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Economic aspects of credit markets in Baltic cities – credit market as an indicator of the city’s economic position

The credit market, as a place to invest and raise capital, was an important part of the city-wide economic system. It is still disputed which of its elements determined the turnover and thus reflect the economic situation of the time. A large number of researchers assume that the development of the market for rent purchase was determined by the supply of merchant capital, which was dependent on economic conditions (Richter 1971, p. 8; Wenner 1972, pp. 20, 94). Senior researchers assumed that the more prosperous the economic situation, the higher the profits from commercial activity and, consequently, the higher the turnover on the rent market. As Helen Haberland has shown, at certain times the value of turnover was determined by the demand for loans (Haberland 1974, p. 262).

When considering the relationship between the demand and supply of capital in the rent purchase market, we must also take account of the fact that the sources containing the entries of rent transactions do not inform us of the total supply of capital and demand for credit, the number and value of transactions concluded were the resultant of these factors (Czaja 1987, p. 22). The amount of capital obtained from trade was higher than the value of rents bought at that time, as not all capital was invested in their purchase. Similarly, the demand for credit could at certain times exceed the amount for which the rents were sold - due to the lack of free cash, only part of it could be satisfied. The increase in the turnover of the rent market was not always synonymous with good economic situation. Studies on the rent market in Elblqg prove that in the periods of stagnation in commercial activity, the withdrawn capital was invested in the purchase of rents (Kardasz 2008, p. 311). However, turnover fluctuations on the rent market can be used to capture certain tendencies in the economic life of the city, as in the period of a long-term crisis the inflow of capital to the market would be impossible, which would result in a clear decline in the turnover.

The analysis of the types of purchased rents can provide information on the economic location and the course of the economic situation. The emergence and functioning of the secondary rent market is another stage of capital market development in the city (Gilomen 2010, p. 65). The older and more stable the market, the greater the share of old rents in it, and the newer and more dynamically developing the market, the newer rents (Golinski 2003, p. 40).

In all the studied cities, the so-called new rents, which constituted about 80% of the market, were most frequently used. The share of old rents in the total number of contracts ranged from 0.7% in Rewel to 2.3% in Greifswald. The weakness of the secondary market indicates that the capital market of the examined cities in the 14th and the first half of the 15th century was still in the initial phase of development. This makes it very difficult to use the relations between the types of rents as an indicator of economic location. In Greifswald and Rewel, we often encounter rents related to the purchase of real estate, which indicates a close relationship between the rent market and the real estate market.

Another indicator used in research on the credit market and economic location is the amount of interest rate. Ahasver von Brandt treated the rent market as a place to invest merchant capital, granting them a decisive influence over its development. Using a simple correlation between demand and supply, he found that in periods of economic prosperity, increasing profits of merchants resulted in increased investments that lead to a supply-over-demand advantage and a drop in credit prices, whereas during the crisis, demand for credit exceeded supply, resulting in an increase in interest rates, that is a drop in the price of rents (Brandt 1935, pp. 19-20). However, this view has several shortcomings. The amount of interest is a function of the degree of social and economic development, and the low cost of credit indicates that the development of the money-goods economy is advanced and the credit market is developed but, in the late Middle Ages, the interest rate was not a simple result of the capital demand and supply ratio. The Church, territorial rulers, and municipal authorities often established the applicable or maximum interest rate by way of administration. In such cases, the amount did not fully reflect the real economic situation of the city. More importantly, the increased supply of merchant capital and the ensuing increase in the turnover on the rent market did not always result from the economic boom. During the crisis, attempts were made to invest the capital withdrawn from commercial operations in the purchase of rents, and the downturn did not encourage the incurring of liabilities, so the supply could exceed demand. Under certain circumstances, therefore, falling interest rates could indicate an economic depression.

All throughout the period under review, the markets of the studied cities -in line with the pan-European trend - have seen a fall in the interest rates on rent loans. At the beginning of the 14th century, it was usually 10%, a value which continued until the 1360s. Apparently, interest rates fell in Livonian cities to 6.6-5% at the turn of the 14th century. In Prussia, in 1386, the maximum interest rate was lowered by administration from 10 to 8.33%. This amount, with the exception of Elblqg, was valid until the end of the 15th century. In Elblqg, as early as in the 1380s, probably due to the large supply of merchant capital, the interest rate on rents fell below 8%,

Table 8.1 Structure of credit market value in selected cities (in percentages)*

City value of the transaction

Greifswald

Gdansk

Elblqg

Torun

Rewel

1

2

1

2

1

2

1

2

1

2

< 30 marks

2.2

1 1.6

14.25

60.25

19.5

52

4

28.5

9

45

30-99 marks

22.8

39.4

26.5

26

47.5

38

17.25

33.5

23.5

31

> 100 marks

75

49

59.25

13.75

33

10

78.75

38

67.5

24

* I - Value of transactions; 2 - Number of transactions.

at the beginning of the 15th century a rate of 1:15 (6.66%) was commonly used there.

Having analysed the structure of the credit market value one may draw conclusions about its social scope and the role of credit in the economic activity of particular groups, and, indirectly, also about the origin of capital on the market and economic situation. It should be assumed that craftsmen were looking for a small credit (<30 marks) and a large credit (>100 marks) was sought by merchants. This assumption is confirmed by share analyses of identified representatives of individual social groups on the credit market and source information indicating the ownership and income of individual social groups. The annual cost of living, including food, accommodation, fuel, and clothing for a family of five in Rostock at the end of the 14th century amounted to about 35-40 Lubeck marks, while the average income of a craftsman amounted to 30-50 marks. (Hauschield 1973, p. 158; Hammel 1981, pp. 44-6). The bricklayer’s daily rate was 3 solidi, which gave the amount of about 13 marks annually. The basic annual salary of a city scribe in the 15th century Elblqg was 12 Prussian marks. The flautist employed by the city council earned 0.25 marks per week (Pelech 1987-1989, Nos 82, 211, 772, 1100). We can see that a loan of 30 marks, with an interest rate of 2-3 marks per year, was the maximum financial capacity of a craftsman from that time. The merchants’ income depended on the direction and object of trade and the economic situation but on average amounted to 15% to 25% of the invested sum (Stark 1985, pp. 131-40). Thus, the market share of transactions of a certain amount will not only allow to make conclusions about the social scope of medium- and long-term credit, it may also indicate the location of particular social groups.

The structure of transaction values concluded in Gdansk and Elblqg was dominated by small transactions (< 30 marks). In Rewel, they accounted for less than half of all concluded transactions; in Greifswald and Toruri, they remained on the margin of the credit market. In all the cities, the value of turnover was determined by large transactions (> 100 marks) or, as in the case of Elblqg, large and medium transactions.

The structure of credit market value was not static. In the examined period, the average value of one transaction increased in all studied cities. This process was associated with a drop in interest rates and rising inflation in the 15th century. The social structure of market participants also influenced the structure of the value of concluded transactions - in the periods of increased merchant activity there was an increase in the market share of high value transactions.

 
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