Dynastic policy was the third and final pillar of state building by the Catholic Kings. Like all princes, Ferdinand strived to marry his children and grandchildren into the reigning houses of Europe. Unlike most, he succeeded brilliantly. Of significance were the marriages of Catherine of Aragon to the future Henry VIII, and that of Joanna of Castile, the crown princess, to Philip “the Handsome” of Habsburg. On Isabella’s death, Joanna became queen of Castile, while Ferdinand retained only the crown of Aragon. The death of Philip the Handsome—already Philip I of Castile—in 1506 left Joanna to reign on her own. Grief stricken at the death of her husband, the story goes, Joanna went “mad.” Whether the queen was mentally ill, depressed, or just overwhelmed has been the subject of endless debates. What is certain is that her condition gave Ferdinand the excuse to lock his daughter up in a castle, declare himself regent, and effectively rule Castile for another ten years. Joanna’s six children with Philip I were the real payoff for the Catholic Kings’ dynastic strategy. Both sons became Holy Roman emperors—Charles V and Ferdinand I—while all four daughters married kings (one of them twice). The Habsburg inheritance of Philip I would be the main basis of Charles V’s election to the imperial throne in 1519. Castile would benefit again from Ferdinand’s dynastic shrewdness in 1580, when the repeated intermarriages between several generations of Castilian and Portuguese royals served as the legal basis for Philip II’s successful claim to the crown of Portugal.
The marriage of Ferdinand and Isabella proved decisive for the fortunes of Spain. After Ferdinand’s death in 1516, separate monarchs never again ruled Castile and Aragon. The two kingdoms nevertheless remained independent, each with their own representative assemblies, administrative structures, and judicial and fiscal institutions. Between 1516 and 1700, they were held in “personal union” by all the Habsburg monarchs. Aragon’s separate institutions would be abolished only in 1707, with the Decretos de Nueva Planta issued by Philip V during the War of the Spanish Succession.
While domestic disturbances and regional uprisings recurred periodically, the constant low-level warfare on the Iberian Peninsula that had characterized the late Middle Ages was now a thing of the past. The new political framework stopped short of full integration; the persistence of separate institutions would eventually become a critical factor in the long-run economic underperformance of Spain.9 But at the dawn of the early modern age, Ferdinand and Isabella had succeeded in giving their kingdoms a relatively strong monarchy and streamlined state institutions. Castile, where the reforms were particularly deep and the peace dividend sizable, flourished economically. It began to project its power throughout the known world and forcefully push into the unknown.
ECONOMIC PERFORMANCE
Starting in the 1490s, most areas of Spain entered a period of remarkable growth that would last until the end of the sixteenth century. Within this general upward trend, regional patterns of economic development varied widely. Philip II decided to make Madrid his capital; New Castile, the area surrounding it, experienced the fastest growth, with rates that may have surpassed 1 percent per year.10 In contrast, the kingdom of Aragon began a long relative decline, with Valencia and Catalonia barely registering any increases in output. Population in the aggregate grew at a brisk pace. Spain as a whole counted about 4.8 million people in 1530—a figure that rose to about 6.8 million by 1590.11 This represents a sustained growth rate of 0.58 percent for the period—a high figure for a premodern economy. Urbanization rates—a common measure of economic development in premodern times—also increased across the board, from roughly 12 percent in 1530 to about 20 percent in 1590 for the whole of Spain. In parts of Andalusia, which received a strong impulse from Seville’s monopoly over trade with the Americas, urbanization may have been as high as 50 percent.12
Agriculture was the mainstay of economic activity. In addition, Spain was well positioned to benefit from the rise in trade across the Atlantic.13 During the first half of the sixteenth century, the Spanish kingdoms saw the growth of vibrant merchant economies. Castile’s principal export was high-grade merino wool, which supplied the cloth industry in the Low Countries.14 Although the industry was not as strong as it had been in its medieval heyday, wool exports through the northern ports still amounted to 30,000 sacks per year (over 2.4 million kilograms) in the 1550s, with the southern ports possibly exporting a similar amount (Casado Alonso 1994).15 Iron and leather manufactures were also important as well as hides and oil. Andalusia, which constituted a separate customs area, was a large producer of wine and olive oil. The Basque Country supplied European markets with cod, alum, and iron, while the kingdom of Aragon’s main exports were silk, rice, and salt (Rich and Wilson 1967; Braudel 1966; Lynch 1991; Grafe 2001). While the silver trade would steal the show in the second half of the sixteenth century, the economies of several Spanish regions displayed a strong, healthy growth well before the commercial development of mineral resources in the colonies.
