“Impending ruin” or “remarkable wealth”? The role of private credit markets in a settler colony

Credit markets develop hand in hand with a market economy. Pre-industrial credit markets, like credit (and capital) markets today, developed in order to smooth consumption, ease trade, and enable long-term investment. Yet in the eighteenth century Cape Colony, a Dutch settlement at the southern tip of Africa, commentators of the day were skeptical about what an active credit market could contribute to the economy: for them, borrowing was a sure sign of poverty. Historians have expressed the same view. We present a different picture of the Cape Colony. We use 4,160 probate inventories, listing 12,637 credit transactions and 12,580 debt transactions, to show that the main reason for borrowing was long-term capital investment in property through bonds, and that a particular driver of the Colony’s extensive use of credit was slave ownership. We also show that those who benefited from the Colony’s thriving credit market were rich, not poor.