Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II (The Princeton Economic History of the Western World)
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Atahualpa, 55–56
Atkeson, Andrew, 142
Auctoritas, 25
Augsburg, Peace of, 53
Augsburg banking houses. See Fugger (Fucar) banking dynasty; Welser banking dynasty
austerity measures. See fiscal policy
avería (tax), 67, 85
Aztec Empire, 54–56, 85
Baland, Jean-Marie, 264–65
bankers: excusable defaults as viewed by, 140, 233–34; high interest rates as de facto insurance for, 39–40, 140, 233–38, 234f, 235f, 236f; and risk transfer, 3, 96, 209, 211–41; supposed irrationality of, 3, 34, 105, 143, 144t, 148–51, 150f, 151f, 271. See also contingent lending to Philip II; Fugger (Fucar) banking dynasty; Genoese bankers; German bankers; Portuguese bankers; sentiment of lenders; Spanish bankers
bankruptcies of Philip II. See defaults of Philip II
Bardi family, 24
Barro, Robert, 139, 246n4
Basel, 24
Bazán, Alvaro de, 64–65, 70
beeldenstorm, 62. See also Dutch Rebellion/Revolt/War (Eighty Years’ War)
Benabou, Roland, 143n14
Benjamin, David, 140, 214
Besley, Timothy, 256
Black Legend, 155n29, 278–79
“black swan” events, 127
Bodin, Jean, 26, 272
Bolivia, 211
Bolton, Patrick, 214
Bonney, Richard, 74n2
Borensztein, Eduardo, 138, 280n6
Boyer-Xambeu, Marie-Thérèse, 96n35
Braudel, Fernand: on effect of bankruptcies, 105, 143, 205; on irrationality of bankers, 143, 148; The Mediterranean and the Mediterranean World, 3–4; and the “treason of the bourgeoisie,” 79
Brazil, 136, 208, 209f
Brewer, John, 246, 249, 260–61
bribes: and court cases, 253; to secure imperial election of Charles V, 20, 51; to smuggle undeclared treasure, 67
Britain: Act of Union (1707), 30, 257; Anglo-Spanish War, 12, 70, 232; cost of ships of the line in, 27; countercyclical fiscal policy in, 251–52; “crowding out” in, 30; and its empire, 243–47; and German debt in the 1930s, 137; international comparisons with, 4, 7, 42–43, 246–52, 248t, 251f; and sanctions against Egypt, 138; sovereign debt in, 23, 43, 125, 136, 249–50; and success in war, 43, 256; taxation in, 28, 249, 255–56f, 260–61. See also Armada, Invincible; Drake, Sir Francis; Dutch Rebellion/Revolt/War (Eighty Years’ War); Raleigh, Sir Walter; state capacity
Bulow, Jeremy: on constant recontracting, 38; on need for sanctions to sustain lending, 137, 139–41, 144t, 160n34
Burckhardt, Jakob, 7
Burgundy, Duchy of, 61
Byzantium, 26
Cádiz: Drake’s 1587 raid on, 14n20, 63–64; 1596 raid and occupation of, 12, 14, 66
cannon, effect on warfare of. See military revolution
Cantacuzenus, Michael, 133n2
Carande, Ramón, 22, 101
Cárdenas, Gutierre de, 45
Carreras, Albert, 123–24, 124t
Casa de Contratación, 67, 95, 98, 110, 179–80, 211
Casa di San Giorgio, 97, 160
cash flow: of asientos (see asientos: cash flows of); of the Crown, 94, 99
cash shortages. See liquidity shocks
