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State Cash Resources and State Building in Europe 13th-18th century

 | 
Katia Béguin
, 
Anne L. Murphy

Political Construction and the Management of Public Resources

Distant Tyranny: Polycentric State-Building and Fiscal Systems in Spain 1650–1800

Regina Grafe

Texte intégral

  • 1 Hendrik Spruyt, The sovereign state and its competitors: an analysis of systems change, Princeton S (...)

1In the 1960s the tourism agencies of Spain’s fascist government put out an international advertising campaign that became a huge hit. Its simple slogan was ‘Spain is different’. The historical social science literature on Spanish state-building until very recently seemed to concur. Spain seemed to fit poorly into our models of the emergence of European states, which tend to think about state formation in dichotomies. From the high Middle Ages to the nineteenth century, two forms of statehood are distinguished: city-states and territorial states.1 These in turn were meant to lead to the formation of nation states in two distinct phases. In phase one, territorial states such as England, France and Spain consolidated and supposedly turned from loose associations of territories under the same crown into fully fledged integrated nation states. In the second phase, in the nineteenth century, the European ‘late’ nation states, Germany and Italy, were united out of a sundry hotchpotch of city-states and smaller territorial units.

  • 2 The term polycentric state has recently been used mostly in the context of political devolution in (...)

2Spain was formed in 1479 out of a dynastic marriage between the heirs of Castile/León and Aragon with boundaries that still closely resemble today’s shape. It should thus without doubt have been an ‘early’ territorial and nation state. The problem is that by the late nineteenth century Spain did not look anything like France or England but did look rather a lot like Germany and Italy in terms of its economic, social, linguistic, cultural and political integration – or the lack thereof. Spain did not became a nation state nor did it develop economically in the predicted way. But this chapter rejects the facile solution of declaring ‘Spain is different’. Instead it suggests that the problem lies in too narrow a view of the different paths to European state formation. I posit that the dichotomy of city-state versus territorial state tends to leave out the history of a number of European states, notably Spain, but also the Netherlands and possibly others, which were territorial but which I call polycentric states.2

  • 3 Spain today is a peculiar hybrid. The constitution does not define it as either federal or unitary, (...)
  • 4 This would seem to be the common story for the US or the states that emerged out of the Ottoman Emp (...)

3These polycentric states were neither outgrown city-states nor ‘failed’ territorial states. I posit that there was a genuine ‘third’ way of state formation that balanced centrifugal and centripetal tendencies over long periods of time without either fragmentation or centralization. The currently dominant models of nation state-building, as well as political economy models and intellectual history, make no allowance for such a third path. Indeed, even though many (and perhaps most) European states today exhibit strong devolved or federal structures, neither social and cultural historians, nor political economists, nor historians of thought offer a very clear historical narrative that would explain this outcome.3 It would seem that the dominant theoretical construct assumes the creation of a unified nation state that ex-post chooses to devolve autonomy and sovereignty in a process of subsidiarity. Implicit in this is that states were fully fledged integrated nation states before they began devolution or alternatively emerged out of an independence movement directed against an empire.4 The only exception to this seems to be the creation of state federations – but the current unease with which many discuss the obvious need for the EU to become more like a federal state and less like a state federation vividly illustrates the intellectual challenge.

I. The Construction of Polycentric States: a Historiographical Revision

  • 5 John H. Elliott, ‘A Europe of composite monarchies’, Past and Present, 137, 1992.
  • 6 The hypothesis was formulated by Epstein. Dincecco recently provided some additional empirical test (...)

4Historians do agree that Spain, like all European territorial states, at some point emerged out of a process of assembly of different territories (Castile and León, Aragon, Navarre, the Basque Provinces, which in turn were patchwork territories) that led to the creation of what Elliott has called a composite kingdom.5 Most also agree that Spain remained such a union of territories under a common monarchy long after a process towards more unification had taken place in England (and Wales), the most unified European state, or even France, less unified than England but more so than the Spains, as contemporaries would have called them. However, there is a more or less explicit assumption that there was a natural drag towards greater unification. Recent work suggests that a lack of unification was a major problem that potentially hindered economic growth in early modern Europe.6 More importantly, it has always been assumed that any polycentric polity would be necessarily too unstable in the early modern period to survive permanently.

  • 7 Charles Tilly, The formation of national states in western Europe, Princeton, Princeton University (...)
  • 8 Regina Grafe, Distant tyranny. Markets, power and backwardness in Spain 1650–1800, Princeton, Princ (...)

5The supposed reason for this instability was war. The historical social sciences base their analysis of European state-building in the early phases on the model of the fiscal military state, associated with the name of Charles Tilly and accepted widely by economic and political historians.7 In the late Middle Ages and the early modern period the hundreds of small European polities went through a process of ‘mergers and acquisitions’ allegedly driven by an exogenous change in military technology.8 The so-called ‘military revolution’ raised the expenditures for defence and offence. Rulers had to press their subjects harder to finance their armies and navies lest they risk having their territory annexed by their neighbours. To simplify: European states were built on the need to centralize and control subjects with the help of an expanding bureaucracy that was needed to collect increasing amounts of taxes with which to hold off bellicose competitors. Within such a theoretical frame it would indeed be hard to imagine a polycentric governance structure. Less centralization meant less central control over tax collection and was presumably punished by more fiscally efficient neighbours and their armies and navies. War then was the exogenous prime mover that triggered the process of European nation state-building.

  • 9 On-going work by Northwestern PhD candidate Michael Martoccio suggests, for example, that Florence’ (...)
  • 10 Timothy Besley and Torsten Persson, Pillars of prosperity: the political economics of development c (...)