The opening of transatlantic and Indian Ocean routes brought profound changes for Spanish industry and trade. Silver imports from the Indies—at first a trickle and then a veritable flood—caused a large shift in comparative advantage, putting traditional exports at a disadvantage. At the same time, they created a large demand for luxury imports from the Far East.16 Sugar and cochineal, both colonial reexports, also gained prominence in international markets (Rich and Wilson 1967).
The combination of a healthy agricultural economy, a growing population, and rapidly rising trade in silver and colonial products provided the resources that were to fuel Spain’s imperial expansion. We will explore the fiscal aspect of that expansion in detail in chapter 3.
CHARLES V AND THE BEGINNINGS OF THE EMPIRE
Before the empire, there was the Emperor. Charles of Habsburg inherited the crowns of Castile and Aragon on the death of his grandfather, Ferdinand the Catholic, in 1516. His accession was not without controversy; his mother, Joanna the Mad, remained the legitimate queen, even while confined to her castle in Tordesillas. The Castilian nobility was reluctant to accept a foreign prince who did not speak Spanish, and viewed Charles’s cadre of Flemish advisers and ministers with suspicion. When the crown of the Holy Roman Empire fell vacant in 1519, Charles was the leading candidate to succeed his paternal grandfather, Emperor Maximilian. He effectively bought the election with the help of the Fugger banking family. The Fugger advanced the money to bribe the grand electors, while refusing to cash the bills of exchange from Charles’s main competitor, Francis I of France (Parker 1999).17 Charles thus became Charles V, the name by which history remembers him. In Spain, where he reigned as Carlos I, he would soon be referred to simply as el emperador.
Charles’s election created apprehension in Castilian society. The electors had stipulated that no imperial revenues could be spent outside the empire’s confines. In addition, the Golden Bull—the Holy Roman Empire’s constitutional document since 1356—specified that tolls, mineral wealth, coinage, and taxes on the Jews remained under the exclusive domain of the German princes (Henderson 2010). This meant that Charles’s wars would have to be financed from other sources; the obvious alternative was Castile and its thriving economy.18 The situation came to a head when Charles convened a special session of the Cortes in Santiago de Compostela to request funds for his coronation voyage. The representatives eventually voted in favor of Charles’s trip.
While the outcome was not unexpected, it created major discontent. The urban lower nobility and well-to-do bourgeoisie of Castilian cities saw their economic as well as social standing threatened by the concentration of power in the hands of the monarchy and its supporters.19 Unrest erupted in the revolt of the comunidades. It began in May 1520 and lasted until April 1521, when royalist forces decisively defeated the rebel militia at the Battle of Villalar. At the rebellion’s peak, thirteen cities openly defied royal authority. As the year wore on, however, the antiaristocratic nature of the movement convinced the previously indifferent upper nobility to support the king. T
his sealed the fate of the Comuneros Revolt. Charles’s victory consolidated his military sway over Castile, established royal supremacy over the cities, and curtailed the ability of the Cortes to control royal expenditures. It also made Castile the main funding source for the costs of the empire.
