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

  22 James Tracy (2002) provides an analysis of the relative contribution of Charles’s several territories to his war efforts.

  23 For the standard source on Charles’s loans with international bankers, see Carande 1987.

  24 The most famous account of Cortés’s conquest of Mexico is the “Verdadera historia de la conquista de la Nueva España”—a chronicle by his subordinate Bernal Díaz del Castillo.

  25 This document is known as the Capitulaciones de Toledo.

  26 New Granada corresponds to modern-day Colombia and parts of Venezuela.

  27 For the standard sources on the volume of precious metal imports into Castile, see Hamilton 1934; Morineau 1985.

  28 Geoffrey Parker (1998) charted Philip’s campaigns, showing that throughout his forty-two-year reign, only a period of six months in the year 1577 was without a major military conflict.

  29 While technically the Armada was launched in the context of the Dutch Revolt, its sheer size, scope, and financial demands gave it a life of its own, and the historical literature has often treated it as a separate unit of analysis.

  30 For an excellent account of the last decade of Charles’s reign, the transformation of the empire, the political and personal differences between Charles and Philip, and the personal imprint that Philip II would put on the empire in the early years of his monarchy, see Rodríguez-Salgado 1988.

  31 Parker (1979) reconstructs the costs of the Battle of Lepanto as well as the ongoing outlays needed to maintain the gains achieved. He concludes that fighting the battle itself was the only reasonable course of action in the face of the Ottoman threat, and that its total cost ended up being moderate. The continuing charges for the maintenance of the Mediterranean fleet, however, were a major drain on the treasury.

  32 The Burgundian protocol was used in the Spanish court throughout the reigns of both Charles V and Philip II.

  33 For some excellent general treatments of the dynamism of the Low Countries in the early modern age, see Tracy 1985, 1990; Gelderblom 2013.

  34 Parker (1979) attributes this apparently erratic behavior to Philip’s perception of the Dutch issues as secondary, while his energies were fully committed to the naval warfare in the Mediterranean that would eventually lead to the War of the Holy League.

  35 See chapter 5, where we explore the reasons behind the Sack of Antwerp in detail. See also the online appendix in Drelichman and Voth 2011a.

  36 For an account of the multiple overlapping plans for the Armada, and a discussion of the delays and setbacks it experienced, see De Lamar 1988.

  37 Raleigh’s quote and Parker’s appraisal appear in Parker 1979.

  38 This view can already be found in Mattingly 1959; Thompson 1969. Rodríguez-Salgado (1990) surveys more recent work supporting the idea that the disaster of the Armada had more to do with negative risk realizations than with hubris and incompetence.

  39 Rodríguez-Salgado (1990) provides a survey of existing estimates.

  40 Philip was married to Mary I of England between 1554 (when he was still prince) and 1558, when Mary died. She was Philip’s second wife.

  41 The defeat nevertheless served to focus the mind of the Cortes into voting for new excises—the millones—to provide for the defense of the kingdom. For an in-depth analysis, see chapter 3.

  42 On the role of the 1596 bankruptcy and royal finances in the Peace of Vervins, see Gelabert 2013.

  43 Michel Morineau (1985) reports that bribes were around 7 percent of the value of undeclared treasure. The net saving was therefore 13 percent (the “saved” royal fifth minus 7 percent). There also might have been a slight timing advantage, as the House of Trade often retained treasure for up to a month. Being caught with undeclared treasure carried a penalty of four times its value (Hamilton 1929). The risk of detection seems to have been fairly low. There are few notices about confiscated contraband, and Dutch commercial publications and Italian diplomatic correspondence discuss contraband amounts at length.

  44 New Spain refers to modern-day Mexico.

  45 For an excellent discussion of the institutional characteristics, intergovernmental transfers, and administrative costs in Spanish America, see Grafe and Irigoín 2006.

  46 Not all the treasure was taxed in Seville, however. Part of it was assayed, taxed, and sometimes coined in the colonies. This proportion increased as the colonies’ demand for taxes and coinage grew.