6Yet the story is more complicated than the simpler versions of the fiscal–military state model would suggest. War of course was never an exogenous variable; rulers chose to go to war over reputation, or territories, or marriages gone wrong. The notion of exogenous technological changes, such as a military revolution, that explains why all of a sudden rulers could no longer choose whether to fight or not, is tempting. Yet it works neither in terms of chronology, since European state-building started before the identified revolution and continued long after the changes had been absorbed, nor in terms of how territorial consolidation occurred.9 At the same time, centralization was not a simple choice for rulers to make. Local nobles, territorial parliaments, the rights of free towns and the church and many other obstacles had to be overcome by suasion or coercion, both of which were expensive undertakings. Rulers thus had to choose to invest in what is often called state capacity, that is, the ability to provide rule of law (legal capacity) and the ability to tax (fiscal capacity).10

  • 11 Nicola Gennaioli and Hans Joachim Voth, ‘State capacity and military conflict’, working paper, 2011

7Gennaiolo and Voth have recently offered a very helpful model that endogenizes rulers’ choices over war and degrees of centralization. The model predicts that there were two possible paths for European states. Where initial levels of centralization were low, they argue, moves towards centralization would have carried a higher risk of causing a revolt. Hence rulers would have been reluctant to centralize unless waging war was very, very costly. In that case even the rulers of highly fragmented polities were forced to press for centralization, and for revenue from all their subjects. They would risk internal opposition because the need for external defence was so urgent.11 The model explains why not all European territories turned into strong, unified nation states. However, even this model would suggest that states which disengaged from the European competition would eventually disappear in a process of Darwinian selection.

  • 12 Regina Grafe and Alejandra Irigoin, ‘Bounded Leviathan: fiscal constraints and financial developmen (...)
  • 13 Ibid.

8Irigoin and Grafe have argued more generally that the relationship between coercion used in revenue collection and net revenue was shaped like an inverted U independently of tax rates or types of taxes collected.12 Rulers did not maximize revenue but rule. That always meant balancing internal and external threats, just as Gennaiolo and Voth argue. Increased revenue was only conducive to a maximization of rule if it offset the cost of coercion needed to collect it. But in addition, investment in fiscal capacity itself was subject to decreasing returns.13 Thus collection costs would eventually rise faster than revenue. That means that ex-ante it is not clear if increased investment in coercion used in revenue collection in fact raised net revenue.

  • 14 Ibid.

9Most importantly, attempts by rulers to increase central control over revenue collection did not just result in vastly different costs in different polities, as Gennaiolo and Voth have shown. They also resulted in very different effects with regard to the overall growth potential of the economy. In those polities that already exhibited (relatively) high degrees of unification, states were in danger of turning that control into predatory and expropriatory fiscal measures because they could. In those polities that were weakly unified, states were in danger of coordination failure. They could neither coordinate the provision of public goods nor stimulate market integration. However, they were not predatory, because they could not predate.14 As a consequence these polycentric states could in fact survive and be remarkably stable, but they placed important limits on economic growth.

II. Fragmented Sovereignty and Stability: the Government of Spain

10The prime example of a polycentric, yet remarkably stable, early modern European polity is Spain. To demonstrate why, this chapter will offer some admittedly very sketchy evidence to show that (a) Spain did remain politically and fiscally decentralized at least until the early nineteenth century; (b) the Spanish polity was fiscally perfectly viable and was capable of reaction when viability was under threat; (c) Spain’s polycentric structure was the very basis of the legitimacy of rule, it constrained the ruler and was therefore the source of its stability; and (d) neither the legitimacy of this polycentric structure nor the way in which it assured that the state did not become predatory was enough to make up for its unintended economic consequences, namely that it seriously circumscribed market integration in Spain.

  • 15 González de Lara et al. rightly complain that the historical social sciences have offered few new i (...)

11Among historians of Spain the low degree of political and fiscal unification in the Habsburg period, that is, the sixteenth and seventeenth centuries, is uncontroversial. I have suggested elsewhere that one useful way to think about early modern governance is to see where power was located, how it was actually exercised and how it was legitimized. As economic historians we tend to narrow down our analysis to the institutional structures: the location of power. However, cultural historians are right to remind us that the practice of power is equally important. Historical sociologists might call this the emergence of a functioning (or not) administration.15 It is equally obvious that we should not ignore intellectual historians’ plea that it matters what people thought legitimate rule was. Only if we properly historicize can we hope to understand the variety of processes subsumed under the category of state-building, their interaction with fiscality and their impact on the economy. If we apply this to the case of Spain it becomes clear that sovereignty remained shared between territories, towns, corporate bodies, the church and a monarchy that mediated rather than mandated. The location of power was thus mostly local and regional, reflecting the jurisdictional fragmentation of corporate society. However, the persistence of this system of fragmented sovereignty was not a simple question of path dependence or ‘failure’.

  • 16 R. Grafe, Distant tyranny…, op. cit.
  • 17 Regina Grafe and Alejandra Irigoin, ‘Bargaining for absolutism. A Spanish path to empire and nation (...)

12The exercise of local and regional power in Spain relied on a system of taxation that was based on trade and consumption taxes, the rates of which were decided locally. Hence the monarchy depended for its finances largely on the towns. Royal revenue from the Americas, which exercised the fantasy of contemporaries, social scientists and historians alike, made up more than about 20% only in the sixteenth century and as little as 5 to 12% in the seventeenth and eighteenth centuries.16 Indeed, governance in the Spanish Americas was, contrary to received wisdom, just as decentralized, and 95% of revenue collected from the American territories was spent in the Americas. The still dominant idea that peninsular Spain lived off the spoils of empire is simply incorrect.17 Instead, Spain’s Iberian treasuries depended on the commercial and consumptive activities of their urban populace first and foremost who were footing the bill for the accumulated ‘sovereign’ debt and provided most public services. In return the crown refrained voluntarily from excessive borrowing and taxation. Not surprisingly, urban elites were strongly represented and exercised their power throughout the early modern period. Or, to put it another way: the location of power was, even in the late eighteenth century, local and regional.