Throughout his reign, Charles aspired to create a unified Christian empire in western Europe.20 Military and political realities would make this goal impossible. Instead of pursuing heretics and infidels, he found himself spending enormous resources to fight Catholic France in the Italian wars. Despite defeating the Protestant princes of Germany in the Battle of Mühlberg, he was eventually forced to come to terms with them at the Peace of Augsburg in 1555. The treaty enshrined the principle of cuius regio eius religio, effectively recognizing the legal status of Protestant princes and subjects in the nominally “Holy” and “Roman” Empire.21
In early modern Europe, war was the single most expensive activity that a ruler could engage in. Rulers typically spent three-quarters of their revenue on armed forces in the centuries between 1500 and 1800. While a military conflict was under way, expenditures almost always exceeded revenues by a large margin. Charles’s wars strained the finances of his various domains. He relied heavily on his Burgundian inheritance—the Low Countries—where he increased taxes. This sowed the seeds of discontent, which would eventually lead to the Dutch Revolt during the reign of his son, Philip II. He also tapped the kingdom of Naples, part of the Aragonese territories he received from his grandfather Ferdinand the Catholic. Nonetheless, Charles leaned heavily on Castile.22 When current taxes became insufficient to finance war expenditures, Charles resorted to many fiscal measures that upset formal and informal property rights. These included the sale of Crown lands that had long been used for communal production, the granting of privileges of lordship over formerly free towns, and the confiscation of remittances of precious metals. Most important, Charles contracted major debts with international bankers, including the German banking houses of the Fugger and Welser families.23 These loans were granted in the expectation that Castilian resources would be used to honor them. Even when Philip II eventually defaulted in 1557 and 1560, claims were settled with the transfer of Castilian assets to the bankers, including the profitable masterships of the military orders and strategic mercury mines at Almadén.
The exploration of the New World, started by Christopher Columbus’s voyages in the 1490s, had proceeded apace during the reign of the Catholic Kings. The first voyages yielded only a small amount of loot, mainly in the form of ornamental gold plundered from the natives. The lure of gold and silver, however, was always strong for those setting sail for the vast, uncharted American continent. The indigenous populations soon recognized the Spaniards’ obsession with gold. They often made up stories of untold treasures in remote places as a way to get rid of the unwanted visitors. This was, for example, the origin of the legend of El Dorado—the golden man—in whose quest many generations of explorers spent their best years, fortunes, and sometimes lives.
The first two decades of exploration were mostly focused on the Caribbean islands. Columbus had established his first base in Hispaniola. By the early 1510s Spaniards were settling Cuba; though poor in mineral resources, the island was where the newcomers first learned about tobacco and its uses. Havana was founded in 1514, and would soon become the main base for further exploration. When Charles V ascended to the throne in 1516, the conquistadores were preparing to move on to the American mainland and capture the real prizes: the Aztec and Inca empires.
The clashes between the Spaniards and two major Mesoamerican civilizations came to symbolize the enormous superiority of Europeans in the age of exploration. In both cases, large, relatively advanced political and military systems collapsed in a matter of months when confronted by an invader who arrived with only a handful of men under arms. Jared Diamond (1997) famously argued that “guns, germs, and steel” gave Spaniards the upper hand. Superior military techniques and advanced weaponry allowed the conquistadores a tactical advantage. European germs decimated the ranks of the natives, given that they had no immunity to them, and created enormous turmoil. This was true even at the top of the political structure. When Francisco Pizarro arrived in Peru, he took advantage of a civil war to subdue the Inca Empire. The war was being fought over the succession of Emperor Huayna Capac, who had died of smallpox—a disease that had reached the Americas in Spanish ships.
Hernán Cortés, who arrived on the Mexican mainland on Good Friday 1519, led the Spanish conquest of the Aztec Empire. He soon forged an alliance with local tribes, boosting his military strength. In November he entered Tenochtitlan, the Aztec capital, invited by Emperor Moctezuma, who may have believed that Cortés was a god. The Spaniards soon seized Moctezuma, holding him captive in order to guarantee their own safety. The population grew restless, and the emperor was eventually killed during a clash between Spaniards and locals. The Spaniards were forced to leave the city, losing many of their men to the Aztecs on the noche triste of June 30, 1520. Tenochtitlan finally fell to the Spaniards in August 1521. Cortés defeated the last emperor, Cuathemoc, after an eight-month siege, using a purpose-built flotilla on Lake Tlateloco and an army composed mostly of his Tlaxcala allies.24 Cortés’s victory yielded much glory, but little treasure. The Aztecs had a limited amount of ornamental gold, which the Spaniards duly looted, but no major hoards or mines.
