The First European Great Depression

Great Crises in Spanish Economic History: The 14th Century
The First European Great Depression
War, epidemics, hunger…the Late Middle Ages saw enormous convulsions that caused a profound crisis in Europe and Spain. This shock to feudalism opened the door to modernity on the Old Continent.
El País: La primera gran depresión europea
Editorial by Antoni Furió Diego, January 8, 2011

After various failed attempts to overcome its financial crisis, the Kingdom of Mallorca’s estate went bankrupt in 1405. In previous years many private banks had fallen in Barcelona, Valencia, and Mallorca, but this was not the collapse of a particular financial institution but rather an entire kingdom. The bankruptcy not only forced the government to consign all the island’s revenues to interest and amortization payments; it also left the creditors, the immense majority Barcelonese, control over the centralization of monetary collection, the supervision of interest payments, and the general management of the public debt.

This was not merely a temporary crisis. The problems were structural and began long before that. Thirty years earlier, only twenty years after Mallorca began to emit public debt, the treasury was already underwater. As Álvaro Santamaría noted in his day, of the crown’s 900,000 sueldos (gold coins) of projected global revenue, only some 660,000 were collected, while the rest went unseen because of fraud and bad management. To close the gap between revenue and expenditure, the Mallorcan treasury had contracted debt on the order of 6 million sueldos, which obligated total interest payments of 600,000 sueldos, that is to say, almost all its effective revenue.

In 1373, an administrator named by the crown drew up a reorganization plan to (A) drastically reduce public spending (by (1) considerably trimming the wages and rewards paid by the government, (2) reducing the number of embassies and official missions, (3) limiting investment in public works such as city wall maintenance, water services, and docks for ten years, and (4) controlling the wheat supply and prohibiting food donations by the crown on the public dime), (B) strictly control public finances (by submitting them to auditors whose reports would then be given to new government leaders at the beginning of their annual terms), and (C) amortize the debt in 10 years (with a (1) reduction in the interest rate from 10% or 8%, (2) 10 year moratorium, and (3) septennial amortization).

This plan not only didn’t work; the financial crisis became more serious, and although there were new attempts to clean up the debt (in 1392 a Catalonian representative of the creditors took a role in Mallorcan finances to assure the payment of interest), the national bank finally broke in 1405.

Mallorca’s is neither an isolated case in the Spain nor the Europe of the Late Middle Ages. By the end of the 14th century, payment of public debt interest made up between half and three quarters of public spending in the great cities of Italy, France, Germany, Flanders, and Holland. In the Kingdom of Aragon, where the censo (see Law of Emphyteusis) had become the principal financial recourse of local governments by the mid-1300s, public debt reached colossal levels before the turn of the century. In Barcelona, interest payments as a percentage of public spending increased from 42% in 1358 to 61% in 1403; in Tarragona, they were 54% in 1393 to 72% in 1399; in Valencia, they were 39% in 1365 and 50% in 1402; Mallorca, perhaps the most spectacular case, hit 81% in 1378. As the debt was financed by fiscal revenues – or more accurately, by new taxes and increased fiscal pressure – a good part of the public’s economic energy was diverted to creditors, to citizens and merchants who invested in public debt – less lucrative but more secure than other options – to diversify risk, long before they took the baton from the nobility and ecclesiastical institutions, and who clearly had investors’ spirits.

The unstoppable increase of the debt, one of the best barometers and also one of the multiple causes of the crisis of the 14th century, had its origin in the continuous pecuniary petitions of the monarchy, motivated at the same time by increases in military spending, and on a smaller scale, the development of an ever-more centralized administrative apparatus. War was a near-permanent state of affairs in Europe throughout the 14th century, one of the great scourges, along with pestilence and hunger, of this century of calamity.