Castile: and Black Legend, 155n29; Comuneros Revolt in, 29, 52, 56, 77, 258; conquest of New World by, 66–69; debt instruments of Crown of, 89–99; debt-to-GDP ratio of, 33; decline of, 41–43, 243–46, 252–61, 255f, 256f, 269–70; economic performance of, 19–20, 49–51, 246–52, 248t, 251f; fiscal accounts of, 21–23, 34, 100, 105–19; heterogeneity of, 261–63; military success of, 35, 43; nobility in, 78–79; organization of Church in, 79–82; political organization of, 75–78; relationship with Aragon of, 47–49; revenue streams of Crown of, 82–89, 88f; state capacity in, 7, 252–61, 255f, 256f; territories ruled by, 12, 243; wars of during Philip II’s reign, 19, 57, 60, 62n34, 107. See also Armada, Invincible; Crown of Castile; Kingdom; Spain
Catalonia, 244, 258, 260. See also Aragon; Decretos de Nueva Planta
Cateau-Cambrésis, Treaty of, 19, 60
Catherine of Aragon, 48
Catholic Church, 79–82; and Isabella and Ferdinand, 47–48, 259; property holdings of, 80; revenues collected through, 83; revenues of, 88f. See also Inquisition; royal patronage, right of; three graces (taxes)
Catholic Kings. See Ferdinand II (the Catholic) of Aragon; Isabella of Castile
Cattaneo family, 161, 162f, 166f, 217
Censo de los Millones, 80–81
Centurión family, 145, 161, 164–65, 216–17
Chamley, Christophe, 111–12
Charles I of England, 260
Charles V (Charles of Habsburg, Carlos I), 13, 58f; and American treasure, 56, 95; asientos of, 20, 22n49, 101; borrowing by, 89, 95, 101, 268; and Cortes of 1519, 77; and Fugger and Welser families, 53, 94, 95n33, 147, 167n46; as Holy Roman emperor, 48–49; and Low Countries, 61; personal papers of, 22; reign of, 51–56; safety of juros under, 91; succession to, 57; suppression of Comuneros Revolt by, 29; wars of, 53
Charles VII of France, 25
“cheap talk,” 38n77. See also constant recontracting model
“cheat-the-cheater” strategy, 36, 135, 141, 144t, 166–71. See also Kletzer, Kenneth; Wright, Brian
China, 23, 68
Cicero, Marcus Tullius, 27
coalition. See defaults of Philip II; Genoese bankers; network lending
Cole, Harold L., 142, 238
co-lending. See Genoese bankers; network lending
collateral: and contingent clauses in asientos, 99, 215–16, 215f, 224–29, 224t, 227t, 228f; cross-posted, 134, 145, 163, 274; and default settlements, 180; and duration of loans, 226–27, 227t; juros (de resguardo) as, 98–99, 110–11, 145, 180, 217; and rate of return of asientos, 183, 189, 190t, 224–26, 224t; transfer of among bankers, 163. See also asientos; contingent lending to Philip II; juros
collateralized debt obligations, 3
Cologne, 24
Columbus, Christopher, 53–54
Compañía del Medio General, 16–18. See also defaults of Philip II; medio general
compere, 97
Comuneros/Comunidades Revolt, 29, 52, 56, 77, 258; Marxist interpretation of, 52n19
confiscations, 133; of silver, 53, 87. See also absolutism; property rights
Conklin, James, 37, 143, 151–53, 159, 274
conquistadores, 54, 55, 85, 278
constant recontracting model, 38, 220. See also Bulow, Jeremy; Rogoff, Kenneth
consultas (council actions), 75n5
consumption smoothing, 136–40, 160, 213
consumption taxes. See sales taxes
Contaduría Mayor de Cuentas, 23, 100
contingent lending (in general), 2, 5, 8; Alfaro and Kanczuk model of, 138n9; Borensztein and Mauro on, 138, 280n6; and procyclical fiscal policy, 213–14
