by Jared Rubin
The Crown’s relationship with the Church and its role as a “protector of Christendom” goes a long way in explaining why Protestantism never took hold in Spain. Even prior to the Reformation, Ferdinand and Isabella sought to purge nonorthodox belief through the Inquisition. Charles V and Philip II continued this policy in the sixteenth century, and Philip II used the machinery of the Inquisition to stamp out any perceived Protestant sentiment seeping into Catalonia via France in the 1560s. In 1551–1552, the Inquisition published a list of prohibited Protestant books that was much more extensive than the lists produced elsewhere. Anyone suspected of even remotely deviating from Catholic orthodoxy could be branded a Lutheran and subject to torture and secret trial.6
The Church’s support gave the Habsburgs an upper hand in their relations with the Cortes. At the beginning of Charles V’s reign, the elite viewed him with suspicion as an outsider prince (Charles V grew up in Belgium and never set foot in Spain prior to his arrival as king). Nevertheless, the Cortes of Castile granted him 600,000 ducats without conditions merely for the promise that he would respect the laws of Castile and learn Spanish.7 The Castilian economic elite’s suspicion of their new king came to a boiling point in 1520, in an event known as the comuneros revolt. The urban lower nobility engineered this revolt against the monarchy and aristocracy, in a fashion similar to the English Civil War more than a century later. The comuneros had numerous grievances: they felt threatened by the growing concentration of power and wealth in the hands of the Habsburg king and a small group of nobles and clergy, they felt that Charles V’s imperial ambitions threatened to subjugate Castile, and they sought more generally to curb royal and aristocratic power.8 Unfortunately for the comuneros, the violent failure of their revolt exacerbated the very thing they revolted against. Since they no longer posed a threat to the king, he no longer needed to cede much to them in return for revenues. In the immediate aftermath of the revolt, a royal edict removed the power of the Cortes to withhold funds from the king or have any say in how he used his funds. After the failed revolt, the power of the monarchy was all the more concentrated and the Cortes remained “little more than a rubber stamp for the demands of the sovereign.”9 Charles V made it clear that the funds he requested were not conditional on his meeting the demands of the Cortes, telling them, “Yesterday I asked for your funds; today I want your advice.”10
Unlike in England and the Dutch Republic, the weakened Spanish economic elite ended up having little input into the policies pursued by Charles V and Philip II. As the Holy Roman Emperor, Charles V led the opposition to the growing Protestant sentiment that spread throughout his German lands. Despite having little to do with Spanish economic or political interests, the fight against Protestants was one of Charles’s top priorities. The Cortes of the Castile refused Charles money to fight in central Europe, but he was powerful and wealthy enough that this hardly affected his actions.11 Charles also used Spanish resources in wars in the Low Countries that were ostensibly about containing Protestantism. The fight with Dutch Protestants began as early as 1521, when Charles V ordered the burning of all Lutheran books. It eventually led to the violent persecution of suspected heretics. Philip II also refused to tolerate the spread of Protestantism in the Low Countries, and he used the Inquisition to stamp out Calvinism beginning in 1565.12 What began as religious suppression quickly spiraled into a revolt for political, economic, and religious freedom from Spanish rule (see Chapter 7). The fight against the Dutch was expensive for the Spanish Crown, and it was the primary source of sovereign default under Philip II. Philip’s strained finances were readily apparent in the numerous delays in payments to Spanish troops garrisoned in the Low Countries. These troops mutinied forty-six times between 1572 and 1607, including the disastrous sack of Antwerp, where Spanish troops pillaged and virtually destroyed one of the wealthiest cities in Europe.13
The Spanish Crown also employed resources in conflicts with Muslims. In 1502, the Crown gave the Muslims of Castile the option to either convert to Christianity or leave, and it offered the same choice to the Muslims of Aragon in 1525. Converts (moriscos) were periodically harassed throughout the century and revolted in Granada in 1568–1570. The Ottomans presented an even more pressing threat against Spanish interests. For the first twenty years of Philip II’s reign, the fight with the Ottomans for the Mediterranean dominated Spanish foreign policy.14 Spain was in constant conflict with the Ottomans in the 1560s and 1570s, contesting control over North Africa and the Italian states. Spain received support from the papacy for these missions, including the cruzada. These wars culminated in the Battle of Leponto, where an alliance of Spain, Venice, and the papacy dealt a crushing naval blow to the Ottomans. This battle is widely viewed as the beginning of the end of Ottoman excursions into the Spanish-Italian sphere of influence in the Mediterranean. It also marked the peak of the Spanish fight against the Ottomans. After 1580, Spanish foreign policy focused much more intensely on northwest Europe.15
Of Philip II’s forty-two years as king, Castile was at peace for all of six months. These wars were expensive – the military absorbed 60 percent of the Crown’s expenditures16 – and the story of Philip’s reign was one of a search for revenue to fund these wars. Likewise, his father Charles V called the Cortes of Castile fifteen times, usually in search of funds. Although the Cortes complained about the Crown’s demands, they generally gave him what he wanted without receiving much in return.17 The Crown was successful in its negotiation with the Cortes for two related reasons: it had alternative means of propagation and alternative sources of revenue. One source of revenue was the Church, which provided funds outside the purview of the Cortes. More important, vast amounts of gold and silver flowed in from the Americas. At the peak of the treasure trade (1577–1607), treasure accounted for one-sixth to one-fourth of the Crown’s total revenue, as ships coming in from America were required to pay the “royal fifth” – one fifth of the haul – into the Crown’s coffers.18 The treasure hauls also allowed the Crown to borrow large sums from Genoese and German bankers, with the treasure used as backing for the loans. These loans were not available on the open market; the Crown privately negotiated the terms with its lenders outside the purview of the Cortes. The preferred method of borrowing was through short-term loans called asientos, which did not require clearance from the Cortes.19 An explosion of debt ensued. By 1600, interest payments alone were nearly three times the amount of treasure imports, and the level of outstanding debt was around five times yearly revenues.