On the Iberian Peninsula, military campaigns came one after another for the greater part of three centuries: (1) the Castilian-Aragonese crusades against Granada, (2) the battle of Salado, in which the combined forces of Castile and Portugal defeated the Marinids, (3) the conquest of Cerdeña and continuous wars with Genoa for control of the western Mediterranean, (4) the reintegration of Mallorca to the Crown of Aragon, (5) the Castilian nobility’s revolts and the wars of unification between Aragon and Valencia, and (5) above all, the Castilian Civil War, which arose from an open war between the crowns of Castile and Aragon, a long, costly, and destructive war that also made a mark in the general European Hundred Years’ War.

The wars reaped lives, devastated harvests, razed towns and cities, interrupted commerce, made grain storage difficult, and halted growth, but they also demanded great sums of money to finance military campaigns – in particular, to pay troops – and to reconstruct afterward. This money came from cities and rural communities submitted to new and greater levies which were initially extraordinary and then became ordinary. As opposed to the ancient feudal tributes, strictly collected from nobility, the new taxes were general and universal; they extended not only to the king’s vassals but also to all the inhabitants of the kingdom, all the subjects of the monarchy, under the justification of common good and public utility. Yet they were invested in dubious ways (from the perspective of the taxpayers as well, who denounced them), such as more wars and more favors to the friends and partisans of the sovereign.

The construction of a true fiscal and financial system with ordinary, regular taxes on assets or commercialization and consumption (including sisas and alcabalas, which were akin to VATs) made possible, first in Catalonia and the Kingdom of Aragon and later in Castile, the consolidation of the public debt, based not on short-term credit (loans at interest) but on long-term credit (censales/emphyteusis, juros/long-term bonds). Or to put it more accurately, it was the consolidation of public debt consigned over determined taxes (the majority indirect) that demanded and culminated in the establishment of a true financial system, first municipal and then statewide.

In any case, and this is what’s relevant, cities, kingdoms (courts and councils), and monarchs had new financial instruments at their disposal to attend to new and growing necessities, although in some cases the new instruments still lead them to bankruptcy; the urban patricians and later the high aristocracy and clergy benefited from the fiscal banquet, redistributed in the form of debt interest; the popular classes, rural or urban, the net contributors to the system, saw how the new taxes were added on top of the traditional agrarian property taxes and feudal rents in order to finance local and royal treasuries and the public debt in particular.

This increase in fiscal pressure and distribution of its product between the nobility (professional soldiers and high-ranking statesmen) and those who invested in the debt is only one manifestation of the great economic and social changes (including political, cultural, and religious changes, like the Great Western Schism) that took place in the 14th century which historians tend to globalize, maximizing the negative overtones, with the general denomination “The Crisis of the Fourteenth Century”, “The Crisis of Feudalism”, or “The Low Medieval Great Depression”. Other manifestations are more well-known, hence I am dedicating less space to them in this brief synthesis.

The first historians of this time and their contemporaries distinguished most of all the conjunction of catastrophes and calamities that swooped down on this century, first of all the Black Plague which decimated the European population. The epidemic, lethal in both its bubonic and pneumonic forms, spread to the Mediterranean Coast of the Iberian Peninsula in the summer of 1348 and rapidly propagated throughout Western Europe on the backs of the rats that infested ship’s holds and commercial cargo. There was no remedy against it, and all the doctors and publish and religious authorities could recommend besides Rogation days and acts of collective expiation was that people flee the most crowded and exposed cities. That’s just what Boccaccio did: he retired to a villa away from Florence and wrote the Decameron during the year of the pestilence.

Although all demographic estimations prior to the statistical area should be taken with a grain of salt, it’s estimated that one third to one half of the European population succumbed to the epidemic, a true demographic and economic collapse. In addition, the recurrences of the plague were as lethal as the first irruption: the second outbreak, in 1362, tormented infants, who did not have immunological defenses, and caused the pestilence to cast a shadow of incurable disease over European society until long after the medieval era.

Long before pestilence, there was already scarcity and starvation. A Catalonian chronicler of the era baptized the year 1333 as “the first bad year”, the beginning of all the evil, when a bad harvest launched grain prices, and hunger and death spread across the peninsula. In Barcelona alone, 10,000 of the city’s 50,000 residents perished. The effects of scarcity were also severe in Castile and Portugal.

