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Technical implementation of interest rate reduction in Bohemia

The entire campaign of the Christian troops to Buda ended in October 1542 in a great disaster and disgrace. The limited scope of this study does not allow me to examine the broader political significance of this unsuccessful military enterprise which has not yet been fully appreciated by European historiography and which I have attempted to interpret elsewhere (Vorel 2019b). However, the negotiations on securing financing for the military campaign in Hungary in 1542 in cash were the main impulse for the subsequent change in the maximum interest rate in Bohemia.

Technically, the change was made as follows:

In the undated royal proposition from the beginning of 1543, the monarch complained, among other things, about the high expenses he incurred with the campaign in 1542. He had to borrow money at a high interest rate that he was due to start repaying soon. Therefore, at the Land Diet that convened on April 30, 1543, he asked for further financial contributions. The Assembly refused to pay the King any money in cash but approved a new tax for the year 1543 in the amount of 1% of all property value. On this occasion on April 30, 1543, the Land Diet decided to reduce the maximum interest rate from 10% to 6%. The record indicates two reasons for this: by this reduction, the Assembly intended to prevent the usual practice whereby a nobleman preferred to sell his estate and to live unproductively on the income from interest yielded by the principal sum. This was assessed by the Assembly as an undesirable social phenomenon that caused other problems. As a second reason, the Assembly stated that the current interest rate in neighbouring countries was already considerably lower. Under the new standards, all loans taken were to be remunerated at only 6% starting from the earliest name day of St Gall (October 16, 1543). In his reply, the King very much welcomed the decree to reduce the maximum interest rate to 6% and stressed the importance of putting this resolution into practice (Snetny ceske, 1877, pp. 557, 561, 565, 569).

For the majority of the politically active Czech nobility, which at that time consisted mainly of holders of larger estates, the reduction of the maximum interest rate seemed to be very advantageous because most of them were debtors rather than creditors. Like the monarch, they assumed that the economic cycle would continue reducing the costs of servicing their debts and making cheap credit more affordable. However, the consequences of this political decision were much more complex.

Immediate consequences of the interest rate reduction in 1543

The resolution of the Land Diet of April 30, 1543 to reduce the interest rate from 10% to 6% was implemented immediately. However, on the nearest date when this change was to take effect (October 16, 1543), the existing credit system completely collapsed. Nobody wanted to lend money at the lower interest rate. The creditors terminated the credit agreements en masse and demanded the repayment of their assets in cash, as the future development with regard to credit market regulation was uncertain. The ad-hoc general disruption of the cycle of revolving credit contracts constituted an economic catastrophe, especially for great magnates. In most cases, they did not have the liquid funds necessary to repay their old loan contracts, and the failure to meet their financial obligations threatened to result in an official freezing and subsequent seizure of properties of a greater value than the amount of debt to be recovered. In the mid-1540s, several large territorial units thus disintegrated. The most affected person was John of Pernstejn, resident at the Pardubice Castle, the owner of the largest complex of land holdings in Bohemia at that time who, already in 1543, began to gradually sell off his estates to satisfy the creditors.

The collapse of the Bohemian credit market completely changed the sovereign’s opinion on the role of the Jewish financiers in the country’s economy. The anti-Jewish measures mentioned earlier were abolished in 1545.

The deep credit crisis came unexpectedly fast but did not last long. Its immediate consequences were overshadowed by the problems caused by the drawing of the Bohemian lands into the war between the Habsburgs and the imperial opposition in Germany in 1546-1547. King Ferdinand took advantage of a temporary victory in the Roman-German empire for his goals in Bohemia. Under the pretext of an alleged participation in the Estates Resistance, he carried out a politically and religiously discriminative punishment of the Czech estates that disproportionately impacted royal towns and members of the Unity of the Brethren (Vorel 2015, pp. 193-201). Thus, the year 1547 brought a one-time debt relief for the Royal Chamber: most of the sovereign debts were simply cancelled as a punishment to the creditors for real or alleged participation in the Estates Resistance. By confiscating the land property of the royal towns and that of a part of the aristocratic opposition, the king gained sufficient land for the restoration of his own estates subject to the Royal Chamber.

 
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