Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II (The Princeton Economic History of the Western World)

by Mauricio Drelichman

  EUROPEAN CONFLICTS DURING PHILIP’S REIGN

  During his long reign, Philip’s domains were never completely at peace.28 War mattered because it could bring glory or shame as well as riches or fiscal ruin. The continuous need to raise funds for the next war—or pay the debts of the last one—weighed heavily on the minds of rulers everywhere after 1500. Covering all of Philip’s campaigns—the focus of many scholarly studies—lies beyond our scope. Here we review the enterprises that had the most significant fiscal implications for Castile: the War of the Holy League, the Dutch Revolt, and the Invincible Armada and its aftermath.29 At the end of this chapter, we discuss how they fit in the logic of empire and, in turn, molded its shape.

  FROM SAINT-QUENTIN TO LEPANTO

  In late 1555, an increasingly frail and downcast Charles V finalized plans to divest his possessions. The Austrian domains passed on to his brother Ferdinand, who was also in line to succeed Charles as Holy Roman emperor. To Philip, Charles left the Iberian kingdoms and their colonies, the Low Countries, Sicily, Naples, and Milan—territories that, together, became known as the Spanish Empire.

  Charles V viewed himself as a medieval warrior leading his troops into battle. Titian’s famous portrait of him following his victory in the Battle of Mühlberg shows the emperor in shining armor, lance in hand, riding an enormous black horse. Philip II, in contrast, was a consummate administrator. He preferred the study to the battlefield, working his way through thousands of documents, many of which he annotated in his own hand. He micromanaged the affairs of government, and dealt with his officials, stakeholders, and sources of political and economic support on a day-to-day basis.30 Philip was fond of absorbing all aspects of an issue, soliciting and carefully weighing many different opinions before finally reaching a decision. This detail-oriented approach to decision making earned him the moniker “the prudent king.” His portrait—also by Titian—depicts him inside a palace, standing in front of a desk, and not in the fray of battle.

  Philip had been thoroughly groomed for his position, immersing himself in international affairs and administrative practices during his long education abroad. He was intimately acquainted with matters of government, having served as coregent of the Spanish kingdoms since 1551. While less keen on the personal warrior role than his father, he engaged in almost-constant warfare. Immediately after ascending to the throne, he was forced to confront Henry II of France, who attempted to seize the Habsburgs’ Italian possessions. Philip’s forces won decisive victories at Saint-Quentin in 1557 and Gravelines in 1558. While Philip could have marched on Paris, he did not do so because funding for the war’s continuation was uncertain. The treaty of Cateau-Cambrésis in 1559 put an end to the Italian wars, restoring the territorial balance that had existed before the hostilities. This reflected the financial exhaustion of both adversaries. The peace was sealed with Philip’s marriage to Henry’s daughter, Isabel of Valois. Known in Spain as Isabel of the Peace, she was Philip’s third wife, after Maria Manuela of Portugal and Mary I of England.

  FIGURE 2. Charles V

  FIGURE 3. Philip II

  After securing peace with France, Philip took up residence in Castile, making Madrid his permanent capital in 1561. By spending most of his time in Spain and attending personally to government affairs, Philip built connections with the Castilian elites in a way that Charles had never managed. His constant interaction with grandees and government officials, either directly or through his secretaries, resulted in a closer alignment of the monarch’s interests with those of his supporters. This cultural transformation facilitated the political and financial transactions that kept the wheels of empire turning more or less smoothly throughout Philip’s reign.

  Philip’s military track record was a mix of costly victories and disastrous defeats, similar to that of his father’s reign. His star was shining brightly in 1571, after the naval victory of Lepanto. The combined navies of the Spanish kingdoms, Venice, Genoa, the Papal States, and other smaller powers had defeated the Ottoman fleet in what was to be the last great battle between galleys. Castile and Philip’s other kingdoms had shouldered the largest share of the total cost, spending five million ducats to finance the combined fleets.31 With the victory won, though, disputes broke out between the members of the Holy League over how to preserve the gains in the eastern Mediterranean. The Ottomans took advantage of the disagreements to recover most of the outposts and fortresses they had lost. Within a few years, they were once again raiding the coast of Sicily. Lepanto eventually came to mark a turning point in the balance of power in the Mediterranean in favor of Christian Europe. Yet in its immediate aftermath, there seemingly was little to show for the costs and pains of the war (Kamen 2003).