In northern Europe, the crisis had begun a generation before, with the great famine of 1315-1317, provoked by terrible weather and a succession of bad harvests, which struck the entire continent, from Scotland to Italy and from Russia to the Pyrenees, but which did not affect the Iberian Peninsula. Testimonials of the era mention high levels of crime and illness, mass deaths, and also cases of cannibalism and infanticide.

In opposition to the catastrophic view which situated the origin of the crisis in the incidence of exogenous events like pestilence and global cooling (the 14th century, in effect, was the beginning of what became known as the Little Ice Age, which continued until the mid-19th century), the majority of historians have traditionally favored attributing the factors to endogenous causes like disequilibrium between populations and resources, decreasing yields, the class structure, social conflict, permanent war, competition between new emerging states, and increased fiscal pressure.

For Neo-Malthusian historians, the causes of the crisis were the internal limitations of the growth – both demographic and economic – that had characterized the European economy during the three previous centuries (the 11th to the 13th). This inflection was already produced during the last decades of the 1200s, when in some places (certainly not the Iberian Peninsula) the first signs of exhaustion from a great medieval expansion began to appear.

Thirty or forty years separate, in Bois’s opinion, the end of growth and the depression itself. One can count among the factors that brought the latter the persistence of demographic pressure on an exhausted and insecure economy, rising prices, and in particular an elevation in the price of land.

As is the case with any bubble, a veritable speculative fever powered real estate and pushed prices to irrational highs. Interest rates, which during the growth period had descended to an average of 5%, elevated to 8% to 10%. All this translated to serious monetary disorder, particularly in France, where the currency lost 50% of its value while devaluations pushed down prices and unshackled monetary speculation.

This process constituted an extreme prolegomemnon (preamble) of technical and productive stagnation, an increase in unproductive public spending, and an increase in debt on overvalued assets that preceded and finally brought about the depression, with falling production and agricultural prices and contraction in demand, which was also affected by the monetary crisis and demographic retrocession. For its part, the exit from the crisis, which I cannot extend my article long enough to describe here, only came in the middle of the 15th century, with an important reconstruction in economic structures, the reduction of other types of interest, the stabilization of money and prices, and a rise in salaries and manorial incomes, thanks to a new centralized fiscal system and the recovery of demand.

Farther removed from the most virulent manifestations and also from various historical interpretations of the events, the Great Late Medieval Depression has also been considered a systemic crisis, a crisis of feudalism (although this would not bring the system to an end, like the crisis of 1929 did not end capitalism). Others, in turn, ask if it would not be better to speak of a series of short-term difficulties and production bottlenecks that could have been overcome if the plague hadn’t broken out.

In any case, the crisis brought about a profound reorganization of the feudal system, from its economic base (greater specialization and more intense farming, greater urbanization rates, the development of manufacturing, the increase of commercialization, the reduction of transportation costs) to its political and institutional structures (the consolidation of territorial monarchies and centralization of political and militaristic power). It was in this senese, in the words of Epstein, a process of “creative destruction” unleashed by a rapid and traumatic demographic collapse lead to greater economic and institutional integration and to greater cooperation between markets and states, which would put the European economy on a path to greater growth. Instead of seeing solely the calamitous aspects of the era, one should see the crisis of the Late Middle Ages as above all a motor for economic change, the scene of a reorganization that permitted greater growth and development. Europe and its economy were reinforced by this test.

Antoni Furió Diego is Chair of Medieval History at the University of Valencia. The next article in this series will be The 17th Century by J.A. Sebastián.

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2 Comments on “The First European Great Depression”

  1. jamesredthread Says:

    Hi. This is an interesting post about a very complex phenomenon. When looking at such massive social, cultural and economic change it’s difficult to know what leads to what. I wrote a short drama exploring the relationships of environmental/industrial change and changing conceptions of time and nature. Probably it raises more questions than it answers but you may be interested. It’s at

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