Financing in Europe

Nightingale discusses which factors explain why London emerged in the late fifteenth century as the financial capital of England. She concludes that in the fourteenth century, warfare, plague, and the control exercised over trade by England’s strong monarchy contributed to London’s rise, while in the fifteenth, falling wool exports, and bullion famines, reduced provincial credit. When Italian merchants returned to London in greater numbers after free trade was imposed on the city in 1351, to buy English cloth they financed their purchases by importing the raw materials that the industry needed. These imports drew provincial merchants to London because they enabled them to profit from a double trade to and from the city which allowed them to exchange their cloth for the raw materials and other goods provided by London’s greatly expanded import and distributive trade. These so enriched its merchantile class that they were able to make the city into the financial capital of England. When new supplies of bullion eventually allowed provincial credit to expand again, London’s position was unassailable.

Cecchini analyses how merchants and political institutions cope with failures and defaults that compromise credit relationships in an early modern trading centre. Focusing on the structure of financing business and trade in Venice and on the legal framework that protects creditors, she links the widespread form of trading company (the temporary partnership) to the large recourse to arbitration procedures for solving disputes, and to the lesser efficiency of institutional and legal frameworks traditionally securing credit rights in Venice. ‘Credit, Defaults and Institutions in Early Modern Venice’ concludes with the hypothesis that the changing commercial environment and the spread of temporary societies reduce the protective strength of Venetian institutions and increase instability in financing international trade.

Lorandini provides new evidence on the role of limited partnerships (società in accomandita) in the financing of early modern trade. By focusing on the case of silk merchants in eighteenth-century Trentino, she combines direct evidence from three partnership agreements with indirect evidence from the firms’ oblatorie, that is, circular letters filed with the Merchant Court in Bolzano which provide information on the partners involved in the business. Although the term accomandita is never mentioned, an accurate interpretation supports the contention that merchants frequently established limited partnerships, particularly with affluent patricians who benefitted as limited partners from the opportunity to constrain their risk within the limits of their stake. Hence, despite the absence of any formal regulation, the limited partnerships facilitated the mobilization of capital to finance a rapidly expanding trade.

In 1740 the imperial nobleman Mattia Giuseppe Cresseri de Breitenstein of Trento borrowed 25,000 florins (125,000 Venetian lire) in a single transaction (Archivio di Stato di Trento, hereafter Astn, Archivio notarile, hereafter An, A. Ceschini folder, hereafter f., XVIII, 4388, 21 March 1740. 1 florin was worth 5 lire (or troni). 1 lira was equal to 20 soldi or to 240 denari). That sum nearly equaled the revenues of the tolls of Rovereto in the same year, 24,769 florins (Bonoldi, La fiera e il dazio. Economia e politica commerciale nel Tirolo del secondo Settecento. Società di studi trentini di scienze storiche, Trento, p. 67, 1999). The nobleman Leonardo Piomarta de Langenfeld, in one year (1760), lent more than 45,000 florins (225,000 lire) spread across a score of transactions, most to finance the surrounding rural communities and some as individual loans. These figures represent only a small portion of the sizable amount of capital mobilized by the informal credit market pivoted on notaries, at a time when banks did not yet exist. For years, a vast literature claimed that a country’s economic development became possible only once banks, in the form of joint-stock companies, had been created (Cameron, Financing industrialization. Elgar, Aldershot, 1972). According to this view, which became common wisdom, only specialized formal credit institutions were able—acting as financial intermediaries—to mobilize considerable financial resources at low cost. As a consequence, preindustrial economies had been for long considered limited, characterized by a weak demand and by money exchanges that occurred within restricted personal relationships. On the whole, credit supply had been considered aimed at meeting only military expenses or at financing the growing bureaucratic apparatus of modern State [Debunking this traditional view, recent studies have proved the positive interplay between public debt and real economy in pre-industrial Italy where, in some cases, state bonds nurtured a lively financial market (De Luca, Government debt and financial markets: exploring pro-cycle effects in Northern Italy during the sixteenth and the seventeenth centuries. In: Piola Caselli F (ed) Government debts and financial markets in Europe. Pickering & Chatto, London, pp 45–66, 2008; Pezzolo, Government debts and credit markets in Renaissance Italy. In: Piola Caselli F (ed) Government debts and financial markets in Europe, Pickering & Chatto, London, pp 17–31, 2008)].

