Rosetta stone

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					            Public finances 1250-1450
                              March 1

• Military outcome explained by public finances

• Contrast England / France

• Innovation: sovereign lending

• First discussion of the theory of sovereign lending: the model of

• Illustration: the battle of Crécy (August, 26 1346)
 – Others: Poitiers (September 19, 1356), Agincourt (October 25, 1415)

           Schocks to fiscal systems

• Ransom of Richard I in late 1190s
   – 100 000 pounds, about one year of revenues from
     Normandy, (a little less than the revenues of England)

• Loss of Normandy in 1206
• Ransoms and will provide powerful incentive to
  improve tax systems in the Middle Age.
• Work of J.E. Morris “The Welsch Wars of Edward I” (1901)
  – If it be true that the English learnt in Scotland the experience which was
    destined to make them the victors at Crecy and Poitiers, it is equally true that the
    preliminary experience had been learnt in wales. It was precisely because I
    wanted to trace back the evolution of the typically English combination of
    knights with archers that I began to study the documents of the Welsh wars.

• praised by the current specialist of the time, M. Prestwich (1996)

  – His book is a truly pioneering work. It was not for many years that other
    scholars began to approach the subject in the way Morris did. Not content to
    limit himself to the conventional questions of military history, those about
    battles, strategy and tactics, he first of all examined the structures that
    underlay the triumphs achieved by Edward I in Wales. These wars are the
    earliest military campaigns for which a substantial bulk of accounts and
    pay rolls survive, preserved in the Public Record Office.

    Country                    England                                  France
Geography        moderate size base (England)             country is “too large” with strong
                 to conquer adjacent states within the    semi-independent close neighbor:
                 envelope (Wales, Scotland, island)       Burgundy

Public finance   good potential for taxation:             low potential for taxation
resources        type of trade, harbors

Institutions     monetization of the feudal dues          persistence of in-kind services for
                                                          the feudal dues

Shocks and       stimulus from conquests and military old military technology, main
technology       innovations                          stimulus from king ransom

Personalities    very strong kings:                       weak kings
                 Edward I (1273-1307) : Wales, Scotland
                 Edward III (1327-1277) : France
  Issues in Middle Ages public finances

• England’s advances
 – monetization of the the public finances (army)
 – taxation
 – sovereign lending (Riccardi bankers)

• France
 – Persistence of in kind services (corvées for the nobility)
 – regional interests with local assemblies

       Reforms of Edward I

1.   Shift from feudal manpower to financial dues
2.   Paid army
3.   New army
4.   Introduction of customs
5.   Borrowing from foreign lenders
6.   Collaboration with “representative” assemblies
       Reforms of Edward I (1272-1307)

1.   Shift from feudal manpower to financial dues
2.   Paid army
3.   New army
4.   Introduction of customs
5.   Borrowing from foreign lenders
6.   Collaboration with “representative” assemblies
         1. Monetization of feudal dues
• time of 40 days is too short for a campaign
  – sufficient under “evident necessity” for the defense, but inappropriate
    for expeditions on the offense

• feudal army with 40 days services is not trained as an
  homogeneous body

• poor discipline (individual initiatives are strong)

• feudal technology is the cavalry

• monetized army uses a different technology

• no reliable source of mobilization

                       2. Paid army

• banneret (commander of 10 mounted men): 2 s per day

• footman : 2d

• pay every three or six days (bought their own supplies)

                      3. New army

• professional army (not a band)

• new technology: long bow

• new tactical maneuvers

• training in the campaigns against Wales, Scotland

   4. Extension of the tax base: customs
• tax on exports of wool and hides
  – fixed rate per quantity

• designated customs ports
  – in each port, 2 citizens “des plus leaux et plus pussanz” (among the
    most loyals and powerful) as collectors (information and
  – on each tax document additional controller of the king
  – fines on evaders could be charged and collected by local authorities
    (solves an incentive/administration problem)

• steady and monitorable tax revenues
  – important for credibility (toward foreign borrowing)

                   5. Foreign borrowing
• Extension of revenues in the outburst of expenditures
  – revenues are steady, expenditures are peaked; “timing” problem
  – no domestic capital market at the time
  – only market is from international trade with italian bankers

• foreign borrowing from the Riccardi (Lucca)
  – major innovation in history
  – loan in 1276: about 22 000 pounds sterling (about the expenditure of
    the 1276-77 campaign)
  – loan of 1282-83: about 33 K for a campaign of 100 K

• bankers in charge of the customs to service the debt
  – is this a sufficient guarantee?

