INFORMAL FINANCIAL MARKETS IN 19TH CENTURY SWEDEN. ESTIMATES BASED ON MICRODATA
Final report regarding project registration number P14-0545:1

Project and program

This Riksbank's Anniversary Fund project started 2015-01-01 and concerned a three years post doc grant for Dr Axel Hagberg. This project is a part of a wider, cross-disciplinary scholarly research program which is described more in detail in my research plan attached to my application (P14-0545:1).

Several research foundations have contributed to the financing of our program. These are Swedish Foundation for Humanities and Social Sciences (RJ), the Jan Wallander´s and Tom Hedelius´ Foundation, the Marcus Wallenberg Foundation for International Scientific Collaboration, the Jacob Wallenberg Foundation, The Foundation for Economic History Research within Banking and Enterprise, the Ebbe Kock Foundation and the Gunvor och Josef Anér Foundation.

The purpose has been to utilize differing approaches and various case studies to investigate the informal credit market in 19th Century Sweden, thereby contributing to our knowledge of the private note market, its size and structure, before the modern banking institutions were established. In our research the lending activities of private bankers, merchant houses, urban brokers and rural parish bankers in the countryside have been investigated as well as lending given by national, regional and local funds with non-profit objectives which wanted to make their capital fruitful by lending at interest.

The source material relied on is estate inventories which are kept in the archives of judicial districts, the “häradrätter” in the countryside and “rådhusrätter” in towns. The usefulness of this material for scientific research has been discussed for long. Of course, the answer is depending on the question raised. Scholarly opinion is largely unanimous relative to the financial side of the estate inventories. Both provenance and case studies made indicate a very high historical source value. The method used by us in this project is mostly attributed to Alice Hanson Jones who in the 1970´s made reconstructions of the wealth of the living population in the British North American Colonies before independence. But our research has shown that this method to correct for bias in age specific death rates was used by the Swedish statistician Isidor Flodström in his national wealth studies before WWI. The reliability of the inverted mortality rates method has been tested in several case studies within the project. The joint result of these studies is that age corrected estimates based on the estate inventories yield reasonable reliable estimates of the debt aggregates they are intended to measure.

Besides Axel Hagberg and me, the research team has included Associate professor Anders Perlinge (EHFF Institute for Economic and Financial History Research, SSE Stockholm School of Economics), Dr of Technology Tom Kärrlander (Centre for Banking and Finance, KTH The Royal Institute of Technology), Dr of Economic History Bengt Åke Berg (EHFF, SSE), Ph D student Jaser Abbas (Department of Economic History, Uppsala University, and research assistant BA Anna Norell.

Project Developments

On the whole, the original project plan of 2014 has been implemented. Financed by RJ Axel Hagberg has built a database aiming at regional comparisons of informal credit markets, starting from six major strata and a simple random sample of towns and judicial districts within each region. The choice of region is made to get four population and tax based equal regions, in all representing about 80 per cent of Sweden´s population throughout the period 1800-1900: Svealand, Western Götaland, Eastern Götaland and Skåne, including Halland. The county of Stockholm and the province of Northern Sweden is dealt with separately. On the basis of statistical selection theory, one town and two judicial districts in the countryside have been selected to form research areas. Depending on the great importance of the capital of Stockholm, constituting ca 17-18 per cent of the total property tax assess values in Sweden both in 1800 and in 1900, it was decided early on that Stockholm should be a case study of its own right, made by Anders Perlinge.

Financed by the Wallenberg Foundation for Economic History Research within Banking and Enterprise Anders Perlinge was associated full time researcher at the Institute for Economic and Financial History Research of SSE from 2016-01-01. This has been a real gain for the implementation of regional studies of Stockholm and Skåne. Moreover, Anders Perlinge has taken over the baton for future early modern credit market research at the EHFF and Stockholm School of Economics, initiating a network of active researchers in the field of “women and their money”. As a result of the international conference at SSE last September, and together with Associate Professor Elise Dermineur, Umeå University, Perlinge has been forming an international advisory committee for financial history research, including some of the most prominent international researchers in the field (see below).