Gelderblom, Hup, and Jonker explore financial market development in preindustrial Europe by examining the financial functions performed by aldermen and notaries. Using a new dataset of 12,000 credit transactions registered by these public officials in six different cities in the Low Countries between 1500 and 1780, we analyze who used their services, for which purposes, and at what price. We find that notaries and aldermen were very active in registering debt contracts, but failed to obtain a commanding or even strong position as financial intermediaries in the way Parisian notaries did. As they registered only a small fraction of local credit transactions, notaries and aldermen in the Low Countries never possessed the information advantage of their French counterparts. Our findings highlight the degree to which subtle regulatory differences profoundly affected the dynamics of financial market evolution.

The transition between the eighteenth and the nineteenth centuries manifested the limits of the rigid economic system tied to the Spanish Ancien Regime. Financial activities, particularly credit-related transactions, suffered the limitations of a country ridden with agrarian crises, institutional instability and unceasing war conflicts. Valladolid and its surrounding area experienced with severe hardness this situation. The outbreak of the War of Independence and the institutional chaos led to the contraction of informal credit. The crisis exposed the weaknesses of a financial system dominated by large owners and a small number of businessmen. The purpose of the present chapter is to show the evolution and main features of private credit in a time of great instability, a time that led to a slow transformation process in Castile’s financial world.

The chapter by Gürer Karagedikli and Ali Coşkun Tunçer explores the credit activities of cash waqfs (religious foundations) in the Ottoman Empire in the nineteenth century by relying on original waqf registers. It conceptualises cash waqfs as microcredit organisations and questions the established view that they went into decline in the nineteenth century at the face of competition with the formal credit institutions. The chapter shows that the cash waqfs and the bank branches proliferated in number across the Ottoman Empire during this period, and they showed a similar geographical distribution. This finding implies that cash waqfs complemented the activities of the modern banks by mitigating the social costs of nineteenth-century globalisation.

At a time when formal (impersonal) markets for credit were at an embryonic stage, the role of social relationships in raising funds for new ventures was crucial. ‘Investment tended to be a cumulative social process’ where trust and reputation played a role. Strong kinship and business ties linking partnership members were therefore critical in facilitating the flow of capital into new ventures. The way the diversified and broad-ranging businesses (railways, mines and public utilities) undertaken by the Paris-based partnership Parent Schaken et C.ie (P&S) were funded illustrates an important point about this topic. By making use of the basic tools of the Social Network Analysis, the authors show the P&S network of interpersonal relationships evolved and just how it mattered in facing the changing European financial scenarios, when long-term investment developed and impersonal money markets took shape.

Barnes and Newton explore the activity of English joint-stock banks, as a precursor to the modern corporation, in the provision of credit in the first half of the nineteenth century. They employ new archival data from bank archives to show that while these firms did not have full corporate attributes, they exhibited new governance and managerial structures. The authors find that the changes in organisational form did not result in a new revolutionary way to assess loan applicants. The decision to lend remained based upon informal information gathering through commercial networks as well as upon subjective measures, such as the personality or character of the applicant.

The chapters in this volume have shown the continuing importance of informal credit relations and non-bank financial intermediation in Europe from the middle ages to modern times. The advent of jointstock banking owed more to the demands of sovereign states for more reliable forms of war finance than it did to the needs of mercantile communities, which were already well-served by a varied range of lenders. Industrialization and the diminishing importance of guilds may have facilitated institutionalization of credit, but alternative sources of finance have remained significant throughout the period and have re-asserted themselves in recent years. These chapters serve to illustrate the varied geographical, chronological, methodological, and intellectual reach of the New Financial History, a global movement which is particularly strong in Britain, America, France, Spain, and especially Italy.