Francis Pourbus, Merry Company
Clarence Kee,
Lecture, September 27, 2006
So, our subject matter today requires me to deal first with a bit of imperial statecraft, then Saxon economic history, and finally, Saxon political history. In short, we are not going to be staying in any one lane today. Not least because the people we will be dealing with were not staying in their lanes either. They were, in fact, all over the road. Which accounts for a number of the fiery crashes in the material we will be shortly discussing.
In December 1575, Jakub Uchanski, Archbishop of Gniezno, and by virtue of that office interrex of the Polish-Lithuanian Commonwealth, declared Holy Roman Emperor Maximilian II king. Uchanski had some reformist and Protestant sympathies, and it is entirely possible these constituted one reason for his choice of Maximilian to lead the sprawling, complex Polish-Lithuanian Commonwealth. However, Uchanski's office of interrex under the Polish-Lithuanian constitution gave him no personal power to select a new king, and quickly a counter-movement began among the Polish szlachta to elect a different candidate, Stephan Bathory, king of Hungary.
Maximilian understood that seizing the Polish throne would greatly expand Habsburg power in Europe, especially if the Habsburgs could render its elections as perfunctory as they had those of Bohemia and the Holy Roman Empire. Immediately, he began organizing an army to seize Poland-Lithuania by force. Financing this army would be difficult, given the Habsburgs' increasingly dodgy history of loan repayment. So for this purpose Maximilian turned to the Elector Alexander, both for the use of the Saxon army and for loans to float the whole enterprise until he could lay hold of Polish-Lithuanian tax money.
It has to be said, initially Alexander did not look with enthusiasm on any part of this. So the response Maximilian received back was essentially no small amount of hemming and hawing. At this point Maximilian signaled he was willing to undertake a more serious negotiation. Alexander's counter-offer, which was designed to placate domestic religious discomfort with his accommodation of Calvinists and Jews, was that he would provide the direct military assistance, and the loans, Maximilian requested, at an extremely favorable interest rate, with a sizable one-time penalty payment (in addition to the repayment of the principal) in the event of a negotiated settlement that left Maximilian with anything short of the actual Polish-Lithuanian crown, and most importantly, a guarantee of freedom of worship to Lutherans within Polish-Lithuanian territory cognate with the settlement of the Augsburg Diet of 1554.
Moreover, additional negotiations secured a further term Alexander desired: in return for these loans to Maximilian, Maximilian and the imperial courts over which he held influence would look the other way in the event of any confrontation between Alexander and the Johannine dukes who were proving so vexing to him, regardless of the issue or the quality of the provocation. Alexander had specified complete leeway, and that was what he was promised by Maximilian II.
Never let it be said that our Alexander did not know how to do business. If Maximilian's plan had gone forward, and the Imperial army had defeated Bathory, Saxony would have received extremely generous compensation and Lutheranism would be free to expand eastward unimpeded to the very borders of Muscovy. And there was no doubt, as far as anyone was concerned, that Maximilian could defeat Bathory, especially fighting alongside the Saxony army. If the Saxon force was now untested and a good thirty years from its glory days of Kreuzberg, it was also in much better shape than it had been at the start of Alexander's reign. And Uchanski was making grand promises of enthusiastic Polish support for Maximilian. It was, all told, a no-lose situation.
Except that Maximilian died in October 1576, just as he was about to leave with his army to go take that crown. Immediately, Alexander began writing letters to Maximilian's heir Rudolf, King of the Romans, demanding to know his intent going forward, and more importantly, the fate of Saxony's money. Rudolf was disinterested in making his father's cause his own. Maximilian's second son Ernst, had previously been a candidate for the throne of Poland-Lithuania in 1572 but was absolutely unwilling to make the same assurances about the toleration of Lutheranism Maximilian had. Maximilian's third son, Matthias, was deeply involved in the disputes around the Netherlands and could not be prevailed upon to attend to the Polish-Lithuanian matter in a timely way.
So, the Saxon army raised to help install Maximilian was released. And the vast sum lent to the enterprise went, somewhere.
Alexander was now getting the treatment of creditors from time immemorial. And all this may have been just another hard-earned lesson about risk, except for the crisis of the Saxon lending societies. Excuse us as we now change lanes.
You will recall that Friedrich IV had established a state monopoly on lending for interest, and that as soon as Alexander took over from his uncle's regency he reformed that system by introducing a regime of licensed private lenders which did not replace, but supplemented, the state system. Simple human greed being what it is, fifteen years later Saxony already had the tin-cup and string equivalent to a modern central bank. Generally speaking, safer, low risk loans, loans secured by property, and loans to fund economic activity particularly advantageous to the state could deal with the state and pay little, or even no, interest. Riskier, less reputable, unsecured loans, especially those involving long distance trade, were relegated to the private lenders, who were compensated for the danger they perpetually lived in with extraordinary profits.
What cannot be overstated is how in reality this was one, interdependent, system. The zweitemaenner, the private financiers, themselves received loans from the state, ostensibly for less risky transactions, and essentially sold the money on at higher rates of interest. Though Alexander's bureaucrats made a brave stab at financial regulation, it was impossible to track how loan proceeds were spent, and so inevitably some of the worthy projects for which the Chancellor Julius sought such easy terms went undone, while the proceeds to finish it were financing traders out of Hamburg or Amsterdam.