13One result was the infamously large differences in tax burden across Spanish territories and towns. Here the impact of local and territorial control over the fiscal system is seen in relief. Figure 1 illustrates this for the different peninsular Spanish territories in the late eighteenth century. While the estimates need to be viewed with the due caution that should be exercised when trying to aggregate regional taxes, there can be little doubt about the orders of magnitude of the differences. Castilian average tax burdens were around 15 to 30% higher than those in Catalonia at this point. However, that difference was dwarfed in comparison to Navarre and the two Basque Provinces of Guipúzcoa and Vizcaya.

Figure 1. Per capita tax burden by region in the 1770s/1790s (reales vellón)

Figure 1. Per capita tax burden by region in the 1770s/1790s (reales vellón)

Sources: Castille, Catalogne, Navarre, Guipúzcoa: Mario Garcia-Zuñiga, Isabel Mugartegui and Joseba de la Torre, ‘Evolución de la carge tributaria en la España del Setecientos’, in Hacienda pública española, no. 1 (Historia de la Hacienda en España (siglos XVI–XX): homenaje a don Felipe Ruiz Martín, Madrid, Instituto de estudios fiscales, 1991, p. 85; Vizcaya: Luis María Bilbao Bilbao, ‘La Fiscalidad En Las Provincias Exentas De Vizcaya Y Guipúzcoa Durante El Siglo xviii,’ in Miguel Artola and Luis María Bilbao Bilbao (eds), Estudios De Hacienda: De Ensenada a Mon, Madrid, Instituto de Estudios Fiscales, 1984, pp. 67–83, p. 78 (for 1800–1802); and population: Censo de Floridablanca.

14These stark differences raise serious doubts about the traditional view that claimed that the Bourbon reforms of the eighteenth century had put a stop to the decentralized nature of the Spanish state and its tax system. In this version of events the abolition of estates of the Aragonese territories (Catalonia, Aragon and Valencia) with the decretos de Nueva Planta (1707–1716), which followed the War of the Spanish Succession and the arrival of the Bourbon Philip V, brought a slow but steady trend towards more absolutist control from the centre. In fact, neither the attempted reforms of administrative territories under intendents, nor the municipal reforms, nor those that tried to unify the tax system, nor the abolition of internal customs achieved more than cosmetic results. Fiscal administration in Spain became more competent, but not less fragmented.

  • 18 The following relies on R. Grafe, Distant tyranny…, op. cit.

15Historic territories and towns resisted usurpation of their traditional freedoms, fueros, every step of the way and with astonishing success. Each reform could be analysed in detail to understand the particular fault lines in each case. Yet for the purpose of this chapter it probably suffices to say that a number of historic territories successfully limited the abolition of internal customs and most importantly the harmonization of external customs. This blocked the way for fiscal reform because it made it impossible to shift the fiscal burden from local trade and consumption taxes to general taxes on foreign trade, the most promising alternative source of revenue and one that contributed relatively little to the Spanish hacienda.18 Without a viable alternative the Royal Treasury had to continue to rely heavily on its traditional source of income, the locally determined, taxed and administered indirect trade and consumption taxes known as alcabalas, sisas and cientos. These had always been and remained urban taxes, collected by urban institutions, levied on urban activities. Whoever wanted to wield the power of the taxman in Spain would have to do so at the level of the towns and historic territories.

16The polycentric location and exercise of power was strengthened by deep constitutional roots which enshrined the contractual basis of kingship. Kingship was never divine in Spain. Instead the monarch continued to observe a rule that effectively gave local and royal officials the possibility to veto the king’s decisions. This turned defiance of a royal decree from an act of rebellion into an act of legitimate resistance. The upside of this system of governance was that it solved the issue of legitimacy quite efficiently. The Spanish monarchy was never subject to any serious attempt at overthrowing the existing order until Napoleon invaded the country in 1808 and removed the Spanish king, thus triggering a constitutional vacuum in the Peninsula and independence in Spanish America. Polycentric rule in peninsular Spain (and its American colonies) was thus fundamentally stable.

  • 19 Michael J. Braddick, ‘The nerves of the state. Taxation and the financing of the English state, 155 (...)
  • 20 William J. Ashworth, Customs and excise: trade, production, and consumption in England, 1640–1845, (...)

17It was also essentially fiscally viable if we compare Spain’s relative fiscal capacity to its direct European competitors. Figure 2 offers some data on the per capita revenue collection of Britain, France and Spain for the late eighteenth century. The figure also includes new estimates by Grafe and Irigoin for Spanish America to help dispel the widespread notion that the Empire in the Americas was fiscally much more extractive than the metropolis. The data reflect the well-studied fact that the British state by the late eighteenth century had the most formidable fiscal apparatus in Europe.19 Its fiscal capacity outdid that of pre-revolutionary France and peninsular Spain by a factor of two to three. This was the culmination of a history that had begun with the introduction of the fiscal reforms under Cromwell and was advanced strongly by the excise reforms of the 1720s and 1730s, which successively increased the fiscal gap between Britain and her continental neighbours.20

Figure 2. Net revenue per capita in European countries and Spanish territories in the Americas (1785–1800) (in Spanish American pesos)

Figure 2. Net revenue per capita in European countries and Spanish territories in the Americas (1785–1800) (in Spanish American pesos)

Source: for a complete list, see R. Grafe and A. Irigoin, ‘A stakeholder empire: the political economy of Spanish imperial rule in America’, Economic History Review, 65 (2), 2012.

