In the early 1600s, the officials running Durham Cathedral, in England, had serious financial problems. Soaring prices had raised expenses. Most cathedral income came from renting land to tenant farmers, who had long leases so officials could not easily raise the rent. Instead, church leaders started charging periodic fees, but these often made tenants furious. And the 1600s, a time of religious schism, was not the moment to alienate church members.
But in 1626, Durham officials found a formula for fees that tenants would accept. If tenant farmers paid a fee equal to one year’s net value of the land, it earned them a seven-year lease. A fee equal to 7.75 years of net value earned a 21-year lease.
This was a form of discounting, the now-common technique for evaluating the present and future value of money by assuming a certain rate of return on that money. The Durham officials likely got their numbers from new books of discounting tables. Volumes like this had never existed before, but suddenly local church officials were applying the technique up and down England.
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For Durham Cathedral, inflation meant the organization had to pay more for goods while three-quarters of its revenues came from tenant rents, which were hard to alter.
“Some individual landowners could be ruthlessly economic, but the church couldn’t, because it’s in the midst of incredible political and religious turmoil after the Reformation,” Deringer says.
Acroyd was the bursar at Trinity College at Cambridge University, which as a landholder (and church-affiliated institution) faced the same issues concerning inflation and rent.
“Strict calculative rules assured tenants and courts that fines were reasonable, limiting landlords’ ability to maximize revenues,” Deringer writes in the new article.
“In Durham they would fight with tenants every 20 years [in the 1500s] and come to a new deal, but eventually that evolves into these sophisticated mechanisms, the discounting tables,” Deringer adds.
Thus, as Deringer writes, “mathematical tables for setting fines were not so much instruments of a capitalist transformation as the linchpin holding together what remained of an older system of customary obligations stretched nearly to breaking by macroeconomic forces.”
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It’s almost like every human has a built-in allergy to excessive profiteering…
Really interesting avenue of research; who’d have thought that discounting future value, as a concept, would come from clergy in a tenuous political and financial position with the Reformation and the start of inflation.
I’m not an economic history expert by any stretch, but isn’t the 1600s the early start of the industrial revolution? Was the industrial revolution the cause of inflation? That would make sense, since it would be a major break in the value of capital in the short term to increase profits in the long term.