  THE DUTCH REVOLT AND THE INVINCIBLE ARMADA

  The Dutch Revolt began in the late 1560s. It only ended with the formal recognition of Dutch independence at the Peace of Westphalia in 1648. Known as the Eighty Years’ War, the revolt consumed enormous resources. Spain’s best fighting units, military commanders, diplomats, and much of Castile’s free cash and credit were at one time or another employed in Flanders. Ultimately, the best effort of the sixteenth century’s only superpower failed. Spain’s decline and eventual fall as a major player in the European concert of powers—gradual at first, and rapid after the 1650s—can be traced back to its defeat in Flanders.

  Since the late Middle Ages, the Low Countries had been a part of the Duchy of Burgundy. The Duchy ceased to exist as an independent polity in the late 1400s, with its southern lands absorbed into France. The Low Countries went to Mary of Burgundy, and from her into the Habsburg inheritance through her marriage with Maximilian II, Charles V’s grandfather. Charles himself was born and raised in the Flemish city of Ghent, and considered his Burgundian upbringing a core part of his identity (Fernández Alvarez 2004).32 The combination of active commerce and industry, a favorable geography, good governance, and an emerging system of public and private credit made the Dutch and Flemish cities some of the richest in the Habsburg domains.33 It therefore is not surprising that Charles and Philip frequently turned to them in their search for funding.

  The Low Countries had a long tradition of strong city governments. They did not hesitate to show their discontent when they perceived that their sovereign was overstepping his powers (Boone 2007). Even Charles V saw his birthplace of Ghent revolt against him in 1537, after he demanded additional taxes and military service to fight France. Charles personally traveled to the city to stamp out the revolt in 1540, executing the rebel leaders, humiliating the remaining public officials, and revoking a number of town privileges. Despite this, Charles continued to be perceived as a ruler with the interests of the Low Countries close to his heart; Philip, in contrast, was widely seen as more distant, indifferent to local concerns, and potentially hostile because of growing Protestantism in the Dutch provinces (Parker 1977).

  Unrest started in the early 1560s, during the regency of Philip’s half sister, Margaret of Parma. The States General demanded the withdrawal of the Spanish troops that garrisoned the Netherlands after the end of the war with France. Complaints over taxation, religious intolerance, military presence, and unpopular government officials escalated steadily over the next few years. Philip paid little attention to the Dutch remonstrances. For the most part, he ordered Margaret to ignore or repress the demands of the nobles.34 In late 1566, the beeldenstorm—a series of iconoclastic attacks on Catholic churches—convinced Philip to intervene. He appointed the Duke of Alba, a hard-liner, as governor-general of the Netherlands. Alba arrived with an army of twelve thousand troops and sought to restore order. William of Orange, the main leader of the revolt, fled to Germany. Soon he would start to organize a military force. Alba established a special court in Brussels to prosecute the rebels. In addition to a large number of Calvinists, the court also tried and executed two popular Catholic noblemen, the Counts of Egmont and Horn. Together with William of Orange, they had led the opposition to Philip’s policies, while (as
the Dutch national anthem still proclaims today) remaining loyal to the king. Their execution hardened opposition to Spanish rule in the Low Countries, eliminated the best hope for a brokered peace, and opened the path to the Eighty Years’ War.

  Alba pursued the war with the same harshness with which he had persecuted the rebels in Brussels. Surrendering rebel cities were sacked; sometimes, cities that resisted saw their entire populations put to the sword. Some towns abandoned the rebel cause in a bid to save themselves; in others, resistance grew more determined. While Alba made progress on the battlefield, the costs were enormous. Eventually Philip II replaced him with Luis de Requesens in 1573. Requesens tried a more moderate line, but Philip’s unwillingness to contemplate religious tolerance for the provinces closed the doors to any peace treaty. Requesens died in 1576, while he was trying to resolve one of the many mutinies among his troops as a result of unpaid wages. Without a governor-general to negotiate with, and with payment many months in the future, mutinying soldiers sacked Antwerp on November 4, 1576.35 The horror of Spanish soldiers plundering a loyal city and killing many citizens prompted all the provinces—loyal and rebel—to sign the Pacification of Ghent, an agreement with the purpose of driving the Spanish troops from the Low Countries and stopping the religious persecutions. Philip, temporarily unable to fund the war and faced with a united front, withdrew his troops for a brief period. In 1578 he also lost his second governor-general in two years, his half brother Don John of Austria.

