen, Medemblik, Edam, Monnikendam, Naarden, Weesp and Weesperkerspel, Muiden, Purmerend, Woerden, Oudewater, The Hague, Vlaardingen Gravenzande, Schoonhoven, Gorinchem, Heusden, Rotterdam, Schiedam, Geertruidenberg, Asperen, Heukelum.

Towns rarely paid interest rates below 5,6 %. The outliers in our dataset –annuities carrying premiums either below 5,6 % or above 7,1 %–, had generally been sold by villages (46 of 60). This difference may well be due to towns selling annuities in large financial centers, where they competed with others in attracting investors, and where investors likewise competed amongst each other, the result being price convergence. Apparently villages generally operated on a smaller scale: they did not explore several financial markets, but would usually have tried to sell an annuity to a fellow villager, or to an inhabitant of the nearest village or town. They operated in a limited number of localities, which could also be fairly isolated: this sometimes yielded them favourable premiums, but could also force them to accept high interest rates.

To be sure: not all villages found buyers for their annuities: several complained they lacked credit during the interrogation in 1514. Thus, when Hilversum, to the Southeast of Amsterdam, did not manage to increase its public debt, the villagers were forced to increase their private debt. In their own words:

Say that they, for a lack of credit, were unable to sell any more annuities as a village community, forcing the villagers to sell 100 guilders worth of annuities, which they mortgaged on their houses and land.⁴⁵

It turned out that creating public debt, using as a security a community responsibility system to make all inhabitants liable for annuity payments, was impossible for Hilversum. A solution was found in having well-off villagers selling annuities on collateral of their privately owned land. This example makes clear that access to financial markets was not at all evident for villages; it also underscores the pricing mechanisms that ultimately priced Hilversum –and quite a few other villages– out of the market.⁴⁶

For our understanding of the functioning of financial markets, it would be interesting to know to what degree regional differences existed. When we take a closer look at the premiums paid by towns (figure 3), we see that differences were relatively low in the North and centre of Holland. In the only large town of the South, Dordrecht, premiums show greater diversity, varying from 6,7 % to 8,3 %. Dordrecht’s average interest rate was relatively high at 7,1 %, whereas averages in the North (6,7 %) and centre (6,1 %) were lower.

FIGURE 3

Interest rates on redeemable annuities main towns (1514)

North: area above river IJ, no large towns. Center: area between river oude Maas/ Merwede and river IJ, large towns Haarlem, Delft, Leiden, Gouda, Amsterdam. South: area below river oude Maas/ Merwede, large town Dordrecht.

There were few differences between large and small towns: in the North all towns were small and interest rates did not differ much. In the centre the large towns Haarlem, Delft, Leiden, Amsterdam and Gouda in general paid interest rates ranging from 5,6 % to 6,3 %. They were somewhat better off than the small towns, which in general paid interest rates ranging from 5,3 % to 6,7 % (figure 4). Dordrecht, the only large town in the South, paid relatively high interest rates compared to small towns in this region.

When we take a look at the premiums paid by villages in different regions of Holland, it seems that differences were relatively low in the centre, and somewhat higher in the South (figure 5). In the North we clearly encounter the largest differences. This is the region above the River IJ, which was less urbanized than the other regions; Hoorn (3.600 inhabitants), Alkmaar (2.800) and Enkhuizen (2.300) were the largest towns.⁴⁷ These were small towns; Holland’s six main towns, which all lay below the River IJ, had about 7.000 to 10.000 inhabitants.