  47 For a discussion of the role of the Philippines in the universe of Spanish trade, see Flynn and Giráldez 2004.

  48 Ranuccio was the son of Alexander Farnese, Duke of Parma and governor of the Netherlands. Given his father’s status as a direct subordinate of Philip II, Ranuccio’s rights were not pursued. His aunt, Catherine of Braganza, tried in vain to convince Philip to support her cause. At the dissolution of the Iberian Union in 1640, Catherine’s descendants would be acclaimed as the legitimate rulers of Portugal.

  49 Our account in this section follows Marques (1979) and Serrão (1982), two classic sources on Portuguese history.

  50 For another exponent of the imperial overstretch, see Kennedy 1987.

  51 Parker (1998) first espoused this theory in the context of elucidating the guiding principle of Philip II’s imperial strategy. Kamen (2003) expanded it to the entire the Spanish Empire.

  52 Here we largely follow Parker 1972, 1998. Pierson (1989) makes a similar point about the strategic choices that led to the Armada.

  53 An exception to this rule were the New World colonies, as illustrated in Grafe and Irigoín 2006. The enormous geographic barriers between Spain and the Americas likely played a large part in the emergence of the system of intercolonial transfers that arose there.

  54 P.G.M. Dickson (1987) makes a similar point regarding the Habsburg German possessions: the central territories bore the brunt of taxation, while dominions had a light fiscal load. After losing Silesia to Frederick the Great in the War of Austrian Succession, Maria Theresia’s advisers were stunned at how Frederick managed to radically increase taxation in the territory.

  CHAPTER 3

  TAXES, DEBTS, AND INSTITUTIONS

  Early modern kings evoke images of absolute rule, crystallized in the famous statement attributed to Louis XIV: “L’État, c’est moi.” Modern economic research often refers to this image when characterizing European states between 1500 and 1800.1 As a generation of revisionist historians has convincingly argued, royal power in the early modern period was in practice never unconstrained.2 Instead, “absolutism” is probably best viewed as a social arrangement to the mutual benefit of both the elite and the Crown, with the former providing crucial support to the latter.3 For the celebrated case of France, Roland Mousnier (1974) famously showed that Louis XIV and his successors governed largely by consensus; absolutism was more theater than reality. In each country different regional histories continued to shape the boundaries between the king and the rights and freedoms of his subjects to a varying extent.

  In sixteenth-century Castile, the limits of royal authority were heavily influenced by the Reconquista’s long shadow. During the Middle Ages, after every push into Arab territory, Christian kings had faced the problem of how to hold on to their gains. To encourage the repopulation of conquered land, they endowed towns and cities with sizable commons and extensive political liberties. Religious orders, in similar fashion, were granted large territories in exchange for establishing monasteries, which served as both spiritual centers and economic engines. At the dawn of the early modern age, these entitlements had seriously limited the Crown’s resources. The royal demesne was the largest source of income in most of Europe. In Castile, lands given to towns and religious orders had reduced its size, curtailing royal revenues. Municipal freedoms resulted in a weak feudal order, depriving kings of direct military support and forcing them to negotiate directly with the cities about taxes.

  After the end of the Reconquista, the Catholic Kings moved to reassert royal authority—a process that continued under Charles V and Phili
p II. This push, however, was conditioned internally by the strength of the cities (and to some extent, the nobility and the church) and externally by the military needs of the Crown. To obtain additional resources, kings had to bargain with the cities in a process that could be lengthy and often required costly concessions. The result was far from the centrally controlled system epitomized in the figure of an absolute monarch. And yet by the end of the sixteenth century, Castile had managed to increase its tax revenues and fiscal pressure to levels far above those of competing powers.4

  In this chapter, we describe the evolution of Castile’s political and fiscal institutions under the Habsburg monarchs, focusing on the mechanisms and events that made its remarkable expansion possible. We then present the main fiscal and financial data of this book. Two series are key. First, relying on published sources, we carefully reconstruct fiscal revenues between 1555 and 1596. Next, using new, hand-collected data from the archives, we compile a new series of short-term loans—asientos. Both series underpin the analysis in the remainder of our book.