                     Sovereign lending
• General and “modern” issue
  – private lending: guarantee to pay back with a collateral and
    enforcement (but problem in some developing countries with poor
    institutions: no mortgage lending; strong impediment to capital
  – sovereign lending (to a country): no international enforcement for
    payback of the loan

• What makes countries pay back?
  – rich literature in economics since the 80s (theoretical and

• cutting from further loan ?
NO : Bulow and Rogoff (1989). “Sovereign Debt: Is to Forgive or Forget.”
  American Economic Review (1989): 43-50.

     “Not lending more” is not sufficient
• Two players, the king (borrower) and the banker (lender)

• At the time to pay back the loan, how can the banker force the transfer
  from the king?

• If the banker threatens not too lend in the future, the king (I) says
  – “You give me more only if I give you some money; better for me to keep
    what I should owe you”.
  – If I do not have spending requirement now, I still do not pay you because I
    put the money aside in some investment

• In anticipation for this outcome, the banker lends nothing.
  – the argument still holds if the king has to repay a small amount now and may
    have great needs in the future: how to guarantee the large loan later?

• No sovereign lending is possible:
  – the argument is quite general, provided that the king has investment
    opportunities that are (roughly) equivalent to those of the bankers

• Riccardi were put in charge of the customs

• weakened by seizures in 1291 in France

• July 1396: edict of the king to remove the control of the customs

• bankrupcy

                             6. Parliament
• Edward I ensures that resources are mobilized

• All parts of the country are represented
  – taxation on a national basis

  – alleviates some free rider problem

  – favorable setting of the right country size

    • there is only one parliament (not regional parliaments with special interests)

  – king wanted a strong parliament with representation of the towns and
    shires: thus agents of enforcement of the commitment to the fiscal policy

                    France before 1356

• Traditional system of feudal dues

• but why?

• No “centralization” as in England

• Regional interests with local parliaments (estates)

• Poor geography for the collection of taxes

• No international trade with few ports

• Economy is much larger than England, but for the public finance, it is

• Features will persist after 1300 for half a millenium.
         Some details on p.f. in 14th cent. France
• In the south, towns refused to contribute shortly before the invasion by the
  English in 1345

• Direct taxes subject to approval by estates (problem of information and

• Indirect taxes could be implemented by the crown

• Gabelle (salt tax) introduced in 1346 (pressure in Hundred Years war)
  – System implemented in Italy 100 years before
  – Practically: granaries for salt and state monopoly
  – Soon repealed (to be permanent later after a few disasters)
  – After the disaster of Crécy, bargaining with direct taxation (grants) replacing
    the gabelle.
                    Edward III (1327-77)
• Beginning of the 100 years war

• System of Edward I, improved

• Expeditions on the continent have to be carefully prepared.

• Campaign of 1346

• Battle of Crécy
  – about 10 to 15 000 Englishmen, about 40 to 50 000 on the french side
  – Battle and its outcome a consequence of the differences between systems of
                       The test : Crecy
• Before the battle,
  – french : 40 000 men
  – english :10 000 men

• After the battle
  – french : more than 6 000 dead, including 3/4 of the nobility
  – english : a few dozen dead

• Military or public finance ?

• Outcome of a long evolution in England and lack of it in France
  – Here, we will partially retrace some of the steps

                                           Battle of

english point of view
looking from Crécy toward Estrées

                                    4 pm


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