FIGURE 4

Interest rates on redeemable annuities small towns (1514)

North: Alkmaar, Hoorn, Enkhuizen, Medemblik, Edam, Monnikendam, Beverwijk, Naarden, Weesp, Muiden, Purmerend. Center: The Hague, Woerden, Oudewater, Vlaardingen’s Gravenzande, Schiedam, Vlaardingen, Rotterdam. South: Gorkum, Asperen, Heukelum, Arkel, Heusden

FIGURE 5

Interest rates on redeemable annuities 1514 (all villages)

There are several reasons to assume that the low level of integration in the North had much to do with the absense of large towns: the availability of money in large urban economies is likely to have been superior, and wealthy elites in large towns were more likely to invest their savings in financial markets. But it is also possible that this part of Holland was poorly integrated with the economy of the rest of the county.⁴⁸ Direct evidence for the latter idea comes from the villagers of Petten, in the far north of Holland, who claimed in 1514 not to have sold annuities «because their remote location and poverty reduced their creditworthiness».⁴⁹

In sum: participants in financial markets negotiated premiums on redeemable annuities ranging from 5 % to 10 %. However, most annuities by far were sold at interest rates around 6 % to 7 %. Interest rates were usually quite similar, in large and small towns and in the countryside. Villages in the North seem to have had most trouble gaining access to capital markets: here we encounter a wide range of premiums paid by villages. The low variation in interest rates seems to indicate that financial markets functioned quite well in the centre and South of Holland: they connected supply and demand in a way that prevented the emergence of «pockets» where premiums were either relatively high or low. The exceptance was the North of Holland, where interest rates show a much greater volatility, presumably due to a low level of urbanization and economic integration with the rest of Holland.

V

At the end of the late middle ages financial markets in Holland brought people looking to invest their savings in contact with public bodies looking for funding. They did so on a local, regional and interregional level. Towns could be particularly successful in attracting savings from foreigners: a considerable share of the public debt Leiden, Groningen and Nijmegen created was contracted with people from out of town, and often even from outside the province. In Holland only small differences in interest rates existed between large towns, small towns and villages: except for the north of Holland there is little evidence for the existence of «pockets» where interest rates were either very high or very low. For the rest financial markets thus appear to have been quite efficient in bringing together supply and demand.

To what degree there was already a certain degree of integration of financial markets is difficult to determine. The absence of pockets in the largest part of Holland might point in this direction, but on the other hand we are unaware of how quickly financial markets reacted to interest rates fluctuations elsewhere.⁵⁰ Still, it may be useful to dwell a little upon the subject of market integration. First of all, it does not seem unreasonable to ascribe the small range of interest rates we encountered in Holland to the network of brokers towns used to create public debt. These provided towns with information on where to sell annuities abroad. It could well be that these networks helped to reallocate savings in a more-or-less efficient way and thus reduced price volatility. The credit networks of smaller towns and villages may have functioned in the same way, but probably more on a regional than interregional level.

The role polities’ demand played in reallocating savings in late-medieval societies may help to remind us of the importance of political economy in pre-industrial societies. The state often was the main force behind macro-economic phenomena, whereas private initiatives did not yet have a comparable impact.⁵¹ Yet, there also was a more intricate and complex relation between public debt and private enterprise, because in order to create interregional public debt, polities depended on community responsibility systems that were tied to trading networks. Interregional public debt was possible because towns made all inhabitants liable for default; this means that their creditors predominantly derived security from the possibilities they would have to apprehend a merchant from the polity they had lend to. Therefore supra-local public debt followed existing trading networks. As a result, financial markets could not exceed trading networks, and possibilities for expansion were limited.⁵² Or, to return to the towns and villages in the north of Holland: assuming these were indeed poorly integrated in the county’s economy, it is easy to see that this severely reduced their possibilities to attract foreign funding. Our study suggests alternatives existed to the mechanism David Stasavage described. Where demand for public debt was not met by the local investing public, authorities had to look for foreign investors. Using the community responsibility systems governments of less wealthy polities managed to tap into foreign savings. They thus used financial markets for what they ideally ought to do: to allow local governments looking for funding to exceed local supply.