  • 21 Regina Grafe and Alejandra Irigoin, ‘The Spanish Empire and its legacy: fiscal re-distribution and (...)

18Spanish and French revenue-raising capacities were similar in per capita terms. Spanish fiscal capacity would be somewhat superior if we were to include American subjects in the equation. However, even if revenue in the Americas was higher than in the peninsula, it was closer to the peninsular Spanish or French range than to British figures. In other words, as argued elsewhere, the notion of massive extraction of revenue in the trans-Atlantic territories is not borne out by Spanish fiscal data.21 Per capita revenue in New Spain (today’s Mexico) in particular was notably higher. Yet this was also by far the richest of Spain’s territories. Overall it should be noted that the fiscal capacity of polycentric Spain was of course low by British standards. However, compared to France it was actually almost at par.

  • 22 Eugene White, ‘Was there a solution to the Ancien Regime’s financial dilemma’, Journal of Economic (...)
  • 23 Mauricio Drelichman and Hans Joachim Voth, ‘Risk sharing with the monarch: contingent dept and excu (...)

19Comparison with pre-revolutionary France is of course not exactly a sign of fiscal viability, even if not all economic historians believe that the French Treasury was doomed.22 The obvious question is what investors thought about Spain and its reliability as a borrower. Series of sovereign interest rates for Spain especially in the eighteenth century have been hard to construct. In part, this is the result of Spain’s rather perplexing fiscal behaviour in this period. Throughout the sixteenth and much of the seventeenth century Spain had famously contracted sovereign debt through both loans and annuities. Large loans (asientos) had been provided by the German banking houses in the sixteenth century, and in the seventeenth century they were syndicated by Genoese investors.23 Annuities were issued in the form of the juros (redeemable bonds) throughout the sixteenth century and until the 1670s. However, between the late seventeenth century and the late eighteenth century the Spanish central hacienda neither issued new juros nor took out large loans nationally or internationally.

  • 24 R. Grafe, Distant tyranny…, op. cit.
  • 25 R. Grafe and A. Irigoin, ‘Stakeholder…’, op. cit. K. Andrien reports that at least in Lima debt was (...)

20This led to two interesting features of Spanish public finances in the eighteenth century. On the one hand, the share of Spanish expenditure on debt service was minimal at a time when most European states struggled to service their debt. During the eighteenth century Britain and France spent between one-third and one-half of their total expenditure on debt service, and the Netherlands spent between 40 and 70%. In peninsular Spain debt service consumed on average 7% over the century, and even in the financially very challenging 1780s, when new debt was issued in the form of the vales reales, it did not exceed 12%. Between 1782 and 1794 the debt of the Spanish central Treasury increased fivefold. But even on the eve of the French war in 1793 Spanish per capita debt was barely 5% of British per capita debt.24 In the American territories these numbers were even lower, rising from about 2% on average in 1729–1733 to 7% on average in 1796–1800.25 On the other hand, we do not know what interest rate the Spanish central Treasury would have had to pay for new debt, since there was no regular issuance. The best proxy we have is therefore the return that investors received on the old juros, which continued to be served and were traded in secondary markets. In addition we have some anecdotal evidence on loans taken up in Europe and the Americas in the late eighteenth century.

Figure 3. Public and private interest rates in Spain (1550–1830)

Figure 3. Public and private interest rates in Spain (1550–1830)

Sources: for a complete list, see R. Grafe, Distant tyranny…, op. cit.

21Figure 3 displays the official rate of interest of juros established by the king, which fell from 10% in the sixteenth century to 2.5% in the eighteenth century. During much of the later sixteenth and especially the seventeenth century the juros traded at substantial discounts on face value and thus yields were considerably higher. The series of the effective rate on royal debt constructed by Drelichman and Voth and included here for the late sixteenth century reflects their estimate of the real cost of borrowing for the crown combining annuities and large loans, which exceeded 9%. No comparable data are available for the first half of the seventeenth century.

  • 26 Juros were redeemable and thus the king was able to reduce the interest rate as long as investors w (...)
  • 27 Carlos Marichal, Bankruptcy of empire. Mexican silver and the wars between Spain, Britain and Franc (...)
  • 28 Brian R. Hamnett, ‘The appropriation of Mexican church wealth by the Spanish Bourbon government. Th (...)

22For the later seventeenth century and the eighteenth century a small series has been constructed on the basis of the juros owned by the cathedral chapter of Zamora. It reflects the return the chapter realized on their juros, which is the closest we might be able to get to yields.26 The difficult fiscal and therefore financial situation in the later seventeenth century is clearly visible. Returns were between 7.4 and 8.6%. However, by the mid- to later eighteenth century these had dropped back to somewhere between 4.1 and 4.3% on average. When Spain returned to international markets in the very late 1700s it paid 3.5 to 5% in the Amsterdam market, comparable to what Britain paid at the time.27 As late as 1805 Spain took out a loan in Paris at 5.5%.28 By then, of course, all of Europe was scrambling for funds to continue the first intercontinental war of the modern age.

23In short, in the eighteenth century the yield on Spanish sovereign debt was surprisingly close to British rates and Spain was in no way facing the same problems that France confronted. In fact during the eighteenth century Spain had retired some of the legacy debt (juros), and simply had not issued new debt. Yet it did not do so because it could not raise money in the face of high rates, but because it chose not to borrow. Thus investors had to chase old annuities in the secondary markets and were willing to lend effectively at a lower and lower rate. The Royal Treasury did of course borrow in the short term from suppliers and merchants and its own tax officials. Yet here too modest rates were the rule.

