Spending, saving, or investing? Risk management in sixteenth-century Dutch households

In the past one of the main challenges to households was that of coping with adversity. War, plague, famine, and flood were a constant threat, and could reduce what little improvements families had made in productivity. Economic growth therefore required a means of absorbing external adversities. To see how well late medieval households coped with adversity, this investigation focuses on the households of a small town and its surroundings in early modern Holland. Our findings reveal that several severe external shocks around 1500 had little effect on the general level or distribution of wealth, which suggests that certain forms of insurance may have protected the population. The results show that households increasingly invested in capital markets rather than employing such techniques as scattered holdings and hoarding. This fact indicates that such investment played a vital role in a household's risk aversion strategy. The change from unproductive to more productive risk-aversion strategies also provides some clues about progress with respect to insurance during Holland's financial revolution.