Chapter 2. State Formation, Institutional Change and Markets for Public Debt
Total Page:16
File Type:pdf, Size:1020Kb
Chapter 2. State formation, institutional change and markets for public debt For his policy of expansion count Floris V already depended heavily on money he borrowed from family-members, vassals, citizens and international merchants. Such loans allowed him to raise armies to submit the stubborn Westfrisians in the North. But the count’s creditworthiness allowed for more than mere warfare: Floris was a cunning diplomat who used credit to buy castles and to receive possessories for loans. To gain influence in the Nedersticht he made use of the financial problems of Jan van Nassau, the bishop elect of the episcopacy of Utrecht. In 1277 the latter had borrowed a large sum from the nobleman Jan van Kuik, pledging the strategic castle Ter Horst. Count Floris reimbursed the nobleman and thus took over the debt and the possessory287. When the elect clashed with the Papacy over tithes collected to support the Crusades he had used for his own purposes, in 1279, Floris lend him money to restitute the money on pledge of all the Nedersticht revenues. Of course without revenues things went from bad to worse and in 1281 the electus owed Floris so much money that he had to pledge the whole Nedersticht and its revenues288. The count clearly knew how to use credit as an instrument of power: he granted pensions to his allies and arranged strategic marital contracts as well289. Both diplomacy and warfare required credit; in competition between states the ruler with the best creditworthiness was often the last man standing. Public funding is often heralded as a prerequisite for state formation. Elias regarded it as the base of the state’s monopoly of military force: public funding allowed the state to submit competitors to power. Ardent, Braun, Tilly and Genet went on to show how the pressure of war caused public funding to become more efficient, especially when competition among states increased290. But public funding did not merely strengthen the position of the ruler: it provided the public sector with bargaining power and allowed it to improve its autonomy. In the words of Molho ‘rather, center and periphery were often strengthened in tandem, in a process of mutual reinforcement that allowed the center new juridical and administrative powers but concurrently strengthened traditional freedoms that institutional and corporate bodies in the periphery had enjoyed in the past’291. In Holland the simultaneous strengthening of center and periphery was a commanding mechanism behind institutional change on the capital market. 287 That Floris used the same technique to get control of the castle of Vreeland and the fortified city of Montfoort, as Slingerland thinks, is unlikely and not supported by our sources (Slingerland, ‘Wie zal dat betalen?’ 65). 288 Cf. Floris’ financial policy regarding the Sticht Slingerland, ‘Wie zal dat betalen?’ and Hugenholz, Floris V, 60- 71. 289 Bos-Rops, Graven op zoek naar geld, 38; Slingeland, ‘Wie zal dat betalen?’, 64-67; Van Uytven, ‘De macht van het geld’, 215. 290 Molho, ‘The state and public finance’, S98-S99. 291 Molho, ‘The state and public finance’, S101. 55 Late medieval Holland was characterized by a strong public sector responsible for taxation and granting the rulers access to capital markets by creating public debt. Its pivotal position had two important consequences: first, negotiations about taxation and public debt allowed the public sector to derive political power and autonomy292. Thus government funding helped to shape the county’s societal structure. Second, increasing taxation and mounting public debt forced the public sector to pursue institutional improvement by maximizing the efficiency of its taxing-capacities and improving its access to capital markets293. This forced the public sector to take an interest in the capital market and create both negative institutions improving its own position, and positive institutions allowing for the functioning of the capital market. In this chapter I will show how growing demands in the field of government funding helped to increase the power of Holland’s public sector and forced it to create an institutional framework for the capital market. Tracy already showed how the creation of countywide public debt during a sixteenth century financial revolution helped to emancipate Holland’s representative body, the Staten van Holland. Charles V borrowed large amounts of money from Antwerp financiers and the only way to repay these debts was by creating funded debt. The emperor lacked the creditworthiness to create this type of debt himself and turned to the public sector. The Staten van Holland managed to meet his demands by improving its access to capital markets: they created countywide public debt, appointed future tax-revenues as securities for loans and improved their government apparatus294. But whereas Tracy suggests this countywide public debt was a sixteenth century