  • 29 See note 26 above.
  • 30 C. Álvarez-Nogal and C. Chamley, ‘Debt policy…’, op. cit.

24It is important to note, too, that private interest rates in peninsular Spain were even lower than sovereign ones during this period. Private mortgage backed loans, so called censos, were agreed between local debtors (in this case mostly farmers) and the Zamora cathedral chapter at just over 5% in the early seventeenth century and closer to 2% in the later eighteenth century (see figure 3). A ruler that – like the kings between the late seventeenth and the late eighteenth century – was increasing overall long-term borrowing only very modestly obviously did not crowd out private investors. Increases did occur mostly because investors for technical reasons adjusted to the new lower rates by topping up the principal rather than receiving a lower interest payment.29 Yet, since they could choose repayment instead, this was unlikely to crowd out private demand either.30 Only in the first decade of the nineteenth century did private interest rates rise again; but by then peninsular Spain was in the midst of a civil war caused by the Napoleonic invasion of 1808.

  • 31 R. Grafe and A. Irigoin, ‘Legacy…’, op. cit.; R. Grafe and A. Irigoin, ‘Bargaining for absolutism…’ (...)
  • 32 K. Andrien, ‘The sale of juros…’, op. cit.

25How different was the situation in Spanish America? Between the sixteenth and the eighteenth centuries Spanish America’s fiscal system was run through a network of 30 to 100 regional treasuries that enjoyed considerable autonomy. Transfers between these treasuries were instrumental to the workings of the system.31 Local treasuries financed the continued expansion of the Spanish state in the Americas and with it the extension of the fiscal base territorially and in terms of subject population. Yet there was no serious long-term debt in Spanish America. The Royal Treasury initially offered juros in the Americas, but stopped doing so in 1639 at the behest of the Council of the Indies. While the early sales were very successful, a renewed offer of juros in the late seventeenth century was not taken up by the public.32 Given what we know from the yields in peninsular Spain. this was of course a time of great discounts on face value and the reluctance of Spanish American investors is hardly surprising. This was, however, the last attempt to issue juros in the Americas. Theoretically, American subjects could still buy peninsular juros, but getting the coupon paid on a local tax in peninsular Spain was a costly enterprise for a Spanish American investor.

  • 33 R. Grafe and A. Irigoin, ‘A stakeholder…’, op. cit.

26In the absence of a funded sovereign debt in the New World, public borrowing in the Spanish Americas revolved around the activities of the regional treasuries, which incidentally meant that American subjects could monitor their investments and the local public borrower much more easily. Throughout the sixteenth to eighteenth centuries local non-religious and religious corporations gave loans and advances to their local treasuries. These could be part of civil or military purchasing, office holding or tax farming and revenue collection, or be part of the system of inter-Treasury transfers. From at least the early seventeenth century there were also occasionally large loans, which were usually syndicated through important local institutions such as the merchant guilds (consulados) or the mining guild (tribunal de mineria) who, for a fee, pooled resources offering additional security to small investors and lower transaction costs to the local Treasury.33

  • 34 A. W. Quiroz, Reassessing the role of credit in late colonial Peru: Censos, escrituras, and imposi (...)
  • 35 Viviana Grieco, ‘Politics and public credit: the limits of absolutism in late colonial Buenos Aires (...)
  • 36 R. Grafe and A. Irigoin, ‘A stakeholder…’, op. cit., appendices II and III.

27Early American examples of syndicated loans reflect the generally very high interest rates in the early seventeenth century. Quiroz argues that the Lima consulado paid up to 17% in 1627 to investors.34 Yet it is hard to generalize from this information, and, unlike the peninsular economy, Lima was in the midst of a boom at the time. In all likelihood lucrative private business was crowding out public borrowing, not the other way round. Given the regional and local nature of public borrowing in the Americas, and the privatization of large parts of the public finances, we simply do not know how much interest (explicit and implicit) the Spanish American treasuries paid for much of the period under consideration. In the late eighteenth century more large syndicated loans appear. Where we have information, the interest rate was becoming more standardized. The syndicating institutions charged the local Treasury around 5–6% while paying investors 4–5% and keeping 1% as their fee. For example, in 1793 the consulado of Buenos Aires syndicated a loan of over 100,000 pesos for 6%. The crown guaranteed debt service by earmarking a number of local taxes for this purpose. The consulado raised the principal from local merchants who participated with loans of different amounts and maturities between two and six years.35 Similar cases are documented for Mexico and Lima.36

  • 37 M. J. Rodríguez-Salgado, The changing face of empire, Cambridge, Cambridge University Press, 1988; (...)
  • 38 M. Drelichman and H. J. Voth, ‘Risk sharing with the monarch…’, op. cit.

28Even though there are substantial lacunae in our understanding of the financing of the Spanish state in Europe and the Americas, the available information suggests that for much of the period under consideration the Spanish public finances were in better shape than once thought. Whereas thirty years ago historians simply referred to the repeated Spanish defaults of the sixteenth and seventeenth centuries, it is now quite clear that the so-called defaults of the sixteenth century were essentially re-negotiations that turned loans into long-term bonds and which reflected liquidity problems but not solvency issues.37 More importantly, Drelichman and Voth demonstrate that the defaults did not change lenders’ expectations; in other words they had been priced in all along.38 This of course explains why bankers and the public kept on investing in Spanish public debt. There were profits to be made and investors basically trusted that their property rights would be honoured.

  • 39 R. Grafe, Distant tyranny…, op. cit., pp. 211–212.

