Fifteenth Century Interest Rates

Loans to Princes. When Charles VIII of France invaded Italy in 1494, he found himself possessed of one of the first national armies in Europe. Such armies are expensive, as we know today. Charles had to borrow at the last minute, and the Medici refused to lend. He borrowed from the Lyons office of the Genoese banking firm of Sauli. He is variously reported to have paid interest at rates of 42% (275), 56% (274), and 100% (276) per annum.

Personal Loans. It was at this time that many towns established montes pietatis in an effort to reduce pawnshop rates. (277) The Italian montes pietatis began in 1462; they charged 6% as compared with 32M;-43M;% sometimes charged by private usurers. (278) However, private pawnshops in Florence continued to make loans at the legal rate of 20% a year.

Commercial Loans. Historians offer evidence that the rate of interest was still declining in Italy. One states that 5-8% "was now regarded as a fair interest rate on commercial loans." (279) As a result of lower profits and lower interest rates, commerce lost men and capital to other forms of activity. Bankers used a larger part of their capital for loans to aristocrats and to belligerent states and less for commercial loans and ventures.

Another historian also says that during this century rates on commercial loans in Italy fell: they declined from 12 to 10% and then to 5%. (280) A third historian considers that the normal range of rates for merchants in Italian trading towns was still 7-15%. (281) A fourth considers 5% to be indicative of the usual level of prime commercial rates (282) in Venice. This type of market rate is very variable over short periods today. By sixteenth-century evidence it covered a large range in a few weeks. Therefore, a typical level is probably not so informative as a range or a minimum level.

Deposits. The 5% rate, which was relatively low when it first formed the basis of the "five per cent contracts" or "triple contracts" discussed in an earlier chapter, now became common in Western Europe on safe deposits or special partnerships. At the end of this century the Hochstetter Bank in Germany paid 5% on small deposits. (283)

In England the return expected by special partners may have been much higher. It may have averaged in excess of 10%, (284) insofar as can be judged from imperfect evidence.

In Florence the State now held guardians of wards and widows responsible for a flat 5% minimum rate of return. (285) The Medici Bank in Florence paid 10%, then 714%, and then 5% on deposits; these payments, however, were often contingent on earnings. Some of these deposits were short term, and some stipulated one year's notice of withdrawal; the latter usually paid the higher rates. Nobles, ecclesiastics, and statesmen were attracted by the higher return paid by the Medici. But late in this century the Medici Bank was crushed between the steady fall of prices and its mounting burden of commitments. In 1494, the year when Charles VIII invaded Italy, the bank was liquidated, and its assets were not enough to satisfy all creditors. (286) At this time the Banchi a Minuto shops in Florence, which sold jewelry on installment and dealt in money, paid 9-10% on time deposits. (287)

Annuities and Mortgages. Census loans, sometimes called rentes, on land in Lombardy were now usually at 6%, although it was not unusual to find lower and higher rates. In Southern France the prevailing rate for such loans was 10%. (288) By 1500 a census loan on land in Italy and Germany was usually at 5%. (289)

In 1452 Pope Nicholas V determined that in Aragon and Sicily a redeemable "census" was licit, provided that it paid not over 10%. (290)

Loans to States. Louis XI of France, 1461-1483, raised forced loans, rates unstated, which, if not repaid, would be funded into rentes at 5-10% interest.

In 1489, when King Ferdinand and Queen Isabella of Spain were in pressing need to finance their war against the Moors, they invited cities and individuals to make loans to them and granted 10% annuities for the sums so obtained. (291) Castile had long financed itself by such perpetual annuities. These annuities became such a burden that in her last will Isabella advised her successors never to sell perpetual annuities; she ordered that all free revenues of Granada should be applied to repayment of these loans. Her injunctions were not obeyed, and in subsequent centuries the record of the Spanish Crown became a dreary succession of defaults in spite of the wealth of Spanish possessions in the new world.

In the Netherlands the government, the provinces, and the towns contracted loans from time to time which often took the form of life annuities or perpetual annuities with sinking funds. At the end of this century the rates they paid were 8 to 12% (292), but these rates later declined. As these were not all perpetual annuities, some part of these higher payments was a return of principal.

The rate of interest on long-term loans to the city of Genoa in the fifteenth century ranged between 4 and 10%, while rates on perpetual annuities issued by the city of Barcelona ranged between 4 and 5^%.

For Venice in the thirteenth and fourteenth centuries a series of quotations have been reported on the 5% prestiti, covering a period of more than 100 years. These forced loans, redeemable only at the option of the republic, had commanded universal respect and had at one time even commanded a price above face value. In the war of Chiogga with Genoa, 1378-1381, even though Venice won a crushing victory, the republic suspended regular interest payments on the prestiti and revoked their exemption from new capital levies. They evidently lost status because they declined in the market from 92^ in 1375 to a range of 19-43 by 1381. (293)

By 1400 the prestiti had recovered to a range of 60-66% of par. Quotations during the fifteenth century were between 13 and 67, usually in the higher part of this range. The nominal rate of interest was then 4%, which gives a yield of 6% on a price of 67. (282) Unfortunately, however, there is not sufficient evidence of regular interest payments to translate most of these prices into market rates of interest. This nevertheless was a century of progress and prosperity for Venice. She won most of her wars. There was a long period of peace and prosperity after 1423, (294) during which the debt was reduced and interest was paid. Nevertheless, expenses were heavy. There were extraordinary taxes and abuse of credit, a stoppage of amortization, and at times a stoppage or reduction of interest payments. Price quotations of the prestiti (originally paying 5%; later 4% or variable rates) are reported as follows (293):

Prices of Venetian Prestiti

Time

Events

Price *

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