  By 1579 the tide started to turn. The settlement of the 1575 bankruptcy, increased silver remittances from the New World, and the waning of the war in the Mediterranean allowed Philip to fund another bid for reconquest in the Netherlands. Peace negotiations sponsored by Emperor Rudolph II had broken down, and the Dutch provinces split into the Union of Arras (loyal) and Union of Utrecht (rebel). New army units were dispatched to the Low Countries. Philip’s new governor, the Duke of Parma, slowly recaptured the southern provinces. It took him six years to finally secure Antwerp and start making inroads into the rebel heartland.

  In the meantime, the northern provinces formally rejected Philip as sovereign in the Act of Abjuration of 1581. They offered the crown to a variety of other rulers, but could find no prince willing to take it; acceptance would spell instant conflict with Christendom’s most powerful monarch. Without any takers, the northern provinces eventually decided to govern themselves as a republic. The “Spanish surge,” combined with the assassination of William of Orange in 1584, threw the politics of the northern provinces into turmoil. In an attempt to strengthen their military position, they agreed to the Treaty of Nonsuch with England, accepting the Earl of Leicester as governor-general in exchange for military assistance. This turned out to be an unhappy arrangement. The States General and the stadtholder, Maurice of Nassau, began clawing back administrative and military competencies almost immediately; after some mixed successes in military and diplomatic campaigns, Leicester returned to England in 1587. Combined with the damaging raids by English privateers on Spanish trade, an increase in English aid to the Dutch rebels, and Sir Francis Drake’s raid on Cádiz in 1587, the Treaty of Nonsuch helped to strengthen Philip’s determination to invade England. The idea was to cut the lifeline for the rebels and perhaps force a religious change in a Protestant monarchy (De Lamar 1988).

  The Grande y Felicísima Armada, which the English scornfully christened “Invincible” after its rout, was the brainchild of Alvaro de Bazán, Marquis of Santa Cruz. Bazán was a consummate naval strategist who had distinguished himself in numerous naval campaigns, including Lepanto. As the mastermind behind the system of armed convoys carrying silver across the Atlantic, he was no stranger to complex operations that combined large numbers of military and transport ships. The plan for the Armada, hatched as early as 1583, went through numerous iterations. There were setbacks, redesigns, and diversions, as Santa Cruz, Parma, and the king sought to coordinate a gigantic enterprise. On occasion, the partially assembled fleet was dispatched to pursue alternative endeavors, setting the invasion plan back by many months.36 In its final form, the plan called for 127 ships to carry all the supplies necessary for an invasion of England. The fleet would sail from Spain to the Netherlands. From there it would escort an army of 16,000 troops under the Duke of Parma, crossing in flat-bottomed barges. The Spaniards would land in the vicinity of Kent, from where they would then march on London.

  Victory on land was a virtual certainty; the untrained English militia would be no match for Parma’s battle-hardened veterans. The English acknowledged as much. In 1614, Sir Walter Raleigh—who, together with Sir Richard Grenville, had been charged with the defense of Devon and Cornwall—wrote that his troops were “of no such force as to encounter an Armie like unto that, wherewith it was intended that the prince of Parma should have landed in England.” As Parker put it, if the Armada had landed, Spain stood to reap substantial benefits and the operation would have been regarded as Philip’s finest hour.37

  The difficulty, of course, was in making the landing happen. The outfitting of the fleet was delayed by the slow disbursements of funds, the constant wavering by Philip and his commanders as to the size as well as objectives, the 1587 English raid on Cádiz, and Santa Cruz’s inability to secure enough ships while maintaining them seaworthy in the face of the multiyear delays. On the Dutch front, Parma was also having trouble keeping his invasion army combat ready, fed, and paid while waiting for ships that, season after season, did not come.

  In winter 1588, Bazán died unexpectedly. Having already decided that the operation would go ahead that year regardless of the cost or peril, the king put the Duke of Medina-Sidonia in charge. Though reviled by his contemporaries and later generations of historians as an incompetent nobleman who lost the Armada, Medina-Sidonia had actually made his name as an excellent military organizer and administrator. He managed to complete the outfitting of the fleet in a matter of months and headed for Flanders in the spring.