29The result was a fragmented fiscality that nevertheless provided the public purse with sufficient funding at low interest rates for the system to be viable and perceived as legitimate in the long run. The Spanish fiscal system exhibited a number of features that help to explain why polycentric rule was able to survive for several centuries. Local and regional control over revenue (and to a lesser extent expenditure) constrained the ruler fairly effectively. The exception was the late seventeenth century when the system was clearly at the breaking point. But the reaction was retrenchment, not more coercion. Everyone, lenders, officeholders, towns and the king had to accept a haircut.39 The lesson Spanish rulers learnt was to restrict spending. Attempts in the eighteenth century finally to centralize Spanish fiscality came to little, though the quality of administration improved, markedly helping to sustain the system. On the eve of the French Revolution Spain was nowhere near the desperate situation in which the French king found himself.

III. The Restraints to Economic Growth

  • 40 Timothy Besley and Torsten Persson, Pillars of prosperity: the political economics of development c (...)
  • 41 Kathryn Burns, Into the archive: writing and power in colonial Peru, Durham (NC), Duke University P (...)

30The irony of Spanish history is that none of this was enough to guarantee that the fiscal system would have a positive impact on economic growth. Besley and Persson have recently quoted Adam Smith’s famous dictum that all that was needed for a state to achieve ‘the highest degree of opulence … [was] peace, easy taxes and a tolerable administration of justice’.40 Taken at face value, Spain should have done reasonably well, especially in the eighteenth century. True, peace was elusive, but not more so than in any other European polity of note. Taxes were not easy but easier than in Britain and not heavier than elsewhere. And recent revisions in legal history would suggest that the provision of justice was in fact fairly decent by the standards of the time. Certainly widespread access to notarial services made for safe and sophisticated private contracting that was enforced in court.41

  • 42 Besley and Persson, Pillars of prosperity…, op. cit., p. 21.
  • 43 Ibid., p. 182.

31So what went wrong? Tellingly Besley and Persson, in their attempt to explain why high taxes, legal capacity and economic growth seem empirically to go together, reinterpret Smith’s ‘easy taxes’ to mean ‘taxes that are easily extracted and broad-based – not a statement about the level’.42 On that count Spain’s taxes were anything but easy. Internal customs persisted, external customs were uneven, and the rules for the ubiquitous local trade and consumption taxes were a quagmire. This resulted in unpredictable differences in the prices of most staple products, with the notable exception of grain, which was exempted from local and territorial taxation. Using the simple example of a staple foodstuff that was usually imported from North America, dried salted codfish, I have estimated that in a set of ten Spanish towns only 40% of the huge variation in the price at the final destination compared to its point of origin could be explained by either trans-Atlantic or domestic transport costs from the mid-seventeenth to the late eighteenth centuries. The rest was due to a multitude of urban and territorial fiscal impositions.43 Ironically the attempt to remove some of the obstacles with the decretos de Nueva Planta seems to have made things worse. Figure 4 compares the pairwise correlations of the prices for dried saltcod, bacalao, before and after the reform, in Barcelona and a number of towns in other historic territories. In some cases markets became notably less integrated, as illustrated by the lower correlation coefficients.

Figure 4. Pairwise correlation between bacalao prices in Barcelona and selected towns before and after the abolition of foral (territorial) institutions

Figure 4. Pairwise correlation between bacalao prices in Barcelona and selected towns before and after the abolition of foral (territorial) institutions

Sources: R. Grafe, Distant tyranny…, op. cit., p. 164.

32The downside of Spain’s polycentric state-building model was that local power elites effectively controlled a highly fragmented political and fiscal system, which in turn seriously circumscribed the development of internal markets and therefore economic development in general. The alternative path I have charted for the political and economic development of Spain in the early modern period demonstrates that the simple model of European state formation that distinguishes between city-states and territorial states is too narrow. The Spanish tax system was at its base more like that of a city-state than that of other territorial states. Indirect taxes in Spain were considerably more important at the outset of the early modern period than in any other larger state bar the Netherlands. The share of indirect taxation in total taxes in England only began to catch up with Spanish levels after the excise reforms of the 1720s/1730s. Land taxes, important initially in England and permanently in France, never contributed much to the Spanish hacienda. The same was true for office holding. It is only a slight exaggeration to claim that Spain was fiscally a conglomerate of city-states.

33Contrary to the old idea of territorial absolutist states, Spanish economic development was not held back by a ruler who was too powerful and wrecked the economy in his quest for taxes and loans. Instead it suffered from a system of governance that was legitimate, non-predatory and fiscally viable but failed to solve the coordination problems that stood in the way of more integrated domestic markets. Polycentric states were not per se unstable and there was no automatic movement to either centralization or dismemberment. Spain and, I would argue, the Netherlands, show that vividly. What is not obvious, though, is how a transition to faster growth could have occurred in a polycentric state. In the end polycentric states collapsed like all other non-island states under the onslaught of the Napoleonic armies, not under the burden of their inbuilt limitations.

Notes

1 Hendrik Spruyt, The sovereign state and its competitors: an analysis of systems change, Princeton Studies in International History and Politics, Princeton, Princeton University Press, 1994.

2 The term polycentric state has recently been used mostly in the context of political devolution in formerly centralist polities such as the UK. In contrast to that debate I posit that many European countries never stopped being polycentric in the first place. Though I apply the term to political and fiscal organization rather than common resource issues, my approach is more in line with Ostrom’s use, which stressed that complex governance structures were not necessarily unstable or chaotic. Elinor Ostrom, ‘Beyond markets and states: polycentric governance of complex systems’, American Economic Review, 100, June 2010.

3 Spain today is a peculiar hybrid. The constitution does not define it as either federal or unitary, but allows for ‘asymmetric decentralization’, whereby the current ‘autonomías’ do not necessarily have the same competencies.