In fact, in 1575, just as Alexander was rounding up the coin to give to the Emperor Maximilian to win the throne of Poland-Lithuania, Julius of Braunschweig, thrilled with the results of his previous program of essentially free loans to open mines and metal-working shops, expanded it to the construction of bridges, barges and roads, in the hopes that the state could effectively encourage private entrepreneurs to create an infrastructure that would amplify commerce.
Thus likewise, the problem cannot be overstated when the Saxon state could not fulfill its role as primary creditor to the Saxon economy in 1576-7. The Huguenot glass-makers, lace-makers and other tradesmen of Wittenberg had always been commercially sophisticated, relying on credit for their materials, up-front, with their inventories and their stream of income from the finished goods their collateral. With their source of cheap capital gone, they faced the choice of either prohibitively high rates of interest on the private market or stopping business. Similar arrangements were common in the mining industry, which required huge outlays for wood, tools and miners' wages. Even farmers, in particular the astute new arrivals from France and the low countries, had ceased to merely hold some of their harvest back from the previous year for the next, but bought some of their seeds commercially. Now they too faced the consequences of dislocation.
Then, as in every crash, flaws and frauds that initially had nothing to do with the immediate particular crisis lay revealed. Much had been made of the property-registries, which allowed lenders to identify and verify that borrowers held the collateral to secure the loans they sought. Now, as collateral started to be claimed by lenders eager to avoid their own insolvency, it stood revealed that the registries had never been coordinated against each other. One house in Freiburg had been promised as collateral in the books of nine different Saxon towns. Loosely worded descriptions had also allowed houses, shops and farms to be promised to multiple lenders. Sometimes, in extreme circumstances, creditors arrived to take possession of a farm or business promised as collateral and found only the wall of trees of an unspoiled wilderness, no one having ventured to verify anything was actually there.
Sometimes, these disappointments were the result of fraud, collusion and cozy arrangements between borrowers and the local officials charged with maintaining the records, but more frequently it was the result of these bureaucrats not understanding the purpose of the system for which they worked, or the consequences of it not working properly. And to an astonishing degree they had been subject to the same pressures that afflicts all such gatekeepers in times of prosperity: everyone wanted the transactions to go through, even with certain imperfections that would most likely never matter anyway, than to see the flow of money stopped due to "a technicality."
And so, for all these reasons, when the initial flow of credit from the Saxon state stopped, that created something of a problem; when that flow in turn disrupted the economic activity on which all debt repayment depended it made something of a more serious problem; and when that disruption in turn fed back into the private lenders and began to dry up their sources of income, it created a still worse problem. But it was when the state, and the private lenders, facing the first such crisis of its kind they had ever experienced, went looking for the collateral that would be promised them in the event default and found it either was not there, was not what they thought it was, or had been promised some fifteen different ways to secure loans totaling some forty times its actual value, was when problem became absolute biblical-scale catastrophe.
And so, now we change lanes again.
The Elector Alexander and the Chancellor Julius had always maintained a set of agreed-upon courses of action for dire emergencies. Most of these involved some permutation of the crisis at the start of the Spanish War, some climactic blood-feud with the Johannines, or, always a possibility, a New Peasants' War. None of them involved anything like what the Saxon government now faced. In fact, the most common state prescription for the closest thing to just this situation, was a default on a debt to an external creditor. This was what Spain did all the time, for which Spain was facing ever stricter terms and ever higher interest on its debt. But remember, default is a remedy to a borrower, and Saxony was a creditor-state. It was not making good its payments because it was not getting paid the debts due it. Defaulting outright would only make matters worse, and would introduce a level of distrust into the system that would be not just expensive in terms of the higher interest rates, but toxic to the arrangements that had allowed the prosperity of the twenty years since the Augsburg Diet to transform the country.
Moreover, Alexander feared that if Saxony's homegrown private lenders were forced to sell their portfolios, they might do so, at steep discounts, at that, to external financial interests from Augsburg, Regensburg or even Italy, which would leave Saxony and its people beholden to foreign lenders. Thus the system which had been started ostensibly partly to keep interest payments from flowing outside the country would now be used to do precisely that.
So what Alexander needed to do was to raise an enormous amount of money very quickly. He had spent through a prodigious amount of his treasury in the early days of the crisis, covering loans and making good on contractual promises undertaken when the economy was fine and a Habsburg Poland seemed like a sure thing. So he now faced extraordinary needs with depleted resources. Now, while he did not reduce himself to, say, selling the Electress Maria Eleonora's collection of table-clocks, in all honesty he did not possess in terms of even his own movables the property able to assuage a crisis of this magnitude. The only resources the elector really had of sufficient scale to solve matters on their own was his lands, and as this was the key to his actual control of Saxony, and as his relationship with his cousins the Johannines was as venomous right now as they could possibly get, he was not going to go near the concept of alienating his patrimony.
Instead, Alexander in June 1577 decided he would call the Saxon Estates and ask them for a one-time, extraordinary loan that would itself be paid back piece-meal over ten years. Of course many in the estates were now themselves economically hurting due to this extraordinary situation, and some had even lost homes and livelihoods to the now-hated zweitemaenner as collateral was seized over bad loans.
But seriously, Alexander thought, how bad could it be?
Ka-boom.