The other large conquest was that of the Inca Empire, which extended from modern-day central Chile to southern Colombia. Francisco Pizarro and Diego de Almagro first arrived in Inca territory in 1528. A civil war was raging between two sons of Emperor Huayna Capac, Atahualpa and Huascar. Pizarro returned to Spain, where he obtained a royal charter to conquer the central territory of the Inca Empire and become its governor.25 He returned to Inca territory in 1531 and slowly made his way to the heartland of the empire, reaching Atahualpa at his summer retreat in Cajamarca in November 1532. The traditional account of the clash is well known. The emperor agreed to meet the Spaniards in the city square on the morning of November 16, and waited there with thousands of soldiers. A deputy of Pizarro and a friar approached him, demanding that he recognize Catholicism as the true religion and handing him a Bible. The emperor, confused about what was being asked of him, threw the book away, sparking the attack. The Spanish horses sowed panic among the defenders, who had never seen such large animals. Firearms and a few pieces of artillery were used to great effect. The Spaniards slaughtered Atahualpa’s guards and, copying Cortés’s strategy, captured the emperor to guarantee their own safety. Atahualpa offered his captors a ransom, consisting of the volume of his cell filled with gold up to the height of his extended arm, if they would spare his life and free him. The Spaniards accepted, collecting the ransom without ever intending to keep their promise. In the meantime, Huascar, the other contender to the throne, was assassinated. Atahualpa was executed in 1533. Although Atahualpa’s ransom was much richer than the gold plundered from the Aztecs, the Inca Empire could not supply a steady stream of gold either. The families of Pizarro and Almagro soon engaged in internecine fighting; both conquistadores were killed in the conflict, leading Charles V to eliminate the governorships they had held and create the Viceroyalty of Peru in 1542.
As soon as American treasure reached Spain, it was used to pay for military expenditures. The first shipment of Aztec gold had arrived in Barcelona in 1520. Charles V utilized it to pay for his imperial coronation voyage, after the Comuneros Revolt had left the royal treasury seriously depleted. In 1534, the proceeds from the ransom of Atahualpa were used to pay for the campaign of Tunis, Charles’s most successful military venture (Parker 1999). No major hoards arrived after the demise of the Inca Empire, but the opening of the gold mines of New Granada continued to provide a modest flow of specie that kept exploration viable.26
Despite the occasional windfall, mineral wealth was never a major source of income for Castile before 1550.27 The large silver deposits at Potosí and Zacatecas we
re only discovered in 1545 and 1546, respectively. The technical challenges associated with exploiting them on a commercial scale took more than a decade to resolve. American precious metals began reaching Spain in large quantities only in the mid-1550s, toward the end of Charles’s reign.
Ultimately, the Spanish Empire would end up looking very different from Charles’s vision. There would no longer be an emperor ruling the Spanish lands, as the Holy Roman Crown passed into the hands of Charles’s brother, Ferdinand I of Habsburg. Philip II nonetheless was the first Spanish ruler who could truthfully claim that the sun never set on his domains; his empire contained possessions on every known continent. Castile under Philip continued to try to impose its political will in Europe. In addition to Spain’s considerable economic resources, it could now count on a seemingly endless stream of revenue from its overseas possessions. The bullion remittances became a key element of the short-term debt system. The funds thus mobilized paid for Philip’s armies and fleets, financing military campaigns that defined his reign, and eventually sealed the fate of his empire.
Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II (The Princeton Economic History of the Western World) Page 8