4 This would seem to be the common story for the US or the states that emerged out of the Ottoman Empire.

5 John H. Elliott, ‘A Europe of composite monarchies’, Past and Present, 137, 1992.

6 The hypothesis was formulated by Epstein. Dincecco recently provided some additional empirical testing. Mark Dincecco, ‘Fiscal centralization, limited government, and public revenues in Europe, 1650–1913’, Journal of Economic History, 69, 2009; Stephan R. Epstein, Freedom and growth: the rise of states and markets in Europe, 1300–1750, London, Routledge, 2000.

7 Charles Tilly, The formation of national states in western Europe, Princeton, Princeton University Press, 1975; idem, Coercion, capital and European states, AD 990–1990, Cambridge, Blackwell, 1990.

8 Regina Grafe, Distant tyranny. Markets, power and backwardness in Spain 1650–1800, Princeton, Princeton University Press, 2012.

9 On-going work by Northwestern PhD candidate Michael Martoccio suggests, for example, that Florence’s transformation from a city-republic to a territorial state was essentially a process of purchases of surrounding towns. War was rarely involved.

10 Timothy Besley and Torsten Persson, Pillars of prosperity: the political economics of development clusters, Princeton, Princeton University Press, 2011.

11 Nicola Gennaioli and Hans Joachim Voth, ‘State capacity and military conflict’, working paper, 2011.

12 Regina Grafe and Alejandra Irigoin, ‘Bounded Leviathan: fiscal constraints and financial development in the early modern Hispanic world’, in D’Maris Coffman, Adrian Leonard and Larry Neal (ed.), Questioning credible commitment. Perspectives on the rose of financial capitalism, Cambridge, Cambridge University Press, 2013.

13 Ibid.

14 Ibid.

15 González de Lara et al. rightly complain that the historical social sciences have offered few new insights into the role of administrations in underpinning rulers. Yadira González de Lara, Avner Greif and Saumithra Jha, ‘The administrative foundations of self-enforcing constitutions’, American Economic Review: Papers and Proceedings, 98 (2), 2008. Cultural and social historians have done a lot more towards the understanding of networks of power, patron client relationships, etc. For Spain see, e.g., Mauro Hernández, A la sombra de la corona: Poder local y oligarquía urbana, Madrid, 1606–1808, 1st ed., Historia, Madrid, Siglo Veintiuno Editores, 1995; Christian Windler, Lokale Eliten, Seigneurialer Adel und Reformabsolutismus in Spanien (1760–1808): Das Beispiel Niederandalusien, Stuttgart, F. Steiner, 1992.

16 R. Grafe, Distant tyranny…, op. cit.

17 Regina Grafe and Alejandra Irigoin, ‘Bargaining for absolutism. A Spanish path to empire and nation building’, Hispanic American Historical Review, 88 (2), 2008.

18 The following relies on R. Grafe, Distant tyranny…, op. cit.

19 Michael J. Braddick, ‘The nerves of the state. Taxation and the financing of the English state, 1558–1714’, in Mark Greengrass and John Stevenson (ed.), New frontiers in history, Manchester and New York, Manchester University Press, 1996; J. Brewer, The sinews of power. War, money and the English state, 1688–1783, London, Unwin Hyman, 1989; Patrick O’Brien, ‘The nature and historical evolution of an exceptional fiscal state and its possible significance for the precocious commercialization and industrialization of the British economy from Cromwell to Nelson’, Economic History Review, 64 (2), 2010.

20 William J. Ashworth, Customs and excise: trade, production, and consumption in England, 1640–1845, Oxford and New York, Oxford University Press, 2003.

21 Regina Grafe and Alejandra Irigoin, ‘The Spanish Empire and its legacy: fiscal re-distribution and political conflict in colonial and post-colonial Spanish America’, Journal of Global History, 1 (2), 2006; Regina Grafe and Alejandra Irigoin, ‘A stakeholder empire: the political economy of Spanish imperial rule in America’, Economic History Review, 65 (2), 2012; R. Grafe and A. Irigoin, ‘Bargaining for absolutism…’, op. cit.

22 Eugene White, ‘Was there a solution to the Ancien Regime’s financial dilemma’, Journal of Economic History, 49 (3), 1989.

23 Mauricio Drelichman and Hans Joachim Voth, ‘Risk sharing with the monarch: contingent dept and excusable defaults in the age of Philip II, 1556–1598’, working paper, 2011; Mauricio Drelichman and Hans Joachim Voth, ‘Serial defaults, serial profits: returns to sovereign lending in Habsburg Spain, 1566–1600’, Explorations in Economic History, 48 (1), 2011; Richard Ehrenberg, Das Zeitalter der Fugger, Geldkapital und Creditverkehr im 16. Jahrhundert, Jena, Fischer, 1896.

24 R. Grafe, Distant tyranny…, op. cit.

25 R. Grafe and A. Irigoin, ‘Stakeholder…’, op. cit. K. Andrien reports that at least in Lima debt was higher in the seventeenth century. However, it is likely that debt was concentrated in the large Treasury districts and rather lower on average. K. Andrien, ‘The sale of juros and the politics of reform in the viceroyalty of Peru’, 1608–1695’, Journal of Latin American Studies, 13, 1981, pp. 1–19.

