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Textile trade and trade credit in Spain, 1840–1913

Published online by Cambridge University Press:  18 March 2009

Marc Prat
Marc Prat
Affiliation:
Universitat de Barcelonamarc.prat@ub.edu
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Abstract

Trade credit - the credit provided by suppliers to firms - can be seen as the second-best solution when financial development fails to keep pace with economic growth. This article analyses trade credit between Catalan cotton manufacturers and their clients in nineteenth-century Spain. Spanish historiography has suggested that trade credit had a detrimental effect on the profitability of the cotton firms. Based on an analysis of the archives of several firms, as well as judicial and notary sources, we present a more optimistic interpretation of the system. Manufacturers were, in fact, acting as their customers' bankers because they were in the best position to perform this function. They built up a good information structure, managed the credit risk efficiently and got positive returns from this activity.

Résumés

Le crédit commercial – le crédit fourni par les fournisseurs aux entreprises – peut être considéré comme la deuxième meilleure solution lorsque le développement financier est dépassé par la croissance économique. Cette communication analyse le crédit commercial entre les producteurs de coton catalans et leurs clients en Espagne au dix-neuvième siècle. L'historiographie espagnole a suggéré que le crédit commercial avait un effet préjudiciable sur la profitabilité des entreprises de coton. Basée sur une analyse de plusieurs entreprises, ainsi que sur des sources judiciaires et notariées, nous présentons une interprétation plus optimiste du système. Les fabricants agissaient en fait en tant que banquiers de leurs clients parce qu'ils étaient dans la meilleure position pour assumer cette fonction. Ils ont construit une bonne structure d'information, géré le risque de crédit efficacement et obtenu des rendements positifs de cette activité.

Abstrakte

Handelskredite – die Kredite, die Lieferanten Firmen einräumen – können als die zweitbeste Lösung angesehen werden, wenn die finanzielle Entwicklung nicht mit der wirtschaflichen Entwicklung Schritt zu halten vermag. Dieser Artikel analysiert die Handelskredite zwischen katalanischen Baumwollproduzenten und ihren Kunden im Spanien des 19.Jahrhunderts. Die spanische Geschichtsschreibung hat suggeriert, dass sich Handelskredite negativ auf die Rentabilität von Baumwollunternehmen auswirkten. Auf Grundlage der Analyse der Archive mehrerer Unternehmen sowie von juristischen und notariellen Quellen können wir eine optimistischere Interpretation des Systems anbieten. Die Hersteller agierten in der Tat als Bankiers für ihre Kunden, da sie am besten in der Lage waren, dieser Funktion nachzukommen. Sie bauten ein gutes Informationssystem auf, verwalteten das Kreditrisiko auf effiziente Weise und erzielten positive Gewinne aus dieser Tätigkeit.

Resúmenes

El crédito comercial, el crédito concedido por los proveedores a las firmas, puede verse como la segunda mejor solución cuando el desarrollo financiero no consigue mantener el ritmo del crecimiento económico. Este artículo analiza el crédito comercial entre los fabricantes catalanes de algodón y sus clientes en la España del siglo diecinueve. La historiografía española ha sugerido que el crédito comercial tuvo un efecto perjudicial en la rentabilidad de las firmas de algodón. Basándonos en un análisis de los archivos de varias firmas, así como fuentes judiciales y notariales, presentamos una interpretación más optimista del sistema. De hecho, los fabricantes actuaban como los banqueros de sus clientes porque se encontraban en la mejor posición para realizar tal función. Crearon una buena estructura de información, gestionaron el riesgo de los créditos eficientemente y obtuvieron rendimientos positivos de esta actividad.

Type
Articles
Information
Financial History Review , Volume 16 , Issue 1 , April 2009 , pp. 73 - 94
Copyright
Copyright © European Association for Banking and Financial History e.V. 2009

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References

2 See Rajan, R. G. and Zingales, L., ‘Financial dependence and growth’, American Economic Review, 88.3 (1998), p. 560Google Scholar.

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14 Mian and Smith, ‘Accounts receivable’.

15 Petersen and Rajan, ‘Trade credit’.

16 Kranton, R., ‘Reciprocal exchange: a self-sustaining system’, American Economic Review, 86 (1996)Google Scholar; G. Ramey and J. Watson, ‘Bilateral trade and opportunism in a matching market’, mimeo (University of California, San Diego, 1996); and McMillan and Woodruff, ‘Interfirm relationships’.