¹ Stephan R. Epstein: Freedom and growth. The rise of states and markets in Europe, 1300-1750, London / New York, Routledge, 2000. Cf. the decline in interest rates Stephen Broadberry, Sayantan Ghosal & Eugenio Proto: «Commercialisation, Factor Prices and Technological Progress in the Transition to Modern Economic Growth», Warwick economic research papers, 852 (2008); Gregory Clark: The Interest Rate in the Very Long Run: Institutions, Preferences and Modern Growth (working paper 2005); Ian Blanchard: «International Capital Markets and their Users, 1450-1750», in Maarten R. Prak (ed.): Early Modern Capitalism. Economic and Social Change in Europe, 1400-1800, London, Routledge, 2001, pp. 107-124; Sidney Homer & Richard Sylla: A history of interest rates, Hoboken, John Wiley & Sons, Inc., 2005 (4^th edition).

² Jan Luiten van Zanden: The long road to the Industrial Revolution. The European economy in a global perspective, 1000-1800, Leiden / Boston, Brill, 2009; I. Blanchard: «International Capital Markets»; Donald N. McCloskey & John Nash: «Corn at interest: the extent and cost of grain storage medieval England», American Economic Review, 74 (1984), pp. 174-187; Michael M. Postan: The medieval economy and society, London, Weidenfeld and Nicolson, 1972.

³ John Munro: The Monetary Origins of the «Price Revolution»: South German Silver Mining, Merchant-Banking, and Venetian Commerce, 1470-1540 (Working paper Department of Economics and Institute for Policy Analysis University of Toronto, 1999); Ian Blanchard: «English royal borrowing at Antwerp, 1544-1574», in Marc Boone & Walter Prevenier (eds.): Finances publiques et finances privées au bas moyen âge. Actes du colloque tenu à Gand les 5 et 6 mai 1995, Louvain / Apeldoorn, Garant, 1996, pp. 57-71; Hans-Peter Baum: «Annuities in late medieval Hanse towns», Business History Review, 59 (1985), pp. 24-48.

⁴ Douglass C. North & Barry R. Weingast: «Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England», The Journal of Economic History, 49 (1989), pp. 803-832; Douglass C. North: Institutions, institutional change and economic performance, Cambridge, Cambridge University Press, 1990, p. 69; Stephan R. Epstein: Freedom and growth, pp. 61-62. Clark, however, has suggested that the decline was due to changes in the «time preference» of people, who came to prefer saving over spending over time (G. Clark: The Interest Rate).

⁵ I. Blanchard: «International capital markets». Cf. monetary unions in the German Empire: Oliver Volckart & Lars Boerner: «…darumb als dann die Bequemikeit eyner einigenn Muntz sich manigfaltig erzeigen mocht…. Spätmittelalterliche Währungsunionen und ihre Folgen», Bankhistorisches Archiv. Zeitschrift für Bankegeschichte, 33 (2007), pp. 103-123.

⁶ David Stasavage: States of credit. Size, power and the development of European polities, Princeton, Princeton University Press, 2011, p. 14.

⁷ Anthony Molho: «The state and public finance: a hypothesis based on the history of late medieval Florence», Journal of Modern History, 76 suppl. (1995), pp. 97-135; David Herlihy & Christiane Klapisch-Zuber: Les Toscans et leur familles, p. 251; William M. Bowsky: The finance of the commune of Siena 1287-1355, Oxford, Clarendon Press, 1970, pp. 189-191, 199-200, 223-224.

⁸ Charles Tilly: «Entanglements of European cities and states», in Charles Tilly & Wim P. Blockmans (eds.): Cities and the rise of states in Europe, A. D. 1000 to 1800, Boulder, Westview Press, 1994, pp. 1-27, there 24.

⁹ How access to financial markets allowed polities in the province of Holland to organize themselves, has been described by James Tracy (James D. Tracy: A financial revolution in the Habsburg Netherlands. Renten and renteniers in the County of Holland 1515-1565, Berkeley / Los Angeles / London, University of California Press, 1985; idem: Holland under Habsburg rule 1506-1566. The formation of a body politic, Berkeley / Los Angeles / London, University of California Press, 1990.