contingent lending to Philip II, 89, 214; clauses in asientos, 89, 98–99, 214–29; economic impact of, 220–29, 222f, 223f, 224t, 227t, 228f; and excusable defaults, 229–38, 231f, 233f, 234f, 235f, 236t, 275; and loan maturities, 226–27, 227t; number of contracts and principal subject to, 214–15, 215f; tax revenue shortfalls and, 221–24; tied to banker’s discretion, 215, 215f, 218–20, 224t, 225–28, 228t, 228f; tied to fleet events, 221; tied to king’s discretion, 215, 215f, 218–20, 219t, 224–28, 224t, 227t, 228f; types of, 215–20, 216f, 219t, 224t; and war, 214. See also collateral; contingent lending (in general); lending to Philip II
Cortes, 7, 41–42, 76–78; of 1519, 77; of 1573, 84; of 1575, 77, 114, 121, 192, 268; of 1588, 268–69; of 1591, 121; budget commission of (commisión de millones), 268–69, 277; and encabezamiento system, 84, 88–89; Portuguese, 70; powers of, 41, 52, 76–78, 84–85; and servicio de los ocho millones, 84, 89, 268–69; and setting of taxes, 77, 91, 93, 103, 118, 121, 258; weakened by silver revenue, 267–68, 277
Cortés, Hernán, 54–55. See also conquistadores
Council: of Castile, 76; of the Chamber, 76;
of
Crusade, 76n7; of Finance,12, 14, 21, 76, 133, 269; of Indies, 68, 76; of State of Flanders, 156–59
councils, system of, 75–76
Counter Armada, 66
counterfactuals: debt series, 124–25; victory in Flanders, 128–30, 130f
courts, 24, 41, 68, 253
credit. See defaults of Philip II; lending to Philip II; sovereign debt
cross-border borrowing, See sovereign debt
cross-posted collateral. See collateral
crowding out, 30
Crown of Castile: definition of, 75–76. See also Castile; debt instruments of Crown
cruzada. See three graces (taxes)
Cuathemoc, 55
Cuba, 54
cuius regio eius religio, 53
customs, 28n61, 29, 88, 262, 270; internal, 29, 30n64, 50, 85, 88, 206, 258, 280. See also Almojarifazgo Mayor de Sevilla; dry ports
de Balsac, Robert, 26
de Bry, Jean, 278
debt. See defaults of Philip II; lending to Philip II; sovereign debt
debt accumulation equation (Aizenman & Pinto), 120
debt crises. See default (generally)
debt instruments of Crown, 89–99. See also asientos; juros
debt repudiation, 5, 38, 133, 230; as counter-factual, 178, 179, 179t, 183–86, 184t–85t, 206
debt service: of asientos, 94–96, 108–9, 125–26; of juros, 91–92, 92t; new estimates of, 112–16, 116t; relative to revenue, 247–48, 248t. See also interest rates; IRR (internal rate of return); MIRR (modified internal rate of return); rate of return
debt-to-GDP ratio, 32t, 33, 121, 249
debt-to-revenue ratio, 122–26, 122t, 124t, 130, 237, 247
de Charney, Geoffroi, 132
decreto (decree of suspension). See defaults of Philip II
Decretos de Nueva Planta, 49
default (generally): of Argentina (2001), 2; degrees of, 230; of Edward III (1339), 23; effects of on financial system, 2; excusable, 39–40, 140–42, 230; and exports, 2, 138; and GDP growth, 139, 213; opportunistic, 34–36, 39, 142; of Philip IV of France, 132–34; in theory of sovereign debt, 136–43
defaults of Philip II: access to credit following, 17, 20, 102, 134, 144, 168, 234–35, 247; bankers’ anticipation of, 239; compared to general pattern, 32t; difference between contracted and actual returns as a result of, 191–92, 192t; as excusable, 214, 229–38, 231f, 233f, 234f, 235f, 236t; as first case of serial default, 17–18, 32, 37, 118, 143, 170, 173–211, 270, 276, 279; impact of on lenders, 204–6; as risk-sharing tool, 8, 39, 140, 192, 233–34, 241, 277, 279; timing of, 238–40. See also individual years; lending to Philip II
defaults of Philip II (1557 and 1560), 18, 53, 95