Philip II spent more than he was taking in even with the treasure coming in from the Americas. This led him to take numerous illicit measures either to cut spending or increase revenue. His most famous illicit budget cuts entailed stopping payments to troops and failing to repay his other debts. He stopped all payments to his lenders four times, hurting his Genoese and German lenders. Bankers still lent to him in spite of his predilection for stopping payment, only because they were able to collude to cut off his access to funds when he acted poorly.20 On the revenue side, the Crown was more than willing to confiscate private treasure when in a fiscal bind. The first confiscation occurred in 1523, when the Crown took 200,000 ducats to pay the army. The confiscations became policy over time whenever the Crown was under duress; in 1531–1534, 59 percent of the private treasure coming from America was confiscated and the entirety of the 1556 treasure fleet was confiscated.21 The Crown also sold noble (hidalgo) status to those who could afford it. The rise in these grants narrowed the tax base – one of the primary reasons to attain hidalgo status was that nobles were tax exempt – but provided a quick source of revenue. Estimates from household censuses indicate that at least 12 percent of Spanish households had hidalgo status in 1542, and many more sales occurred in the following decades.22
How did Charles V and Philip II get away with these transgressions, which clearly harmed both the masses and the economic elite? The Cortes was not completely impotent; in fact, occasionally it was able to dictate pol
icy when conditions were favorable. John Lynch (1991, p. 288) notes that, “given a grave issue, a popular cause, and a bankrupt government, the Cortes could find the will and the means to oppose the crown.” But the fact remains that the Cortes’s control over Spanish purse strings was weak. Control over funds was a primary reason that English and Dutch parliaments had so much bargaining power. In Spain, there were so many sources of revenue available to the Crown outside the purview of the Cortes of Castile – treasure from the Americas and loans from the Genoese and Germans being the two most important – that the Crown simply did not need to cede much to the economic elite.23
This institutional arrangement had disastrous consequences for the Spanish economic elite, and even more disastrous consequences for the wealthiest colonies in the Americas; the lingering effects of Spanish extractive institutions are still felt today in parts of Latin America.24 Perhaps the best known short-run economic consequence of sixteenth-century Spanish policy was the rapid inflation brought on by the influx of precious metals from America. Inflationary pressures, which were much stronger in Spain than elsewhere in Europe, harmed Spanish exports. They even affected the Crown-protected wool industry.25 The Crown also subjected the urban economic elite to an increasing tax burden.26 The combination of additional revenue requested by the Crown and an ever-shrinking tax base meant the tax burden increasingly fell on the small urban middle class and the rural peasantry. This slowed down industrial development by directly depriving funds for investment. It also indirectly hindered industry by decreasing the size of the market for domestic goods – poor peasants do not a large market make – and by encouraging those with excess capital to invest it in land, which was tax exempt for those with titles.27
Another consequence of Spanish imperial policy was that most merchants who dealt in Spain were of Genoese, German, and Dutch origin. The Crown offered foreign merchants a share of the American treasure in return for access to credit. This gave foreign merchants incentive to involve themselves in Spanish trade while also giving them a privileged position in that trade.28 But it gave them little incentive to establish their head offices in Spain. There was simply not enough commercial activity to warrant massive investments by financiers in anything but the treasure trade. So Madrid, Toledo, and Seville never became financial hubs like Amsterdam, despite all of the specie flowing into Spanish coffers. The historian Henry Kamen (2003, p. 298) argues this point succinctly: “[H]ad Spain really been the center of wealth, the great banking houses would have moved their head offices there. Instead they stayed where they were, in Antwerp, or Augsburg, or Genoa. Cities such as Lisbon, Seville, and Cartagena de Indias merited only commissioned agents.”