  POLITICAL ORGANIZATION

  CROWN AND KINGDOM

  The Crown—or government—was personified in the figure of the king, and consisted of a system of councils with executive responsibility over the different areas of public administration.5 This system evolved during the late Middle Ages and consolidated under the Habsburgs in the sixteenth century.6 The most important matters requiring executive action were heard and decided in the Council of Castile, which also served as the highest court of appeal. Most territories in the monarchy had their own councils (Aragon, Navarre, Italy, Flanders, Portugal, and the Indies). The Council of Finance (Consejo de Hacienda) was responsible for most fiscal and financial matters.7 The councils of war, inquisition, and military orders, and the Council of the Chamber rounded up the higher-order executive bodies.

  In contrast to the Crown, the “Kingdom” was the set of different social strata, corporations, municipalities, and organizations of the realm. The institution that gave life to the Kingdom was the Cortes, a representative assembly that dated back at least to the twelfth century.8 From the fourteenth century on, voting in the Cortes was reserved for the representatives of Castilian cities, with the clergy and nobility excluded. The number of voting cities was fixed at seventeen in the first half of the fifteenth century, with Granada becoming the eighteenth vote after its capture in 1492. From the late Middle Ages onward, the Cortes became the standard-bearer of the urban elites. Although in the fifteenth century the Cortes was convened at irregular intervals, from the sixteenth century on it sat on average every three years.9

  Following the tradition of medieval curiae, the function of the Cortes was to provide auxilium et consilium—resources and advice—to the king. This took the form of granting revenue along with submitting a list of complaints and requests for the monarch’s consideration. A number of taxes required Cortes approval. The most important among them was the sales taxes known as al-cabalas, closely followed by the personal taxes called servicios (both discussed below). The Cortes could be reasonably expected to renew the previous level of taxes; refusing to do so would have been considered an act of rebellion. The most the Cortes dared to do to confront the king when it came to renewing existing tax levels was to attempt to have its complaints addressed before voting on funding. Even in this limited objective, it was almost never successful. The closest the Cortes came to obtaining redress to its complaints before voting on supply was in 1576, when it requested a lowering of the rate on the alcabala. After much haggling, the king agreed to consider the request, implying that he would approve it provided that the Cortes renewed the previous level of funding first. The Cortes dutifully played its part; the previous taxes were first renewed and then graciously lowered by the king.10

  When the king requested an increase in taxes, however, the Cortes could and did refuse to provide it, delay it, or request concessions in return. A case in point is that of the Cortes of 1575, when the assembly refused the king’s request for tripling the sales tax. The proceedings dragged on for several months, with the deteriorating financial position of the Crown and demands of the war in the Low Countries looming large over the impasse. An agreement to double the tax was finally reached, but the proceeds came too late to help avert the bankruptcy of that year. For a monarch who has been characterized as “absolute,” Philip II was constrained indeed.

  The Cortes was most powerful in times of crisis, usually prompted by difficult military situations. Its ability to resist royal pressure in other circumstances, though, was much diminished after the standoff between Charles V and the Cortes of 1519, which had been convened to authorize a levy to pay for Charles’s trip to accept the Holy Roman Crown. Knowing that Charles’s imperial ambitions were likely to be financed out of Castilian tax revenues, the cities resisted the move. Several of them explicitly refused to grant full powers to their representatives, requiring them to instead consult with city governments before approving any levies. The Cortes was originally convened in Santiago de Compostela, and Charles subsequently moved the sessions to even more remote La Coruña, where he strong-armed the representatives into compliance.11 Tellingly, the ensuing revolt of the comunidades began when a mob in Segovia lynched a delegate returning from the Cortes. Although the revolt raged on for a year, Charles eventually quashed the uprising without much difficulty.

