Desktop version

Home arrow Business & Finance

  • Increase font
  • Decrease font


<<   CONTENTS   >>

Credit in light of the Land Constitution

Towards the end of the 15th century, European society’s perception of money lending underwent a transformation, whereby Church authorities were forced to accept the constantly increasing money lending activities of Christians and gradually moderate the doctrine that prohibited Christians from performing this activity (Denzel 2010; North 1991). These changes also affected the Bohemian lands and the situation required new legislation at the turn of the 15th and 16th centuries (Urfus 1975, p. 65). Money lending and the related indebtedness at all levels of society, from nobles to subjects, was becoming a society-wide problem in Bohemia towards the end of the 15th century, one which Bohemian Diets and the Land Court repeatedly attempted to resolve. However, this task was not simple because, at that time, a number of burghers and nobles were openly lending money (Buzek, 1989). In their resolutions, the Bohemian Diets attempted to regulate money lending by Christians and Jews by: (a) legalising maximum interest rates applied by Christian and Jewish creditors; (b) defining the legal and prohibited forms of money lending; and (c) defining the legal methods for securing loans and recovering debts (Bunatovâ 2011, pp. 105-36).

In 1484, the Bohemian Diet legalised money lending by Christians in Bohemia and permitted them to apply interest to loans at a rate of 10%. This principle was adopted in the Vladislaus Land Constitution in 1500 (Palackÿ 1862, pp. 190-1). The 10% interest rate on loans provided by Christians applied until 1543 when it was reduced to 6% (Snëmy ceské I, 1877, p. 565). This reduction is usually interpreted as an attempt to reduce the difference between the profits generated from lending money and the proceeds from farming on a noble estate (Ledvinka 1985, pp. 29-33) or as an attempt to approximate the terms of the financial market in Spain (with an interest rate of 5-7%), and in the Lutheran environment (with an interest rate of 6%) (Vorel 2005, p. 164). An interest rate of 5%, that is 1% lower than in Bohemia, was set in the territory of the Holy Roman Empire in 1577 by the Imperial Police Ordinance (Reichspolizeiordnung). From the time of codification of the Vladislaus Land Constitution, the Common Law of the Land gradually also defined the individual permissible and prohibited forms of money lending and determined the sanctions for failure to adhere to these terms. The term usury (sedlani or lichva) was used to identify the actions of a creditor who demanded a higher rate of interest from a debtor than that permitted for money lending, either publically or secretly, or demanded other services in addition to the interest (e.g. the gift of an item) (Jirecek & Jirecek 1882, pp. 345-6, 655).

The rapid increase in financial transactions during the last quarter of the 16th century resulted in an expansion of the register of various illegal forms of money lending which were intended to hide the actual interest rate imposed by the creditor. The Common Law of the Land underwent further amendments after this phenomenon became a society-wide problem. The punishments for sedlani were initially made stricter in 1575, and the guilty party would not only lose all his property but also own life (Snemy ceske IV, 1886, pp. 288-90). This strict punishment was temporarily tempered in 1608 to just the forfeit of twice the loaned amount but, because the number of illegal cases of money lending did not fall, the Diet adopted new legislation in 1610. This described in detail the legal and particularly the illegal methods for arranging a loan (partita'}, and the punishments were again made stricter (Glücklich 1936, pp. 360-7). This regulation was adopted in the Renewed Land Constitution dating from 1627 (Jirecek 1888, pp. 370-8).

The legislation concerning money lending by Jews underwent more complicated development during the 16th century when there were conflicts of interest between the monarch and the nobility. While the monarch was interested in making as much profit as possible from the Jews’ business activities, the interests of the nobility were influenced by their concerns over not just the increasing indebtedness of their subjects, but also of the nobles themselves. The chief principles under which Jews were able to provide financial loans were stipulated by Vladislaus II in the Vladislaus Jewish Code dating from 1497 (Bondy & Dworsky 1906a, pp. 173-80). It permitted Jews to lend money against a lien on an item (e.g. jewels), and also allowed them to secure their loans by simple debt certificates (schuldbrief) or register their loans in official ledgers kept at town halls. Jewish creditors in Prague were also permitted to register their receivables in the Register of the Prague Burgravate whose court was competent to recover these debts. The permitted interest rate for Jewish creditors ranged between 20% and 24.76%, depending on the value of the loan.

Subsequent legislative developments in Bohemia were more regressive during the 16th century with constantly worsening terms under which Jews were able to lend money because the Bohemian Diets and the influential governments of the Prague towns regularly endeavoured to restrict the options of Jewish financiers as much as possible. As a result, the entire period until 1623 is characterised by worsening terms (with minor fluctuations) under which Jews were able to lend money and by the Jews’ efforts to achieve the terms codified in 1497 as closely as possible.

The terms under which Jews were able to lend money worsened in the individual Bohemian royal towns, including Prague, during the first two decades of the 16th century. For instance, interest rates were reduced to 12.38% in the Old Town in 1515 and Jews were only permitted to lend money against a lien on items (Bondy & Dworsky 1906a, pp. 222-3). According to the legislation in the Land Constitution from 1530 (Jirecek & Jirecek 1882, p. 89), the text of which was incorporated in the amendments of the Land Constitutions from 1549 and 1564, Jews were prohibited from registering any loans in official (municipal) ledgers, or executing debt certificates with debtors, and were only permitted to lend money against a lien. It was only in the Rudolphine period that Jews were again permitted to conclude at least simple debt certificates with debtors.

The Diet resolution from 1596 brought about temporary legislative improvements for several years. According to this resolution, Jews were again able to recover their receivables before the court of the Prague Burgravate (Bondy & Dworsky 1906b, pp. 697-8); however, this was again forbidden in 1601, along with the possibility of securing loans by debt certificates. But, in practice, we know that financier Mordechai Meisel and other wealthy Prague Jews did recover their receivables before this court from at least the turn of the 1580s and 90s (Bunatova 2016b, p. 40). The Diet resolution from 1615, according to which Jews were able to conclude simple debt certificates for loans up to the value of 1,500-2,000 threescore of Meissen groschen and were again able to recover their receivables before the court of the Prague Burgravate, brought about another positive change (Bondy & Dworsky 1906b, p. 860). Other qualitative changes for Jews were the result of a privilege granted by Emperor Ferdinand II in 1623, in which he confirmed the interest rate of 24.76% (Celakovsky 1886, pp. 516-23). This rate was reduced to the level of Christian loans (6%) by a declaration in 1642 by Ferdinand III who conceived his order as an amendment to Article M XI of the Renewed Land Constitution from 1627 (Bunatova 2013, pp. 90-1).

 
<<   CONTENTS   >>

Related topics