17 Mian and Smith, ‘Accounts receivable’; Petersen and Rajan, ‘Trade credit’; and Frank and Maksimovic, ‘Trade credit’.

18 McMillan and Woodruff, ‘Interfirm relationships’.

19 See the Vietnam case in McMillan and Woodruff, ‘Interfirm relationships’.

20 Fisman and Love, ‘Trade credit’.

21 Guited, F. Giménez, Guía fabril e industrial de España (Barcelona, 1862)Google Scholar.

22 Anes, R. and Otazu, A., El Banco Herrero, 75 años de historia (1912–1987) (Madrid, 1987), pp. 221 and 226Google Scholar.

23 Fortea had a capital of 834,797 reales in 1861; Zorraquino, J. I. Gómez, ‘Los primeros años de vida de la “Casa Fortea” (1785–1850)’, Teruel, 80–1 (1990), p. 127Google Scholar. Masaveu had a capital of 643,490 reales in 1864; López, J. R. García, Los comerciantes banqueros en el sistema comercial español (Gijón, 1987), p. 80Google Scholar. In fact, Herrero and Masaveu became merchant bankers.

24 See L. Castañeda, ‘Esplendor y ocaso del mercado de letras de cambio de Barcelona’, unpublished PhD thesis (European University Institute, 2001); and also Castañeda, L. and Tafunell, X., ‘Un nuevo indicador para la historia financiera española: la cotización de las letras de cambio a corto plazo’, Revista de Historia Económica, 11 (1993)CrossRefGoogle Scholar. On the other hand, bills of exchange progressively lost this role as money transfer after 1883 because of the creation of a free transference system by Banco de España, connecting all Spanish provincial capitals and most important cities and, therefore, integrating the Spanish financial market. See also Sudrià, C. and Pascual, P., ‘Financing a railway mania: capital formation and the demand for money in Catalonia, 1840–1866’, Financial History Review, 6 (1999)Google Scholar.

25 Cuadras-Morató, X. and Rosés, J. R., ‘Bills of exchange as money: sources of monetary supply during the industrialisation of Catalonia, 1844–74’, Financial History Review, 5.1 (1998)CrossRefGoogle Scholar.

26 Sometimes, if payments were delayed, the manufacturer issued a bill to his client and discounted it in Barcelona. But it was also a bill payable within eight days, so it did not constitute credit.

27 ANC: Fons la España Industrial [henceforth FEI], ‘Copiador de letras, recibos, cuentas de resaca y otros documentos endosables’ [14.7, 14.15 and 14.20; ANC].

28 It has to be said that some of these documents, although their maturity was longer than 15 days, could only play a money transmission role and not any credit function. This is especially true in the case of bills of exchange in foreign currency that were bought in order to pay foreign suppliers and had to be negotiated through bankers. Lluís Castañeda says that manufacturers were not obtaining credit through the negotiation of these bills but, on the contrary, they were giving liquidity to the international payments compensation system (Castañeda, Esplendor y ocas o, pp. 97–8). If we removed these bills from our analysis, then formal credit would be even smaller: only 6.98 per cent of total credit in 1857 and 8.78 per cent in 1870. Therefore, the figures of Table 1 are a maximum estimation of formal credit.

29 It was 22.3% in 1857, 25.9% in 1870 and 24.2% in 1880 (ANC; FEI,‘Copy book of several credit documents’ of La España Industrial (14.7)).

30 Castañeda, L. and Tafunell, X., ‘Un instrumento dinamizador de los mercados de crédito: los pagarés a mediados del siglo XIX’, Actas del Congreso de la AEHE (Girona, 1997), p. 4Google Scholar. For an analysis of the business policy of the Bank of Barcelona, see Y. Blasco, ‘La modernización de las finanzas catalanas. El Banco de Barcelona, 1844–1856’, unpublished PhD thesis (Universitat de Barcelona, 2005); Y. Blasco and P. Nogués ‘La gestión empresarial del Banco de Barcelona (1844–56): primera aproximación al análisis macroeconómico y consecuencias macroeconómicas’, paper presented to EBHA Conference (Barcelona, 2004) and Blasco, Y. and Nogués, P., ‘La política crediticia del Banco de Barcelona entre 1844 y 1856: ¿prudente o pro-cíclica?’, Revista de Historia Industrial, 34 (2007)Google Scholar.

31 For an analysis of this market see Castañeda, L. and Tafunell, X., ‘El mercado mayorista del algodón en Barcelona a mediados del siglo XIX’, in Carreras, A. et al. (eds.), Doctor Jordi Nadal. La industrialització i el desenvolupament econòmic d'Espanya (Barcelona, 1999)Google Scholar. On the other hand, Raimon Soler shows that the involvement of the cotton companies in a local business community gave them access to the local capital market, making bank loans unnecessary (R. Soler, ‘Estratègies empresarials en la indústria cotonera catalana. El cas de la Fàbrica de la Rambla de Vilanova, 1833–1965’, unpublished PhD thesis, Universitat de Barcelona, 2000, p. 300).