26 Juros were redeemable and thus the king was able to reduce the interest rate as long as investors would be willing to hold the new annuities. Since in the case of juros the return (réditos) was generally held constant (an effective way of circumventing usury laws) technically a lowering of the interest rate was most of the time achieved through an increase (crecimiento) of the principal. Rather than have the principal repaid, the investor agreed to top it up in order to guarantee the same future income stream. However, the real return on the juro was also altered since the monarchy began to levy taxes and surcharges on some of the older juros in the seventeenth century, effectively reducing returns. In short, the only way to get at the yields on juros is via the private account books of the annuity holder which register up-to-date principal and the real return they received after all deductions (R. Grafe, Distant tyranny…, op. cit.). See also Carlos Álvarez-Nogal and Christophe Chamley, ‘Debt policy under constraints: Philip II, the Cortes and Genoese bankers’, Economic History Review, 67 (1), 2014, pp. 192–213.

27 Carlos Marichal, Bankruptcy of empire. Mexican silver and the wars between Spain, Britain and France, 1760–1810, Cambridge, Cambridge University Press, 2007; James C. Riley, International government finance and the Amsterdam capital market, 1740–1815, Cambridge, Cambridge University Press, 1980.

28 Brian R. Hamnett, ‘The appropriation of Mexican church wealth by the Spanish Bourbon government. The “Consolidación De Vales Reales” 1805–1809’, Journal of Latin American Studies, 1 (2), 1969.

29 See note 26 above.

30 C. Álvarez-Nogal and C. Chamley, ‘Debt policy…’, op. cit.

31 R. Grafe and A. Irigoin, ‘Legacy…’, op. cit.; R. Grafe and A. Irigoin, ‘Bargaining for absolutism…’, op. cit.

32 K. Andrien, ‘The sale of juros…’, op. cit.

33 R. Grafe and A. Irigoin, ‘A stakeholder…’, op. cit.

34 A. W. Quiroz, Reassessing the role of credit in late colonial Peru: Censos, escrituras, and imposiciones’, Hispanic American Historical Review, 74 (2), 1994, pp. 193–230.

35 Viviana Grieco, ‘Politics and public credit: the limits of absolutism in late colonial Buenos Aires’, doctoral dissertation, Emory University, 2005.

36 R. Grafe and A. Irigoin, ‘A stakeholder…’, op. cit., appendices II and III.

37 M. J. Rodríguez-Salgado, The changing face of empire, Cambridge, Cambridge University Press, 1988; I. A. A. Thompson, ‘Castile: polity, fiscality, and fiscal crisis’, in Philip T. Hoffman and Kathryn Norberg (ed.), Fiscal crises, liberty, and representative government, 1450–1789, Stanford, Stanford University Press, 1994.

38 M. Drelichman and H. J. Voth, ‘Risk sharing with the monarch…’, op. cit.

39 R. Grafe, Distant tyranny…, op. cit., pp. 211–212.

40 Timothy Besley and Torsten Persson, Pillars of prosperity: the political economics of development clusters, Princeton, Princeton University Press, 2011, p. 21.

41 Kathryn Burns, Into the archive: writing and power in colonial Peru, Durham (NC), Duke University Press, 2010.

42 Besley and Persson, Pillars of prosperity…, op. cit., p. 21.

43 Ibid., p. 182.

Table des illustrations

Titre Figure 1. Per capita tax burden by region in the 1770s/1790s (reales vellón)
Légende Sources: Castille, Catalogne, Navarre, Guipúzcoa: Mario Garcia-Zuñiga, Isabel Mugartegui and Joseba de la Torre, ‘Evolución de la carge tributaria en la España del Setecientos’, in Hacienda pública española, no. 1 (Historia de la Hacienda en España (siglos XVI–XX): homenaje a don Felipe Ruiz Martín, Madrid, Instituto de estudios fiscales, 1991, p. 85; Vizcaya: Luis María Bilbao Bilbao, ‘La Fiscalidad En Las Provincias Exentas De Vizcaya Y Guipúzcoa Durante El Siglo xviii,’ in Miguel Artola and Luis María Bilbao Bilbao (eds), Estudios De Hacienda: De Ensenada a Mon, Madrid, Instituto de Estudios Fiscales, 1984, pp. 67–83, p. 78 (for 1800–1802); and population: Censo de Floridablanca.
URL http://books.openedition.org/igpde/docannexe/image/3978/img-1.png
Fichier image/png, 37k
Titre Figure 2. Net revenue per capita in European countries and Spanish territories in the Americas (1785–1800) (in Spanish American pesos)
Légende Source: for a complete list, see R. Grafe and A. Irigoin, ‘A stakeholder empire: the political economy of Spanish imperial rule in America’, Economic History Review, 65 (2), 2012.
URL http://books.openedition.org/igpde/docannexe/image/3978/img-2.jpg
Fichier image/jpeg, 884k
Titre Figure 3. Public and private interest rates in Spain (1550–1830)
Légende Sources: for a complete list, see R. Grafe, Distant tyranny…, op. cit.
URL http://books.openedition.org/igpde/docannexe/image/3978/img-3.jpg
Fichier image/jpeg, 128k
Titre Figure 4. Pairwise correlation between bacalao prices in Barcelona and selected towns before and after the abolition of foral (territorial) institutions
Légende Sources: R. Grafe, Distant tyranny…, op. cit., p. 164.
URL http://books.openedition.org/igpde/docannexe/image/3978/img-4.jpg
Fichier image/jpeg, 78k

Auteur

Regina Grafe is Professor of European early modern history at the European University Institute (Florence, Italy). Her notable publications include: Distant tyranny. markets, power and backwardness in Spain 1650–1800, Princeton University Press, 2012; (with A. Irigoin) ‘A stakeholder empire: the political economy of Spanish imperial rule in America’, Economic History Review, 65 (2), 2012, pp. 609–651; Entre el Mundo Ibérico y el Atlántico. Comercio y especialización regional, 1550–1650, Bilbao, Bizkaiko Foru Aldundia, 2005.

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