From the end of the Middle Ages to midway through the Industrial Revolution, ships passing through the narrow strait connecting the Baltic Sea to the North Sea were required to pay a toll to the Kingdom of Denmark. Seems mundane, but for centuries, this toll was perhaps the most controversial in the world, going so far as to motivate European wars. Thanks to Denmark’s geography, nearby fortifications, and clever policies, the charges were nearly unavoidable. Accordingly, the tolls collected on the strait of Øresund helped make the Kings of Denmark very rich indeed. In the end, the Danes drove a hard bargain to have the tolls removed; roughly a dozen countries chipped in to pay Denmark the capitalized value of all the forgone future revenues.
Øresund
The history of the Sound Toll is centered, quite appropriately, on Øresund, the strait separating Denmark from Sweden. Øresund, also simply known as ‘the Sound’ in English, divides the North Sea from the Baltic. Shipping from outside the Baltic bound for Russia, Sweden, Poland, or various parts of Germany has to cross the Sound. Until the construction of canals in Sweden and Germany reduced dependence on Øresund, it was the most important waterway in Northern Europe.
From the Middle Ages to the mid-17th century, both sides of the Sound were controlled by the Kingdom of Denmark. At the strait’s narrowest point, where it is just four kilometers across, the Danes had two fortresses, Kronborg on the western side of the Sound and Kärnan on the eastern side. The former stands to this day and was the setting for one of Shakespeare’s tragedies, Hamlet. By contrast, wars fought over Kärnan led to its destruction in the late 1600s.
The Sound Toll
The Sound Toll was originally levied on vessels crossing Øresund on a per ship basis. It was introduced by Eric of Pomerania, King of Denmark, in the mid-15th century. The toll was raised by successive kings in the 16th and 17th centuries, including King Frederick II and Christian IV. The toll was also reformed, transforming into an ad valorem tax based on the value of cargo on board. However, there was also a unique twist to the Sound Toll; the Danish crown had the right to buy the goods on board at the value reported by the merchant. This reduced the problem of merchants understating the value of their goods in order to avoid the tax, which usually amounted to 1-2% of the cargo’s value.
The toll was an important economic institution in early-modern Denmark. At their peak in the 16th century, the tolls contributed two-thirds of the income flowing into Denmark’s treasury. This money went straight to the monarchy. Even when the concept that royal and public revenues should be separate took off, it was the royalty that got the toll money. This reduced the monarchy’s dependence on public funds, enabling the Kings of Denmark to rule without any constitutional or parliamentary interference until the mid-19th century. It wasn’t until 1816 that the toll money went to the public budget.
Regardless, the toll was never eagerly accepted by Denmark’s neighbors; the charges had been controversial for centuries. In the early 1600s, the concept that the seas are international territory was on the rise. However, the Danes argued the strait was essentially a Danish canal. They insisted that the Sound Toll was no different than the tolls levied by other European nations at the mouths of their own rivers. Historically, Venice had even levied a toll on traffic through parts of the Adriatic Sea. During the 1700s, the burden of the Sound Tolls began to shift, reflecting the economic evolution of Northern Europe. Whereas, in the 16th and 17th centuries, ships from Sweden and the Netherlands paid the most; by the 19th century, it was British shipping that was most burdened.
In 1840 alone, over 15,000 ships crossed the Sound, including 4,000 British ships and 3,000 Prussian ones. The Danes collected around 2.25 million Danish rigsdaler in tolls that year from these vessels. For perspective, under the exchange rates of that era, there were roughly nine rigsdaler to the British pound and two rigsdaler to the US dollar. The sums collected by this point were hardly extraordinary; the US federal government budget in 1840 was roughly $30 million and British central government spending stood at around £50 million. The cost was not felt evenly though since treaties periodically exempted cargo originating in certain nations from the levy. Either way, all merchants had to provide proof of the origin of their cargo, usually in the form of a certificate issued by the Danish consul at the port of their departure.
To get a sense of the size of the toll for those ships not exempt, in the five years ending in 1848, 264 American ships crossed the Sound. The total tolls paid came to 570,000 rigsdaler in those years or roughly $1000 per ship, around $30,000 in today’s money. In earlier years, the dues paid by American vessels regularly summed to $100,000 annually. By the 19th century, the toll was structured like an import duty, with charges varying by commodity. Under the rates of the period, an American ship crossing the Sound would pay 20 cents per 100 pounds of cotton on board, for example. The price of cotton in Europe in the mid-1900s would have been about 10 cents a pound and as such the tax amounted to 2% of the such cargo’s value.
Abolition
The 19th century brought about improvements in transportation infrastructure that gradually reduced the importance of Øresund. Whereas in earlier centuries, the strait was the only way to easily ship goods to and from the Baltic, canals and railways were now viable alternatives. In the early 1810s, work started on the Göta Canal in Sweden which linked the North Sea to the Baltic, allowing Swedish trade to bypass the toll. The Swedes regarded it as absurd that boats travelling up and down their own coast had to cross the strait into Denmark to pay the toll if they passed the Sound. Railroads also diminished the importance of the Sound somewhat.
Regardless, outside Denmark there were still calls for retributory policies. Some in the German kingdom of Prussia even called for Danish ships to be charged harbor fees at twice the normal rate. Needless to say, the Sound Toll was a thorny issue in German-Danish relations and even helped provoke the Schleswig-Holstein War in 1864. The Danes lost some of their southernmost territory in that war, enabling the Germans to build the Kiel Canal, eventually freeing them from Danish control of Øresund, albeit only after the tolls were already removed. The game was up for the Danes, though on the eve of the abolition of the Sound Toll, revenue had been stagnating anyway. Proceeds were growing at roughly 1% per year in the period from 1830 to 1850.
The toll was finally abolished with the Copenhagen Convention of 1857. In exchange for discontinuing the toll, Denmark was paid a fee equal to the present value of the lost revenue. The charge came to 35 million rigsdaler, roughly a year’s worth of Danish state expenditures at the time. Considering that in the mid-1850s, toll collections hit 2.5 million rigsdaler and presuming no further growth in revenues, this would imply a discount rate of around 7%. Under the Copenhagen Convention, the UK and Russia agreed to pay just under 30% of the fee each and Prussia paid 13%. A separate agreement signed with the United States saw the American government pay $393 million in exchange for the free passage of its own ships in perpetuity.
Lesson
Owing to its strategic location, Øresund was bound to be a waterway of great importance to Northern Europe. Danish control of this strait gives it a particular importance to that country, helping to shape its economic, military, and political history. Today, when a nation is said to benefit immensely from its location, it is usually with regards to natural resource wealth and all the consequences that come with it. In pre-industrial times however, for a city or country to be favorably situated usually meant it sat on a crucial waterway and in Northern Europe, that meant the Sound. It was only natural that Danish kings and parliaments would try to squeeze what they could out of it while it was still relevant, to the irritation of its neighbors.
Further Reading
1. Alexandersson, Gunnar. The Baltic Straits. Nijhoff, 1982.
2. Haan, Marco A., et al. “Sound Taxation? On the Use of Self-Declared Value.” European Economic Review, vol. 56, no. 2, 2012, pp. 205–215.
3. Homans, Isaac Smith. A Cyclopedia of Commerce and Commercial Navigation, Volume 1. Vol. 1, 1858.
4. Levy, Blethen Adams. Denmark. The Maritime Heritage Project, 2018.
5. Platzöder Renate, and Philomène A. Verlaan. The Baltic Sea: New Developments in National Policies and International Cooperation. SWP, 1996.
John Shannon