defaults of Philip II (1575), 15, 18; attempted transfer stop during, 37, 143, 151–59, 152t, 171, 274; and Cortes, 77, 84; loan conditions following, 233–38, 234f, 235f, 236f; and maturing debt, 238–40, 239t; nationality of lenders before and after, 149; settlement of, 63, 110–11, 167, 180. See also medio general
defaults of Philip II (1596), 15–18; and Anglo-Spanish War, 12, 232; difference between contracted and actual returns as a result of, 191–92, 192t; and Di Negro–Pichenotti partnership, 194–206, 198t, 201t; and lack of accurate fiscal information, 17, 21; settlement of, 111, 167, 178–80, 179t, 204. See also medio general
de Glimes, Jacque, 158
de la Torre family, 97n38, 161–62f, 166f, 185t, 186, 217
Deleplace, Ghislain, 96n35
demesne income, 24, 28, 74–75, 78, 133
de Molay, Jacques, 132, 133
De Negro family, 9–12, 161, 165, 194–96, 199, 203–8
derecho de las lanas (tax), 85
desempeñar, 15n23
de Sotomayor, Dávalos, 168
De Vries, Jan, 30
Diamond, Jared, 54
Díaz-Alejandro, Carlos, 137
Dickson, P.G.M., 73n54
Dincecco, Mark, 25
Di Negro–Pichenotti partnership, 9–12, 18, 194, 203–6, 208; asiento contracts of, 11–12, 194–206, 198t, 201t; losses sustained in settlement, 18; master account books of, 205–6
disbursement of loans: in cash at court, 192, 193n21; delays in, 178; in foreign currency, 97, 187; by Galleto family, 186; by letter of exchange, 192; by location, 148t; in Madrid, 195; by Maluenda brothers, 176t; multiple, and need for MIRR, 175; option to perform partial, 38, 99; as part of asiento contracts, 94, 100, 148t; predating the signing of asientos, 195n27; staggered, 186; at trade fairs, 192, 193n21, 218. See also asientos; lending to Philip II
domino theory of Spanish imperial policy, 72, 209
El Dorado, 54
Doria family, 16, 161, 162f, 165, 166f, 205
Drake, Sir Francis, 14n20, 63, 66, 243
Drake-Norris expedition (Counter Armada), 66
dry ports, 85, 259. See also customs: internal
Dutch disease. See resource curse
Dutch Rebellion/Revolt/War (Eighty Years’ War), 11, 15, 53, 57, 61–64; and Armada, 57n29, 61–66, 127; asientos entered into by field commanders in, 100, 145n16; and attempted transfer stops, 37, 143, 151–59, 152t, 171, 274; bank transfers during, 152, 152t, 159, 168, 200; benefits of Spanish victory in, 127–29; and Castilian withdrawal from Flanders, 103; Council of State actions during, 156–58; and death of governor-general, 37, 274; and England, 103, 128n11; local vs. Castilian debt from, 107; military cost of, 11, 19–20, 107–8, 108f, 143, 167, 212, 216–18; mutinies during, 37, 62–63, 151, 155, 171, 274; peace dividend during truce, 117, 126–29; and Sack of Antwerp, 151, 155–56, 156f, 159; and short-term borrowing, 103; Spanish defeat in, 61, 128, 130f; tercios in, 47; unpaid troops in, 14, 153. See also Alba, Duke of; beeldenstorm; John of Austria, Don; Medina-Sidonia, Duke of; mutinies in Flanders; Netherlands; Parma, Duke of; Requesens, Luis de; Sack of Antwerp (1575)
Dutch Republic, 254–56, 255f–56f, 269, 277. See also Dutch Rebellion/Revolt/War (Eighty Years’ War); Netherlands
Eaton, Jonathan, 139–40, 142, 144t
The Economist, 19n36, 143, 148, 271
Edward III of England, 23, 24
Egmont, Count of, 38n75, 62, 133
Egypt, 136–38
Ehrenberg, Richard, 3, 31, 207
Eichengreen, Barry, 136, 213