The vast amount of American treasure also exacerbated the disincentive for the Crown to invest in industry. In the sixteenth century, Spain primarily exported raw materials, especially wool, and imported manufactured goods such as cloths and fabrics. They settled the balance of payments with ready cash from America rather than through industrial production.29 The wars the Spanish fought against Protestants harmed these exporting industries. The Low Countries and England were the two most important export markets for Spanish wool, and trade with these countries slackened when the Spanish were at war in northwestern Europe. The negative effects of these policies were noticeable in Madrid, where a small political and aristocratic elite consumed primarily imported luxuries while the rest of the population was generally near subsistence and demanded only necessities.30
Other examples of Spanish economic mismanagement abound. In an attempt to lower prices, the Cortes of Castile moved in 1548 to forbid exports and encourage imports. They strengthened this law in 1552 with the enactment of a virtual prohibition of the export of goods made of wool, silk, and leather. This anti-trade policy had the effect that anyone familiar with basic economics would expect – industry suffered greatly – and the Cortes revoked the law in 1558.31 But revocation was followed by a tax on exports, which grew further in 1564. The export tax was attractive to the Crown because it provided revenue that was outside the hands of the Cortes.32 Unsurprisingly, these taxes further dampened Spanish economic production.
It is also hard to imagine that the expulsion of the Jews, Muslims, and Jewish and Muslim converts under the Inquisition and its aftermath had a trivial effect on the economy. Between 1609 and 1614, 275,000 moriscos were expelled from Spain, about a third of whom were from Castile. These moriscos primarily lived in towns and mostly took on undesirable menial jobs.33 Although the economic effects of the expulsions were far from clear, they must have played a role in Spanish economic and social life. Yet another economically inhibitive religious policy was the conscious sealing off of Spanish intellectuals from the rest of the continent in the wake of the Reformation. In the 1530s, most Spanish humanist thinkers either fled Spain or were jailed by the Inquisition, and in the 1550s the Crown forbade Spanish students from attending foreign universities.34
Yet, as late as 1600, Spain was still an affluent country, with per capita GDP similar to England and trailing only the Low Countries and Italy in Europe (see Table 8.2).35 But the Malthusian pressures that depressed wages and consumption throughout Western Europe, except in England and the Dutch Republic, were clearly present in Spain. At the time of Philip II’s death in 1598, real wages were 41 percent lower than they were in the year that his father, Charles V, took the throne (1519), and per capita agriculture consumption was 24 percent lower (see Figures 8.2 and 8.3). Like most of the rest of Western Europe, Spanish real wages rose in the wake of the massive labor shortages following the Black Death in the late fourteenth century, and they fell slowly over the ensuing centuries, leveling off only in the seventeenth century.
Figure 8.2 Real Wage Rates in Spain, 1300–1850 (1790s = 100)
Source: Alvarez-Nogal and de la Escosura (2013).
Figure 8.3 Real Per Capita Agricultural Consumption in Spain, 1300–1850 (1850s = 100)
Source: Alvarez-Nogal and de la Escosura (2013).
It is puzzling that Spain did not follow a pattern similar to that of England and the Dutch Republic, especially given that Spanish per capita GDP was not far behind England’s for much of the sixteenth century. Not only were England and the Dutch Republic able to avoid the Malthusian pressures that eventually crushed Spanish wages and consumption, but a massive divergence in real GDP emerged by the end of the seventeenth century between Spain and its northwest European rivals. The divergence was attributable to the fact that the features that foretell long-run economic growth were absent in sixteenth-century Spain. There was little incentive to invest Spain’s newfound wealth in capital. A confluence of institutional and economic features diverted wealth elsewhere. Taxes discouraging exports and favoring landed wealth, wars with important trade partners, and the combination of rising prices, stagnating wages, and increased taxes all combined to discourage investment in industry. The economic shortsightedness of such policies did not go unnoticed at the time. A group of reformers known as the arbitristas preached restraint on the importation of specie from the New World, the importance of manufacturing, increased political power for the economic elite, and many other reforms that would likely have halted Spain’s long economic decline.36 But this reform movement ultimately failed because the proposed measures, while good for the long-run health of the Spanish economy, did not benefit the short-run economic interests of the Crown and those that propagated its rule. Even the best philosophical arguments have difficulty making their way into policy if they do not benefit those at the bargaining table. The economic elite, who would have benefited the most from these reforms, were simply not strong enough propagators of rule in early modern Spain for these proposals to have a chance.
To reiterate, two distinct institutional features allowed the Spanish Crown to largely ignore the economic elite: its capacity to gain revenue outside the Cortes and its religious legitimacy. One could conjecture that the funds flowing in from the Americas and the Habsburgs’ Italian and German bankers wer
e the sole reason that the Spanish Crown was able to avoid negotiating with the Spanish economic elite. Yet, Charles V’s and Philip II’s actions speak loudly: they undertook expensive actions to gain the approval of the Church and maintain their status as the protectors of Christendom. The Inquisition was costly in terms of expenditure and loss of manpower and labor, but the Habsburgs continued to use it throughout the sixteenth century to persecute Jews and Muslims. Charles V fought the spread of the Reformation in the Holy Roman Empire with Spanish money, and Philip II continued this policy in the Low Countries. Philip II’s successors, Philip III (r. 1598–1621) and Philip IV (r. 1621–1665), dragged Spain into the devastating Thirty Years War (1618–1648), which took place in Central Europe and began as a conflict between Catholic and Protestant belligerents. None of these policies were directly in Spanish interests – although they were in Habsburg interests – and they were all costly to Spain. But Spain’s involvement in them makes sense in light of the Spanish Crown gaining legitimacy from the Church and in return fighting to protect the Church’s interests.
