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Economic and legal background

The Warsaw credit market registered in court records was based on simple debt obligations concluded between the burghers as a declaration of payment of a specified amount of money to a person on a specified date, with the simultaneous reservation of consequences resulting from nonperformance of the agreement. Rent contracts (census') appeared sporadically: in total we registered 182 entries constituting 12% of all transactions and 15% of their total value. The creditor was usually the town jury or council and the agreement itself took the form of a new repurchase rent. There was no turnover in old rents or life annuities. If the obtained picture of low popularity of annuities is true and does not result from disappearance of a separate annuity book (there is no strong evidence of its existence), then the Warsaw credit market should be regarded as less developed than in Prussian towns such as Toruri, Elblqg, Gdansk (Kardasz 2013), or Western and Southern Europe (Zuijderduij 2009) where annuity was an extremely popular instrument.

The value of loans taken out in Old Warsaw in the late Middle Ages amounted to 920 groszes according to the average and 270 groszes according to much more reliable median indications. In the course of the analysed century, the median contract value increased from 240 groszes in the first half of the 15th century to 300 groszes in the years 1457-1527, thus illustrating the trade in increasingly larger capital. 73% of the contracts did not exceed the amount of 600 groszes, which was a credit for consumption or for supporting small investments in craft workshops, home development, or small trade. The second group of 27% included contracts concluded mainly by the merchants, exceeding 600 groszes and fulfilling a typical investment and trade role. The proportion between groups is reversed if we look at the share in the total market value where consumer contracts (up to 600 groszes) covered only 16% of the turnover, while investment contracts (above 600 groszes) covered as much as 84%. On the one hand, this shows the market based on the number of small credit agreements and, on the other hand, it shows the scale of wealth differences between the lower and middle strata and the elites, as well as the economic importance of the wealthiest groups.

The median of the contract in both groups was 210 and 2,580 groszes (3.5 and 43 sexagenae) so the elites participating in the distant trade used the amounts more than twelve times higher.

In order to better capture the real value of the agreements, we will use their relationship to the prices of farming-food products, commercial products, and exemplary bare-bones baskets. The amount of 3.5 sexagenae made it possible to buy, according to the prices in the Warsaw district, registered in the court books from 1427-1453: stack (acervus) of rye and wheat or about 40 bushels of each of these cereals, 4 stones of pepper, 2 barrels of herring, 4 barrels of salt, about 400 pieces of hewn wood, and a horse. Correspondingly, for the sum of 43 sexagenae, one could buy 10 stacks, 10 lasts or more than 500 bushels of rye and wheat, 57 stones of pepper, 32 barrels of herring, 54 barrels of salt, almost 5,200 pieces of hewn wood, and 14 horses. Assuming the prices registered in Cracow in the second half of the 15th century and at the beginning of the 16th century (Pelc 1935), for 3.5 and 43 sexagenae there could be bought, respectively: 11.5 and 143 bushels of oat, 9 and 107 barrels of beer, and 0.5 or 6 barrels of wine, 2.4 and 30 pounds of saffron or 105 or 1,290 elbows of canvas. It is also worthwhile to convert it into the so-called bare-bone baskets. An average family of four needed about three such baskets; the price of a single basket in Cracow and Lvov in the first quarter of the 16th century oscillated between 32-33 grams of silver (Malinowski 2016, pp. 3, 5). The amount of 210 groszes converted into the amount of bullion (1 grosz = 0.78 Au) allowed the purchase of five baskets which not only provided food for the whole family, but also allowed the purchase of more than the minimum quantity of selected goods. This short list shows the enormous scale of trade opportunities offered by the elite but also confirms that, apart from satisfying consumption needs, the representatives of the community (e.g. craftsmen) could occasionally take part in small trade. In the case of investments in the real estate market, the amount of 210 groszes covered only half of the price of an average wooden house in Old Warsaw (480 groszes) so it could be used only to carry out minor renovation and construction works. Similarly, a trade credit was used primarily for trade or investments in wooden houses, as the purchase of a tenement house at the market square should have involved (Lozowski 2020).

Some researchers are convinced that the dynamics of interest rate changes are closely related to the stability and health of the urban economy which ultimately influences the level of credit risk by raising or lowering interest rates. In Old Warsaw, the rent received on borrowed capital ranged from 2.4 to 10% per annum but the most common (61% of records) was one mark per annum on 10 sexagenae groszes, that is 8%. It is worth noting that this interest rate functioned mainly in the second half of the 15th century, while after 1500, it was reduced to 6.66%. Relating this fact to the aforementioned assumption, we can conclude that the Old Town credit market is still developing and the credit risk reduction resulting from the stability of economic life is resulting in a simultaneous increase in trust between the creditor and the debtor.