¹⁰ Raymond van Uytven: «De macht van het geld: financiers voor Floris V», in Dick Edward Herman de Boer, Erich H. P. Cordfunke & Herbert Sarfatij (eds.): Wi Florens… De Hollandse graaf Floris V in de samenleving van de dertiende eeuw, Utrecht, Matrijs, 1996, pp. 212-223.

¹¹ John H. Munro: «The medieval origins of the financial revolution: usury, rentes, and negotiability», International History Review, 25 (2003), pp. 505-562; James D. Tracy: «On the Dual Origins of Long-Term Urban Debt in Medieval Europe», in Marc Boone, Karel Davids & Paul Janssens (eds.): Urban Public Debts. Urban governments and the market for annuities in Western Europe (14^th-18^th centuries), Turnhout, Brepols, 2003, pp. 13-24.

¹² Here, I will use the term «interest rate» to refer to the rate of return on annuities (purchase price/annuity). Of course, the people that contracted annuities in the late Middle Ages would have had another conception of this rate of return.

¹³ Cf. surveys: Charles P. Kindleberger: A financial history of Western Europe, 2^nd edition, New York, Oxford Universty Press, 1993, pp. 37-56; Edmund B. Fryde & Matthew M. Fryde: «Public credit, with special reference to North-Western Europe», in Michael M. Postan, Edwin E. Rich & Edward Miller (eds.): The Cambridge Economic History of Europe. Volume III. Economic Organization and Policies in the Middle Ages, Cambridge, Cambridge University Press, 1963, pp. 430-553.

¹⁴ J. H. Munro: «The medieval origins».

¹⁵ Jaco Zuijderduijn: Medieval Capital Markets: Markets for Renten, State Formation and Private Investment in Holland (1300-1550), Leiden / Boston, Brill, 2009, pp. 144-145, 252-258.

¹⁶ J. H. Munro: «The medieval origins», pp. 521-524.

¹⁷ Jules Lameere & Henri Simont (eds.): Receuil des anciennes ordonnances de la Belqique. Deuxième série. 1506-1700. Tome quatrième, Brussels, J. Goemaere, 1907, p. 235. Imperial charter of 4-10 1540 entitled «Eeuwig edict». This maximum of 12 % applied to loans contracted by merchants, and, probably, redeemable annuities. There is no evidence that the decree also applied to life annuities. For the rest of the late Middle Ages, there is little evidence of the imposition of maximum interest rates (J. Zuijderduijn: Medieval capital markets, pp. 243-244).

¹⁸ J. Zuijderduijn: Medieval capital markets, pp. 107-108.

¹⁹ Johannes Hermann Kernkamp (ed.): Vijftiende-eeuwse rentebrieven van Noordnederlandse steden, Groningen, Wolters, 1961, pp. 60-61; J. Zuijderduijn, Medieval capital markets, pp. 134-135.

²⁰ Cf. other examples of representatives of towns travelling abroad to sell annuities: J. H. Kernkamp: Vijftiende-eeuwse rentebrieven, p. 61; Jacques Cornelis van Loenen: De rente-last van Haarlem, unpublished manuscript available at the Rijksarchief Kennemerland, pp. 6-8, 10-11.

²¹ J. Zuijderduijn: Medieval capital markets, pp. 112-113. Cf. other examples of towns making use of the service of brokers: ibidem, pp. 114-115; Lambertus M. VerLoren van Themaat et al. (eds.): Oude Dordtse lijfrenten. Stedelijke financiering in de vijftiende eeuw, Amsterdam, Verloren, 1983, pp. 55-56; J. C. Van Loenen: De rentelast van Haarlem, pp. 6-7.

²² J. H. Kernkamp: Vijftiende-eeuwse rentebrieven, pp. 60-61.

²³ Ibidem, p. 61.

²⁴ J. Zuijderduijn: Medieval capital markets, pp. 172-173.