Three important results

The research frontier has been moved forwards basically by increasing our knowledge of the functioning of credits in pre-industrial economies in general, and in Sweden in particular. The prevalent view of a fast growth of the financial sector to GDP has been corrected and the so-called Financial Revolution stands out as a Financial Evolution. The private credit market, including credits on current account as well as promissory notes, was totally dominating during the first half of the 19th century, more pronounced in the countryside than in the towns (90 and 80 per cent, respectively). Even after the breakthrough of the modern banking system, the informal private credits were important, constituting almost half of the total credit market.

In the countryside the private promissory note lending was highly concentrated in the hands of a few credit suppliers, who we have labelled parish bankers. Contrary to urban brokers and merchant houses the parish bankers normally did not accept deposits; it was the surplus from agrarian activities which was invested on the local financial market by lending.

Regarding the growth and distribution of wealth, the project has contributed to research critical and methodological questioning of established views. After several years of research based on probate records Erik Bengtsson et al. of Lund University, have published an article in The Economic History Review indicating that Swedish financial inequality increased after 1750 and that it accelerated greatly during the second half of the 19th century. In this article the authors have totally ignored that property tax assessments, which were the base for probate valuations, were highly undervalued in the first half of the century. And most important, these tax assessment under-valuations were unevenly distributed in the country.

More problematic in all previous research on wealth distribution is, however, that negative wealth is incorporated in the calculations as “zero”. For long Sweden was a capital importing country and the Swedish merchant houses were financed from abroad with foreign capital. Gradually as the foreign household debts was replaced by capital imports by banks, local authorities and the state (and during WWI Sweden eventually became a capital exporting country), the negative wealth of estate inventories gradually was reduced, and the wealth inequality became more evenly distributed.

As a fourth important result it may be added that the project has created an accessible and systematically constructed database which without any costs will be made available for future research on the EHFF web.

International dimensions

During the first project years the efforts were prioritized to create an integrated research environment in Sweden and in the Nordic countries, in which the project should be acknowledged as an important teammate at the research frontier. At the 11th Economic History Meeting in Umeå, Oct 8-10, 2015, Associate Professor Kristina Lilja from the Economic History Department in Uppsala and I arranged a double session “Research on estate inventories”, which became a broad inventory of ongoing probate research in Sweden and a start for future collaboration in early modern financial market research.

The Umeå start-up was followed-up with a workshop at the Department of Economic History at Uppsala University, “The financial dispositions of households in the pre-industrial Nordic countries”, arranged by Kristina Lilja and Anders Perlinge June 12-13, 2017, followed by the 12th Economic History Meeting in Stockholm Oct 12-14 in the same year. At these events, all participants in my project presented working papers at three different sessions.

At the EBHA World Congress in Business History in Bergen August 25-27, 2016, Anders Perlinge and I presented two separate papers. The conference papers have turned into articles, one published and one admitted for publication, in prestigious international journals (see below).

During the autumn 2018, Elise Dermineur and I arranged an international conference at the Stockholm School of Economics, “Wealth and Debt Accumulation in Early Financial Markets”, on September 13-14. This conference may be seen as a final of our project, but also as the springboard for further research, the groundwork of which was laid by the project. The conference was financed by the Swedish Foundation for Humanities and Social Sciences, the Jan Wallander´s and Tom Hedelius´ Foundation, and the Marcus Wallenberg Foundation for International Scientific Collaboration. The aim of the conference was to get international feedback from colleagues in the internal research frontier to our two projects and to create an international reference group for future comparative research in financial history. In all, there were 48 participants, 18 of them colleagues from Italy, Spain, France, UK, Canada, USA and Australia. From the two arranging projects nine researcher participated, as did some ten PhD students from Uppsala University, Stockholm University and Stockholm School of Economics.

For future collaboration an international advisory committee was established at the end of the conference, including Ander Perlinge and Elise Dermineur (convenors), Dr Tawny Paul, University of Exeter, Professors Anne McCants, MIT, Livio Di Matteo, Lakehead University, Canada and Martin Shanahan, University of South Australia.

As conference volumes are not very popular for printing, we are planning to publish a quite different volume, including the synthetic results from the two arranging projects, in which the conclusions from the conference discussions will be embedded. This was the reason why all presentations and comments of the conference were recorded. Elise Dermineur and Anders Perlinge will be the editors of the volume, which hopefully will be published by Gidlunds in 2020.