THE MODERNIZATION OF SWEDISH CREDIT MARKETS, 1840–1905: EVIDENCE FROM PROBATE RECORDS

Abstract

This study estimates the size of the so-called informal, or unintermediated, credit market in one Swedish city through a period of economic transformation. In the early 1840s promissory notes accounted for more than half of the total credit market, and almost four times the value of credit channeled through the banking system. Even in the 1870s, the promissory-note market was twice the size of the loan volume of the banking system. By 1905 bank-based credit had finally surpassed the informal variety; but even then, outstanding promissory notes were almost three-fifths as great as total bank credits to noncorporate borrowers. It is well known that the fundamental shift from agriculture to industry during the nineteenth century was accompanied by a transformation of the financial sector that was at least as revolutionary. For most of the past 50 years, however, research in economic history has been sharply focused on the new factory industries and their economic and social effects. The explosive development of financial markets during the 1980s and 1990s has once again directed the interest of historians to the financial sector and its role in the growth process. It can be argued that the emergence of industrial societies during the nineteenth century was actually the result of commercialization and monetization, as well as of new forms of savings, lending, and financial intermediation. These were necessary conditions for the divisions of labor and economies of scale that are at the heart of modem economic growth. Sweden's transition to a modem industrial society was a lengthy process, one punctuated by three major booms. The booms of the 1850s, the 1870s, and the two decades preceding World War I not only increased Sweden's GDP and its investment ratio, they also had a profound impact on the political system and on incentive structures. Two closely linked developments