32 The method of calculation in the cases of La España Industrial, Sedó and Viladomiu (except in 1873) involved relating the customer balances in the year-end balance sheet with the sales values for the same years. Although there were certain seasonal variations in sales and payments, December was a ‘normal’ month, so the clients' debit at the end of the year was close to the yearly average. The formula then applied was: period of payment = 365/(sales/balance). However, in the case of La Rambla the credit estimate was calculated directly on each sale and period of time before payment was made and then we obtained a weighted mean value. This database was prepared with Raimon Soler; Arxiu Històric Comarcal, Vilanova i la Geltrú (henceforth AHCVG): Fons la Rambla (henceforth FLR), several ledgers. The figure for Viladomiu in 1873 was also obtained using the direct method.

33 Hudson studies the credit relations between the various actors involved in the manufacture and trade of wool textiles in the West Riding (Hudson, P., The Genesis of Industrial Capital: a Study of the West Riding Wool Textile Industry, c.1750–1850 (Cambridge, 1986)CrossRefGoogle Scholar).

34 The figures referring to Fortea for 1850 and 1881, and those referring to Herrero, have been obtained from a direct calculation of the time it took to receive or make payment for sales in a wide sample of customers and suppliers. For all other years in the case of Fortea we estimated the figures based on the mean quarterly balances of customers and suppliers and on the volume of annual sales, following the same procedure as in Table 2, using the formula: period of payment = 365/(sales/balance). Biblioteca Universidad de Zaragoza, Zaragoza (henceforth BUZ): Fondo Fortea (henceforth FF), several ledgers and balance sheet books; and Archivo Banco Herrero, Madrid (henceforth ABH), several ledgers.

35 See Vicens and Llorens, Industrials i Polítics; Cambó, ‘La Banca Catalana’; Rahola et al., Informació; Tallada, Barcelona económica; and Nadal, ‘La formació’.

36 For a good summary of the relations between credit and information, see Godley, A. and Ross, D., ‘Banks, networks and small firm finance’, Business History, 38.3 (1996)CrossRefGoogle Scholar.

37 Ville, S., ‘Networks and venture capital in the Australasian pastoral sector before World War Two’, Business History, 38.3 (1996)CrossRefGoogle Scholar; and Ville, S. and Fleming, G., ‘Financial intermediaries and the design of loan contracts within the Australasian pastoral sector before the Second World War’, Financial History Review, 7 (2000)CrossRefGoogle Scholar. A further example is that of the rural credit cooperatives in Germany in the period 1883–1914 (Guinnane, T., ‘Cooperatives as information machines: German rural credit cooperatives, 1883–1914’, Journal of Economic History, 61.2 (2001)CrossRefGoogle Scholar).

38 Hollis, A. and Sweetman, A., ‘Microcredit in prefamine Ireland’, Explorations in Economic History, 35 (1998)CrossRefGoogle Scholar. Some scholars have underlined that even banks used networks as a way of reducing risk: White, E., ‘California banking in the nineteenth century: the art and method of the bank of A. Levy’, Business History Review, 75 (2001)CrossRefGoogle Scholar; Galassi, F., ‘Screening, monitoring and incentives in co-operative banks: the case of Italy's Casse Rurali, 1883–1926’, University of Leicester Discussion Papers in Economic and Social History, ESH96/2 (1996)Google Scholar; Galassi, F. and Newton, L., ‘My word is my bond: reputation as collateral in nineteenth century English provincial banking’, Economic Research Papers − Dep. Economics − University of Warwick, 599 (2001)Google Scholar; and Carnevalli, F., ‘Between markets and networks: regional banks in Italy’, Business History, 38.3 (1996)CrossRefGoogle Scholar.

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40 M. Prat, ‘Fabricantes, comerciantes y banqueros. Las estructuras comerciales de la industria algodonera catalana en el mercado español (1840–1936)’, unpublished PhD thesis, European University Institute, 2006; Prat, M., ‘Fabricar i comerciar a mitjan segle XIX: els casos dels Muntadas i els Batllori’, Recerques, 47–8 (2004)Google Scholar; Prat, M., ‘Vertical integration or specialisation: producing and commercialising cotton goods (1815–1913)’, Working Papers F. Econòmiques U. Barcelona, E07/188 (2007)Google Scholar; Prat, M., ‘Las estructuras comerciales de la industria algodonera catalana: el triunfo de los viajantes en el último tercio del siglo XIX’, Investigaciones de Historia Económica, 12 (2008)Google Scholar, Prat, M., ‘Los mayoristas de provincias en la comercialización de los tejidos catalanes (1850–1930)’, Revista de Historia Industrial, 37 (2008)Google Scholar.