²⁵ Cf. further evidence of price making the varying interest rates Richter discovered in Hamburg and Bohmbach in Braunschweig (Klaus Richter: Untersuchungen zur hamburger Wirtschafts – und Sozialgeschichte um 1300 unter besonderer Berücksichtigung der städtischen Rentengeschäfte 1291-1330, Hamburg, H. Christians, 1971, p. 137; Jürgen Bohmbach: «Umfang und structur des Braunschweiger Rentenmarktes 1300-1350», Niedersächsisches Jahrbuch für Landesgeschichte, 41/42 (1969-1970), pp. 119-133, 131.

²⁶ G. Clark: The Interest Rate, p. 5.

²⁷ J. Zuijderduijn: Medieval capital markets, pp. 124-136.

²⁸ See Avner Greif: «Institutions and impersonal exchange: from communal to individual responsibility», Journal of Institutional and Theoretical Economics, 158 (2002), pp. 168-204; idem: Institutions and the path to the modern economy: lessons from medieval trade, Cambridge, Cambridge University Press, 2006, pp. 309-313; Lars Boerner & Albrecht Ritschl: «Individual enforcement of collective liability in premodern Europe», Journal of institutional and theoretical economics, 158 (2002), pp. 205-213.

²⁹ Piet Lourens & Jan Lucassen: Inwoneraantallen van Nederlandse steden, ca. 1300-1800, Amsterdam, NEHA, 1997, pp. 112-113.

³⁰ For instance, in 1449 Leiden had to pay out 686 annuities.

³¹ Accounts for the «round» years of 1450 and 1550 were not preserved.

³² Jaco Zuijderduijn: «De laatmiddeleeuwse crisis van de overheidsfinanciën en de financiële revolutie in Holland», Bijdragen en mededelingen betreffende de geschiedenis der Nederlanden-Low Countries Historical Review, 125-4 (2010), pp. 3-24.

³³ James D. Tracy: A financial revolution in the Habsburg Netherlands. Renten and renteniers in the province of Holland, 1515-1565, Berkeley / Los Angeles, University of California Press, 1985.

³⁴ J. C. Van Loenen: De rentelast van Haarlem; Eef C. Dijkhof: Goudse renten, unpublished manuscript available at the Streekarchief Midden-Holland; J. Zuijderduijn: Medieval capital markets, pp. 177-181.

³⁵ Petrus Johannes Blok: Rekeningen der stad Groningen uit de 16de eeuw, The Hague, S Gravenhage, M. Nijhoff, 1896, pp. 205-215, 345-353.

³⁶ The following is based on Jaco Zuijderduijn: «Village-indebtedness in Holland (15^th-16^th centuries)», in Thijs Lambrecht & Phillipp R. Schofield (eds.): Credit and the Rural Economy in Europe, c. 1100-1850, Turnhout, Brepols, 2010, pp. 39-62, 40-41. The only part of Holland not investigated was the country of Voorne and Putten. Furthermore some villages under the jurisdiction of powerful noblemen, and therefore exempt of taxation, do not appear in the source (Robert Fruin (ed.): Informacie up den staet faculteyt ende gelegentheyt van de steden ende dorpen van Hollant ende Vrieslant om daernae te reguleren de nyeuwe schiltaele gedaen in den jaere MDXIV, Leiden, Boekdr. von A.W. Sijthoff, 1866, pp. VI, XXVIII).

³⁷ R. Fruin: Informacie up den staet faculteyt, pp. IX-X.

³⁸ Both Van der Woude and Noordegraaf have used the data the Informacie provides (Adrianus Maria van der Woude: Het Noorderkwartier. Een regionaal historisch onderzoek in de demografische en economische geschiedenis van westelijk Nederland van de late middeleeuwen tot het begin van de negentiende eeuw, Wageningen, Veenman & Zonen, 1972; Leo Noordegraaf: Hollands welvaren? Levensstandaard in Holland 1450-1650, Bergen, Octavo, 1985. Van Zanden used the informacie to come up with a national account of Holland for 1510-1514 (Jan Luiten van Zanden: «Taking the measure of the early modern economy: Historical national accounts for Holland in 1510-1514», European Review of Economic History, 6 (2002), pp. 131-163.