Data analysis showed that the credit market of civitatis Antiquae Varsoviae was mainly based on short-term contracts. In total, 30% of all records did not exceed three months, over 55% were within the six-month period, and as much as 86% lasted less than a year. Only 14% of contracts were concluded for a period longer than 12 months, of which 7% were within one to two years. The average duration of the transaction was 9.7 months, with slight changes in this value during the analysed century. The loan term systematically increased from an average of seven months in the years 1427-1453, through 10 months between 1454 and 1485, to 11 months at the beginning of the 16th century which can be seen as another proof of market stability and lenders’ lack of fears about the borrower’s insolvency as well as a positive assessment of their future financial standing by debtors. As regards the status of burghers’ budgets and long-term revenue and expenditure forecasting, the correlation between the duration of a contract and its value provides a great deal of valuable information. It turns out that the smallest transactions (2 sexagenae) were concluded for a six-month period with the amount doubling in relation to the six- / twelve-month period (4.3 sexagenae). The liabilities lasting one to two years amounted to 5.3 sexagenae, while the repayment of loans of the highest value was spread over more than 24 (9 sexagenae) and 36 months (as many as 12 sexagenae). Based on the results obtained, we can see that townspeople were able to accumulate a cash surplus of 4 sexagenae per year. The issue of predicting future income and repayment of liabilities is related to the use of the instalment system. In the Warsaw credit turnover, it was present only in 20% of contracts. If repayment was scheduled in instalments, two (61%) or three (25%) parts were most often chosen. The main factor influencing the application of instalment payments was the duration of the agreement. Among liabilities lasting up to two years, the division into two and three parts prevailed, while loans exceeding the limits of 24 or 36 months were divided into four or more instalments.

The material stored in the books enables the identification of the day of the beginning of the loan agreement in the case of 95% of entries and the declaration of the repayment date appeared in 60% of the transactions. Using this data, we are able to identify the moments of the highest demand for cash on a yearly basis and the periods of payment of liabilities. Observing the indications presented in Figure 10.1, we can see three distinct moments of credit registration intensification: January (14%), April and May (13 and 11%) and October (12%). It seems that the increased financial needs of townspeople at the beginning of the year should be associated primarily with the need to buy additional food in a difficult winter period. The spring summit could, to a large extent, be associated with the beginning of the trading and sowing season, while the end of the year with the obligation to pay rents and prepare provisions for the coming winter. At the same time,

Number of credit records depending on the month in Old Warsaw in 1427-1527

Figure 10.1 Number of credit records depending on the month in Old Warsaw in 1427-1527.

it is also worth noting the reduced interest in loan trading in the summer when, apparently, the townspeople had enough money in the context of their activities. An almost identical rhythm of court records can be observed in other late medieval Polish medium-sized and small towns (Bartoszewicz 2003), which shows that the system of three peaks (hungry gap, spring, and autumn) was characteristic for them. The repayment of the liability was most often made in April (17%), June (20%), and October (17%). The analysis of exact daily dates showed close connection with both the Warsaw fair system and the days of patrons of local churches - extremely popular terms were: St George and St Wojciech (Adalbert, April 23), St John the Baptist (June 24, patron of the Warsaw Collegiate Church), St Hedwig (October 15), and on a slightly smaller scale St Michael (September 29), St Martin (November 21) and Christmas (December 25). Interestingly, the presented regularity did not occur at the moments of notation, which were made throughout the month. The sketched picture of the scheme of taking out and settling credit agreements was maintained without major changes in the 15th and first quarter of the 16th century.

Capital investment in the credit market is burdened with the risk of debtor’s insolvency, therefore various ways of securing the borrowed cash were used. One of the most probable was the entry of the contract in the town books; however, this form was repeatedly supplemented with additional clauses. First of all, the level of a debtor’s creditworthiness conditioned the state of his possession and, to some extent, his position in the municipal hierarchy, therefore there was a simple relationship where greater affluence increased the chance of obtaining a higher credit. The majority of the group of proprietors had one property in the form of a house, on which it was possible to secure up to a few loans. If the property status expanded to include other houses, gardens, lands, etc., then the possibilities of using these goods to obtain funds for other investment purposes automatically grew. Therefore, the accumulation of real estate is so characteristic, for example, of a group of merchants. However, we should not forget the ‘de Soto problem’, the role played on the part of borrowers by the institutional framework organizing the system of securing contracts. The lower the risk of a rapid loss of ownership, the greater the interest of potential debtors in a specific form of credit.

In Old Warsaw, the additional security clause concerned 60% of all loans registered in the court records. The catalogue of assurance formulas focused on several categories: real estate (e.g. house, garden, parcel, land, malt house), financial penalties, additional rent collected in case of delayed repayment, third party guarantees, or pledge on movables. The most popular was the security on real estate goods: the house (34%) and all property defined by the term 'totam bona mobilitas et immobilitas’ (34%). The calculation of additional censum in case of exceeding the loan repayment deadline or contractual penalty (poena) is recorded in 9% of cases. The remaining categories were used occasionally (less than 5%). In total, transactions insured with real estate goods accounted for as much as 78% of all additionally secured contracts. This shows not only the significant role of real estate in the loan trade registered in the books, but also, to a certain extent, the limitation of the market to the group of property owners. However, it is worth remembering that no additional form of insurance is applied to 40% of loans entered in the records, as well as nearly 20% of the percentage of agreements with other security than real estate. This allows us to state that in access to the credit market as debtors, the majority of debtors were owned, however, not owning real estate did not exclude a person interested in raising capital. Moreover, the declaration of assurance on all movable and immovable property was doubly advantageous for the debtor - apart from increasing his creditworthiness, in the event of potential enforcement, it allowed for flexible selection of objects to be auctioned and potential protection of key assets for the less basic ones. This is a direct reference to the ‘de Soto problem’, which, in the light of the results obtained, did not exist in Old Warsaw. This is indicated by the lack of transfer of legal ownership or physical possession of real estate during mortgage pledge (priority formula was used in the queue of creditors during the auction) and by the openness of the market to non-property owners.

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