  Medina-Sidonia was a prudent commander, and not the bumbling, seasick buffoon described by generations of earlier writers. His actions were fully in line with the objectives for the Armada. The enterprise was risky, as everyone—including Philip—knew. The risk was worth taking in the eyes of the Spanish because the potential gains were enormous. That the fleet met an ignominious end was not the result of incompetence. It reflected the logistical difficulties in carrying out the plan, coupled with a series of unexpected, negative shocks during its execution.38

  In July 1588, the Armada sailed through the channel and reached Flanders. It came within forty-eight hours of joining forces with Parma’s invasion army, but never actually managed to do so. Scattered by ill winds and English fireships after the Battle of Gravelines, the fleet was forced to circumnavigate the British Isles, suffering many shipwrecks off the coasts of Scotland and Ireland. The most recent calculations peg the numbers of lost or damaged ships at forty-three, or roughly one-third of the fleet (Casado Soto 1988). Loss of life is harder to quantify, as it is not possible to establish how many sailors and soldiers sailed in the first place. Rough estimates place casualties at eighty-seven hundred, or about 50 percent of the initial strength.39 In a remarkable twist of fate, most of the nimble, efficient English ships that routed the Spanish fleet dated from the 1550s. They had been built following a recommendation to the Privy Council by the then king consort of England—none other than Philip II himself (Parker 1996, 91).40

  The defeat of the Armada was far less damaging to Spain’s military position than the fleet’s standing in the popular imagination as a major disaster suggests. Within a year, the Armada’s strength had been replenished and the threat of an English counterattack effectively checked. The operation was still extremely expensive. The whole campaign and its aftermath cost upward of ten million ducats, or fully two years’ worth of royal revenue. And yet the plan’s failure did not lead to a bankruptcy.41 That Philip II’s empire could absorb such a financial loss and live to fight another day spe
aks volumes about the immense resources that it could muster. The risk of defeat was fully taken into account in financial and military decision making. The failure of the Drake-Norris expedition—also known as the Counter Armada—in 1589 gave the Spaniards breathing room, and the two nations continued to trade naval attacks and raids on coastal towns. Hostilities reached a peak in the period 1596–97, when an English expedition occupied Cádiz for two weeks. Philip sent two retaliatory Armadas, which suffered fates similar to that of their Invincible predecessor. The war of attrition, combined with the ongoing hostilities with Henry IV of France, eventually took its toll on Castile’s finances. Acknowledging Castile’s inability to continue the fight on two fronts, Philip’s envoys concluded the Peace of Vervins. This ended the war with France in 1598. Philip III would ultimately wind down the war with England in 1604.42

  TERRITORIAL EXPANSION UNDER PHILIP II

  Philip spent most of his resources waging wars that produced few territorial gains. On the other hand, the greatest expansions of Spain’s empire were relatively cheap. Two merit special attention: the colonies in America and Asia, and the acquisition of Portugal and its empire.

  THE OVERSEAS POSSESSIONS

  Soon after Columbus’s voyages, the Spanish conquest of the New World began. In this endeavor Spain faced no European rivals; the English only disturbed Spain with privateering raids in the second half of the sixteenth century and would not stake territorial claims until the seventeenth. The French focused mostly on New France and, except for the short-lived settlement of Fort Caroline in Florida, did not clash with Spain. The only other contender for a portion of the newly discovered continent was Portugal. The relationship between the two Iberian neighbors was regulated by the 1494 treaty of Tordesillas, which kept them on different sides of a mutually agreed-on line. The low threat of conflict with other European powers in the New World allowed Castile to conduct the exploration, conquest, and colonization of the continent at a relatively low cost, using a system of private enterprise. Explorers—adelantados—obtained charters from the Crown. These gave them the rights to govern territories or capture loot. The expeditions were for the most part privately financed. The Crown enforced a colonial trading monopoly through the city of Seville, supervised by the Casa de Contratación. It charged a flat 20 percent tax—the royal fifth—on precious metal flows between America and Spain, and a 2.5 percent levy—the avería—on all other commercial goods. An additional tax, the Almojarifazgo Mayor de Sevilla, was collected on trade between Seville and the rest of Castile.