41 Arxiu Municipal del Tèxtil i l'Estampació, Premià de Mar [henceforth AMTEPM]: Fons Muntadas [henceforth FM], store correspondence in Madrid, n. 615, 17/11/1841.

42 Ibid., 10/12/1841.

43 Ibid., 17/12/1841.

44 AHCVG, FLR. Letter from Eusebio Casajús to La Rambla, 26/01/1895.

45 ANC, FEI. Letter from José Andrés G. y Gallardo to La España Industrial, 26/10/1870, box 27.92, nº 58.

46 1,332,601 reales on the total value of the promissory notes of 1,914,690 reales.

47 The extension was for a further four months and the promissory note coincided with the value of the debt, that is, no interest was charged. Arxiu Històric de la Corona d'Aragó, Barcelona (henceforth AHCA): Fons del Tribunal de Comerç (henceforth FTC), proceedings of La Igualadina Algodonera v. Juan Ribas y Cia (exp. 333, 1867), pp. 9 and 10.

48 This fits very well with Oliver Williamson's statement that repeated transactions with the same partners could be a source of significant economic advantage (Williamson, O., ‘The economics of organisation: the transaction cost approach’, American Journal of Sociology, 87 (1981)CrossRefGoogle Scholar).

49 The data are taken from the Boletín del Banco de España, November 2000 (Madrid, 2000), p. 3.

50 ANC, FEI. Letter from Andrés G. y Gallardo to La España Industrial, 28/07/1880, box 27.92, nº 46.

51 Ibid., 17/08/1880, box 27.92, nº 50.

52 This description could also apply to the main merchants in Barcelona, who enjoyed equal opportunities to obtain funds and a similar knowledge of their provincial customers. Frank and Maksimovic show that when adverse selection risk associated with firms is not the same, a firm may extend trade credit to some customers, while at the same time it also obtain trade credit form some of its suppliers (Frank and Maksimovic, ‘Trade credit’).

53 A discount of 3 per cent was given for payment in 30 days, 2.5 per cent in 60 days, 2 per cent in 90 days and 1 per cent in 120 days. Thus, for the first three discounts, there was a 0.5 per cent reduction for each month, equivalent to an implicit rate of annual interest of 6 per cent. In the case of the final discount, there was a 1 per cent monthly reduction, equivalent to an annual rate of 12 per cent (ANC, FEI. Letter from La España Industrial to Domingo Alfaro in Málaga, 15/06/1860, correspondence 26.2.14, p. 25).

54 ‘Sres. Jaumeandreu…offer 4 per cent for payment in 30 days, 2 per cent in 90 days and nothing in 4 months …’ (ANC, FEI. Letter from Casimiro López in Málaga to La España Industrial, 9/09/1860, box 27.27, nº 91).

55 In 1871 Sedó offered a 3 per cent discount to those that paid in two months or less, 1 per cent to those that paid in three months, and no discount for payment in four months (ANC, FS. 1871 ledger).

56 In 1865 Masaveu paid cash to the wool manufacturer Gorina, thereby obtaining a discount of 2 per cent, while Rafael Giménez wrote to him: ‘When we agree that I cannot enjoy a discount for early payment on the goods we do not stipulate the date of payment for the bills which would mean offering you 4 months as is customary…’ Archivo Masaveu, Oviedo (henceforth AM): letter from Masaveu to Rafael Giménez in Valencia, 14/02/1865. Book ‘Castilla’, n. 7, p. 82.

57 ‘Are you unaware of the terms of sales of this company, which are: 90 days from the date of billing or 30 with a 5 per cent discount’ (BUZ. FF. Letter from Fortea to Mariano Talón in Béjar, 5/12/1881, p. 47).

58 Robinson, J., The Rate of Interest and Other Essays (London, 1952)Google Scholar.

59 To some extent, these practices are comparable with the ‘insider lending’ described by Naomi Lamoreaux and Lucy Newton in New England and Great Britain, respectively, in the nineteenth century. In these specific instances, also characterised by the relative paucity of information, savers invested in banks that systematically granted loans to the banks' management companies. See Lamoreaux, N., Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England (Cambridge, 1994)CrossRefGoogle Scholar; and Newton, L., ‘Regional bank – industry relations during the mid-nineteenth century in Sheffield, c. 1850 to c. 1885’, Business History, 38.3 (1996)CrossRefGoogle Scholar and Newton, L., ‘Trust and virtue in English banking: the assessment of borrowers by bank managements at the turn of the nineteenth century’, Financial History Review, 7 (2000)CrossRefGoogle Scholar. See also Granovetter, M., ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology, 91.3 (1985)CrossRefGoogle Scholar and Granovetter, M., ‘The impact of social structure on Economic outcomes’, Journal of Economic Perspectives, 19.1 (2005)CrossRefGoogle Scholar.