Desktop version

Home arrow Business & Finance

  • Increase font
  • Decrease font

<<   CONTENTS   >>

Debt of the Royal Chamber

The model described above worked even at a high interest rate, as the country had not been at war for a long time and there was effectively no strong ruling court that would unproductive!}' tap funds from the economy in the form of taxes or forced loans. This significantly changed after 1526 when the Austrian Archduke Ferdinand of Habsburg was elected the King of Bohemia. Czech estates rejected Ferdinand’s claims for recognition of the hereditary ruling rights through his wife (sister of the previous King Louis). They insisted on an election because it included the acceptance of an election waiver by the candidate for the throne. This undertaking also included the acceptance of all financial liabilities of the previous rulers in relation to the domestic estates which were secured by pledges of former medieval royal property, property of secularized ecclesiastical institutions, and by the continuous income sources of the ruler including mint revenues and other assets. Although the Lands of the Bohemian Crown were the economically strongest region in the newly established Bohemian-Austro-Hungarian personal union and they were also in a politically safe zone (the Hungarian and Austrian lands were under an imminent threat of invasion by the Ottoman Empire), they yielded only irregular income from ad-hoc tax levies which were, however, subject to the approval of the Land Diet.

From the very beginning of his reign in Bohemia, King Ferdinand tried to change this situation which was disadvantageous for him. Yet the King managed to find one effective tool to force the domestic nobility to pay his expenses. Most of the medieval royal and ecclesiastical properties were held by great magnates but legally, they represented long-term pledges that the king could theoretically redeem. In view of the long-term inflationary development, the difference between the nominal amount of the pledges (determined in the 15th century) and the real value of the dominions at the beginning of the second third of the 16th century was considerable. Therefore, the king enforced money loans in high amounts, especially from great magnates that did not bear interests and were never expected to be repaid by the King. He only continuously ‘credited’ the loan amount to the original pledge amount up to the real market price of the relevant dominion. Naturally, the King also took into account the real political situation, and he therefore used such economic instruments individually with regard to the position of the specific noblemen within the aristocratic opposition or in the newly emerging power structures at the court.

However, these gradual steps were not sufficient for King Ferdinand to solve the long-term internal indebtedness of the Royal Chamber that he partially ‘inherited’ from his predecessors on the Bohemian royal throne and partly exacerbated himself. Loans to the Royal Chamber also carried the standard 10% interest meaning that even servicing of the sovereign debt represented considerable costs, although the debt itself was not being repaid.

The prospects of any significant change were fundamentally limited by the financial costs of the war in the Balkans. The defence costs of the rest of the Lands of the Hungarian Crown and the hereditary Austrian lands in the Danube region also absorbed the vast majority of tax revenues from the Bohemian lands. Thus, using a tax instrument to reduce the internal debt was also not an option. At the beginning of the 1540s, the interest rate of 10% was already too high for Czech economy both in terms of the cost of servicing the sovereign debt (which amounted to approximately half a million threescore of Czech groschen) and also for the financial chambers of great magnates.

<<   CONTENTS   >>

Related topics