  One key feature of the Cortes’s role in granting financial support was the designation of an income stream as “ordinary” or “extraordinary.” In medieval times, ordinary streams were permanent ones, while extraordinary revenues had to be reauthorized at every sitting. By the early modern period, both types of revenues were renewed as a matter of course, but the distinction still mattered, as long-term debt could only be issued against ordinary revenues. The Cortes, therefore, held one important tool of fiscal control. By refusing to approve new ordinary revenues or convert extraordinary revenues into ordinary ones, it could effectively set a ceiling for the long-term debt issued by the Crown.

  NOBILITY

  The structure of the Castilian nobility was, as in virtually every emerging European state, a product of its military history during the Middle Ages.12 Newly incorporated villages and cities were granted extensive liberties in areas conquered from the Arabs. This process resulted in a weak feudal structure, with the powers of the lord (señor) of a town severely restricted by the privileges previously granted to the municipal corporation. Some groups of towns, called behetrías, were even granted the ability to select their own feudal lord. Many territories did not become subject to a lord altogether, remaining in the king’s demesne—but free from feudal dues—as late as the second half of the sixteenth century. Afterward, the Crown began to sell them to noble families to raise funds.13 A related fund-raising strategy was the sale of tierras baldías—literally, “empty lands.” Although these lands were technically part of the royal demesne, towns and peasants had used them as commons for centuries. Their privatization caused serious disruptions to the local economies, creating problems not unlike those that would emerge with the enclosure movement in Britain.14

  From the late Middle Ages onward, the rights of feudal lords—who constituted the upper nobility—were usually limited to collecting rent over their lands as well as certain other feudal dues. The administration of justice transitioned into royal hands early on, as did military service, which by the fifteenth century was entirely professional or mercenary. The nobility was thus drawn closer to the king, who kept it in check by carefully distributing key government posts among different noble lineages, assigning nobles to military command posts, and periodically extracting monetary contributions.

  During the reigns of Charles V and Philip II, there was also a large increase in the number of petty nobles—the hidalgos of Don Quixote fame. Traditional historiography assumed that the newly minted hidalgos were after the tax exemptions that came with ennoblement. Since nobles were not supposed to engage in manual labor, it was also assume
d that the newly ennobled left the labor force in droves. Braudel (1966, 517) famously called this phenomenon “the treason of the bourgeoisie.” In reality, the value of the tax exemptions was small compared to the cost of obtaining noble status, and most hidalgos could not afford to leave the labor force. Their main reason for seeking ennoblement was to take advantage of a provision that reserved one-half of all municipal positions for nobles—the mitad de los oficios. While a few succeeded in securing a profitable appointment, the large number of new hidalgos meant that most were thwarted in their quest. Life for them continued as usual, except for a court document certifying their status. Although significant from a cultural point of view, this expansion of the nobility had virtually no fiscal or political consequences.15

  THE CHURCH

  The Catholic Church played a key role in the political and financial fortunes of Spain. When the Arabs overran most of the Iberian Peninsula in the eighth century, Christianity was one of the few common traits the defeated Visigothic kingdoms could find to form a unified front against the invader. During the seven centuries of the Reconquista, religion and the Crown developed an almost-symbiotic relationship. The church was part of the military machine in the form of the four religious-military orders of Santiago, Alcántara, Calatrava, and Montesa, which were rewarded with large shares of the land they helped recover from the Muslims. The establishment of monasteries was also an effective way of cementing a presence in a newly conquered country devoid of enough settlers, and the Crown willingly ceded the surrounding lands to the new convents. As the country was slowly resettled by Christians, parishes were pressed into fiscal service, collecting a number of taxes and levies on behalf of the Crown. Priests were likely to know in detail the resources of their parishioners and, holding moral sway over them, also had a better chance than royal collectors in ensuring that they paid their due.