Eighty Years’ War. See Dutch Rebellion/Revolt/War (Eighty Years’ War)
Elizabeth I of England, 152n26
Elliott, John H., 71, 245, 259–60, 278
emperor. See Holy Roman Emperor
empire. See Aztec Empire; Britain; Castile; Holy Roman Empire; Inca Empire; Netherlands; Ottoman Empire; Portugal; Spain
encabezamiento, 84. See also alcabala (tax); Cortes
England. See Britain
Epstein, Stephan R., 253–54
Eraso, Francisco, 95
ethnic fragmentation, 261
exchange operations, 12n13, 20, 73, 97, 145, 199. See also foreign currency clauses
excises, 28, 85. See also taxes
excusable defaults. See defaults (generally); defaults of Philip II
excusado. See three graces (taxes)
factor general, 211, 212n2
fairs, 193; effect of bankcruptcies on, 17n31; as location for loan disbursements, 192, 193n21, 218; as venues for raising funds, 96, 202. See also disbursement of loans
Ferdinand I of Habsburg, 48, 56, 57
Ferdinand II (the Catholic) of Aragon, 45–49, 51, 53, 81, 259, 263
Fernandez, Raquel, 139, 140n12
Fiesco, Tomás, 211–12, 217–19, 219t finance rate (input in return calculations), 177n6. See also MIRR (modified internal rate of return)
financial crisis of 2008, 1, 3, 209
fiscal-military state, rise of, 26–31. See also state capacity
fiscal policy, 117–22: of Castile and Britain, 252
fiscal policy reaction functions, 250. See also primary surplus
fiscal position of Philip II: availability of timely information on, 21–23; reconstruction of, 112–16, 114f,
116f; and war outcomes, 31, 37, 60, 66n42, 143, 243–46. See also imperial overstretch theory; liquidity shocks; primary surplus; sustainability of debts of Philip II
fiscal pressure, 20, 42, 75, 244–56, 248n12; measured as revenue-to-GDP ratio, 32t, 246–49, 248t; and Spanish decline, 42, 71, 280. See also fiscal policy; imperial overstretch theory; revenue; taxes
Flanders: as inheritance of Charles V, 53, 61. See also Dutch Rebellion/Revolt/War (Eighty Years’ War); Netherlands
fleets: 67, 86–87; arrivals of as contract contingencies, 145, 174–75, 203, 212, 215f, 224–28, 224t, 227t, 228f, 241; frequency of, 212f; information about arrival of, 39, 99, 174, 211, 228–29, 233. See also royal fifth (tax)
Florence, 24
Flynn, Dennis O., 267
foreign currency clauses, 187, 187f, 193. See also exchange operations
France: and absolutism, 257; debt burden of compared to Castile’s, 42–43; international comparisons with, 246–56, 248t, 251f, 255f, 256f; New World settlements by, 66–67; tax revenue in, 28, 248t, 254, 255f, 256f; Wars of Religion in, 12
Francis I of France, 51, 93
Francois, Patrick, 265
Fritschy, Wantjie, 129
fueros de Bizkaia, 258–59
Fugger (Fucar) banking dynasty: in 1557 and 1560 defaults, 95, 202; in 1565 default, 114; agent of in Spain (Tomás Miller), 10n4, 169; and Almadén mercury mines, 182, 255; Braudel on, 148n23; and Charles V, 51, 53, 93, 147; and “cheat-the-cheater” strategy, 36, 170–72; correspondence of, 168–70; Ehrenberg on, 3, 207; exemption from bankruptcy decree of, 159, 168, 186; and “Fugger letters,” 96–97; lending to Philip II by, 146, 163, 207; and Rentmeisterbriefe debts, 129n12; settlements with, 167n46; transfers to Flanders by, 157, 168, 170, 171; upholding of loan moratorium by, 168–70. See also German bankers; lending to Philip II