novelty, I argue this was the final step in a slow, evolutionary process that goes back to the thirteenth century. In the course of this process the institutional improvements Tracy stresses – collective responsibility for debt and appointing future tax- revenues as surety – already appear. Moreover, in the Late Middle Ages public debt already caused both center and periphery to strengthen their respective positions: the creation of public debt contributed to both state formation and the emancipation of the public sector. Medieval rulers could turn to two types of loans: floating debt running for less than a year and pledged by jewelry, domains and revenues, and funded debt contracted on capital markets and usually pledged by the public sector. In the course of the Late Middle Ages the counts of Holland started to depend on the latter, which was either organized by individual and collectives of public bodies295. This chapter deals with the establishment of collective public debt: section 1 discusses the alternatives the counts had for public debt, section 2 argues that the public sector allowed the rulers an alternative by gaining access to foreign capital markets and the final section shows how public bodies managed to sell renten in emerging domestic capital markets. 2.1 The limits of comital credit: floating debt Before the end of the thirteenth century sources rarely allow for a view of government borrowing. Appendix 1 lists the substantial debts the counts of Holland contracted before 1300. Only two are from before the reign of Floris V: in 1213 count William I (1203-1222) contracted a bond worth 292 Körner sees the emergence of a ‘world of high finance [that] exercised growing political influence’ in Germany, the Netherlands and England in the Late Middle Ages (Körner, ‘Public credit’, 512). 293 The era of intense warfare around 1400 gave a clear impulse to the organization of taxation (Bos-Rops, Graven op zoek naar geld, 103-104; De Graaf, Oorlog om Holland, 67). 294 Tracy, Holland under Habsburg rule, 116-124. 295 Körner, ‘Public credit’, 513-514; Tracy, A financial revolution, 8-9. 56 £600 vlaams with the Flemish city of Ghent, and in 1249 count William II (1234-1256) owed Herman van Hennenberg 4000 keulse marken he would repay in ten annual terms. In the second half of the century more sources appear, especially in the final quarter. The counts did make use of their creditworthiness but it is hard to make out whether they merely bought goods on credit or did in fact borrow money. The only source explicitly indicating the latter is a 1281 obligation issued by Floris to the count of Flanders, which states the former had borrowed £2500 …quia nobis eandem in parata pecunia mutuavit…296 …which we [the count] have received in cash… Other obligations are examples of consumer credit: the sum Willem II owed Herman van Hennenberg was a dowry, and the £20.000 parijse Floris V owed the count of Flanders in 1290 was for damages297. However, there was only a thin line separating consumer credit and loans. Although the debts Floris V owed the Duitse Huis of Koblenz were for the delivery of wine, and thus are examples of consumer credit, there is more to the story. Floris bought the wine on credit, immediately sold it for cash and thus capitalized on his consumer credit. This financial technique is called fineren 298 and although it may have been risky, it sometimes involved relatively low interest rates. This type of funding incidentally appears in our sources and allowed for a way to borrow money in the absence of markets for floating and funded debt299. Government officials were import creditors as well: the counts forced them to lend, or to advance money to comital creditors. Another way to capitalize on the government apparatus emerged in the second half of the fourteenth century: agents lend money to the counts on surety of the office. Initially the counts forced sheriffs and bailiffs to lend, but the Burgundians even capitalized on the office of rentmeesters-generaal: Willem van Naaldwijk lend 4000 rijders (20.000 day-wages of a master-mason) on surety of the office in 1439. In general, the counts of Holland owed large sums of money to their officials, who were allowed to seek compensation from the revenues of the office and ultimately received the remainder from their successors300. We have already seen how this practice caused government agents to capitalize on their offices in the first chapter. Count Floris V created debts with a variety of individuals – fellow-royalty, family- members and vassals – and institutions – the Duitse Huis of Koblenz and the cities Dordrecht and Haarlem. In the remainder of the Middle Ages the counts occasionally turned to similar creditors: 296 OHZ IV, nr. 1961. 297 OHZ II, nr. 819; OHZ IV, nr. 2484. 298 Van Uytven already raised the question whether the purchase of wine in 1282-1284 from Gerard Burh of Cologne and Michiel Bachelier van Rupelmonde was the result of fineren as well (Van Uytven, ‘De macht van het geld’, 216- 217).