³⁹ See for instance R. Fruin: Informacie up den staet faculteyt, pp. 149, 300. Hoppenbrouwers stressed the unreliability of the data on landed property in the informacie as well Peter C. M. Hoppenbrouwers, «Mapping an unexplored field. The Brenner debate and the case of Holland», in Peter C. M. Hoppenbrouwers & Jan Luiten van Zanden, Peasants into farmers? The transformation of rural economy and society in the Low Countries (middle ages-19^th century) in the light of the Brenner debate, Tournhout, Brepols, 2001, pp. 41-66, p. 44.

⁴⁰ Cf. R. Fruin: Informacie up den staet faculteyt, pp. 512-513; L. M. VerLoren van Themaat et al. (eds.): Oude Dordtse lijfrenten, pp. 123-127. At the end of the 15^th century some towns made adjustments to annuities, to cope with arrears. This involved lowering the interest rate of annuities. The source does not take these adjustments into account; it offers an overview of the interest rates agreed upon when annuities were sold.

⁴¹ Noordwijk Archives, inv. nr. 291 (accounts of 1513 and 1516).

⁴² Jaco Zuijderduijn: «Het lichaam van het dorp. Publieke schuld op het Hollandse platteland rond 1500», Tijdschrift voor sociale en economische geschiedenis, 5 (2008), pp. 107-132, 118.

⁴³ R. Fruin: Informacie up den staet faculteyt, p. 512.

⁴⁴ Herman W. Dokkum & Eef C. Dijkhof: «Oude Dordtse lijfrenten», in Lambertus M. Ver-Loren van Themaat et al. (eds.): Oude Dordtse Lijfrenten. Stedelijke financiering in de vijftiende eeuw, Amsterdam, Verloren, 1983, pp. 37-90, 85-86.

⁴⁵ «Seggen oock, dat, zoe zy niet gelooft en waeren meer renten up heurluyder dorp te vercoopen, zoe hebben zy upte huysen ende landen particulier gehaelt an losrenten 100 currente guldens tsjaers…» (R. Fruin: Informacie up den staet faculteyt, p. 234).

⁴⁶ This pricing mechanism is best studied in: Timur Kuran & Jared Rubin: «The Financial Power of the Powerless: Socio-economic Status and Interest Rates under Partial Rule of Law», The Economic Journal, 128 (2016), pp. 758-796.

⁴⁷ Jean Charles Naber: Een terugblik. Statistische bewerking van de resultaten van de informatie van 1514, Haarlem, Stichting Contactcentrum voor regionale en plaatselijke geschiedbeoefening in Noord- en Zuid-Holland, 1970 (reprint of edition 1885), pp. 36-37.

⁴⁸ Cf. the importance of trade relations for the institutional framework of capital markets Lance Davis: «The capital markets and industrial concentration. The US and UK, a comparative study», The Economic History Review 2^nd series, XIX (1966), pp. 255-272, 256.

⁴⁹ R. Fruin: Informacie up den staet faculteyt, pp. 164-165.

⁵⁰ Cf. Oliver Volckart & Nikolaus Wolf: «Estimating Financial Integration in the Middle Ages: What Can We Learn from a TAR Model?», The Journal of Economic History, 66 (2006), pp. 122-139.

⁵¹ Cf. Larry Neal: The rise of financial capitalism. International capital markets in the Age of Reason, Cambridge, Cambridge University Press, 1990, p. 141.

⁵² This is also more or less why the bill of exchange did not become a major financial instrument. According to L. Neal: «this lending depended on the volume and intensity of commerce between any two cities. So it was limited to merchant bankers dealing in foreign trade, and to cities in close geographical proximity that were politically friendly» (Larry Neal: «How it all began: the monetary and financial architecture of Europe during the first global capital markets, 1648-1815», Financial History Review, 7 (2000), pp. 117-140, 118.