The Financial and Human Networks of Philip II's Spain “The main achievement of Philip II’s government was to mobilize large financial resources by turning the apparent weakness of the kingdom’s fragmented political and economical institutions into a strength.” (Debt policy under constraints: Phillip II, the Cortes, and Genoese bankers ) 1
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The Financial and Human Networks of Philip II's Spain
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The Financial and Human Networks of Philip II's Spain
“The main achievement of Philip II’s government was to mobilize large financial resources by turning the apparent weakness of the kingdom’s fragmented political and economical institutions into a strength.”
(Debt policy under constraints: Phillip II, the Cortes, and Genoese bankers)
Theo Soulages - Spring 2015New York University, Department of History
Professor Jean-Frédéric Schaub(KJC Chair in Spanish Culture and Civilization)
1
In order to limit the scope of this paper, which could amply fill an entire doctoral thesis - we will focus on the reign of Philip the IInd, considered by most historians to be the height of Spanish Imperial power, while also proving to be a very interesting period, from a fiscal and financial standpoint. His reign saw both an increase in tax base, government spending (primarily linked to warfare), fiscal consolidation - and several incidents of fiscal insolvency.
A. Fiscal instruments under Philip II
In order to understand the relationships that bound sovereign and bankers together in 16th and
17th century Spain, first we must try and understand the two main fiscal instruments available to
the Spanish Monarchy; the juros and the asientos.
i. juros
The core of the fiscal system of Castile was its long term debt. The juros were introduced
in the 12th century as pensions awarded to people who had served the King during the
Reconquista. Their market value increased over the centuries to come; by the late sixteenth
century, their value varied but the return rate was usually situated around 7-8%, although their
face value sometimes fluctuated. Interest rates on the juros were not necessarily fixed.
1
1 Drelichman, Mauricio & Voth, Hans-Joachim. The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598, 7
2
The juros were “administered by the cities, but they were legal contracts between holders
and the crown, rather than contracts between holders and cities”2 They were backed by ordinary
revenue streams, which were stable and predictable (like fixed contributions, or the alcabalas
sales tax or other regular taxes, like salt or wool excises). Servicios and alcabalas were
particularly adapted because they both required renegotiation with the Cortes (or city assemblies
of Castile, of which there were 18) in order to be increased (which was complex and costly); so
the amount of juros that could be issued each year was limited by the stable revenue of the
crown. While juros were technically all equal, they did not always trade for face value on
markets. For instance, juros supplied by the Casa de la Contraction (which managed silver
revenues) were seriously discounted on markets, since the supply of silver was by no means
stable or constant.3
There existed two kinds of juros: the juros al quitar and juros de por vida, both of which
had a fixed faced value and could be reimbursed at any time, allowing the government to
refinance its debt when the revenues were better than expected, and lower the interest rate of its
long term debt. Refinancing of the loan was accomplished by a "reduction of the coupon while
keeping the face value of the loan unchanged."4 Which meant that in order to keep a juro, a
lender had to provide the sum necessary to make the adjustment. This practice was known as a
credimento; the investor could either being reimbursed in full, or pay the difference between the
previous juro and the new one.5
2 Alvarez-Nogal, Carlos & Chamley, Christophe. Debt policy under constraints: Philip II, the Cortes, and Genoese Bankers, 1963 Drelichman, Mauricio & Voth, Hand-Joachim, 9-114 Alvarez-Nogal, Carlos & Chamley, Christophe, 1965 Ibid
3
When the juros did not suffice to fund the Kings needs, then his officials were forced to
turn to short term debt contracts (short stop) to supplement them. It is important to note that there
were no defaults on the juros, during the 16th or the 17th century (except for partial defaults on
the ones used as insurance on some asientos loans).6
ii. asientos
The asientos were a short term funding mechanism, contracted between the Crown and an
external party, with very precise funding terms. The asientos specified “date, place, currency,
exchange rate, and interest rate.”7 Their interest was higher (since they were often backed by less
stable revenue streams). But, some asientos were collateralized by juros (known as juros de
caucion or juros de resguardo). Interest rates for the Juros fluctuated hugely (they averaged
around 12% returns, around 1570-75), and often lasted a few months, to a couple years at most.
These contracts were often very complex, and required sophisticated networks in order to be paid
out, at the right time, place and currency. Repayment often included specific clauses (like partial
repayment in silver…).
8
6 Ibid, 1987 Ibid, 1998 Drelichman, Mauricio & Voth, Hans-Joachim. Lending to the Borrower From Hell: Debt and Default in the Age of Philip II, 1214
4
The asientos were often used "for disbursements abroad, usually to pay and supply
warring armies and fleets."9 The money was supplied by small and medium investors, both in
Spain and Europe (about a 50/50 split), and the contracts were administered by the large banking
families of Europe, although the Genoese bankers enjoyed a privileged position in the financing
While the King always negotiated with many bankers at once, these negotiations were
always public; “discussing the amount of credit that he needed with them as a group and dividing
among them the total amount. Each (banker) provid(ing) his portion individually, knowing what
the others were doing.”11 Bankers often signed asiento collectively, with each individual
responsible for a part of the contract. Liability was not pooled, though. If an individual was
unable to satisfy his part of the contract, the others had no obligation to front the money for him.
Cooperation between families was limited to the negotiation process - after all, they remained
competitors.12 By treating all bankers similarly - regardless of their influence, or wealth, allowed
for a general sentiment of trust to exist between the lender and the borrower. This attitude
remained true during defaults, when the King would often maintain proportionality in his
repayment.
13
ii. Why did the King borrow through intermediaries (bankers) ? 11 Alvarez, Carlos, 3412 Ibid, 3513 institutions, 36
6
Since the Spanish fiscal system was not centralized, and most taxes were collected on a
municipal level, the Crown needed a reliable network of intermediaries that could gather the
money from various places, and then bring it back to Madrid, where it could be spend as the
sovereign and his ministers saw fit. The Spanish crown lacked such an infrastructure, and the
officials it did employ often lacked the financial know how possessed by the bankers and their
associates. Since bankers themselves had networks of intermediaries throughout the Empire and
beyond, it logically follows that the Crown would want to include private individuals in its fiscal
administration. For instance, Bartolome Spinola was charged, in 1629, with the sale of titles and
government offices for the Crown, while another financier from Genoa, Octavio Centurion, was
made facteur general of borders and military strongholds, and was charged with the collection of
taxes from individuals and institutions fiscally responsible for the upkeep of the defense of the
Iberian Peninsula.14
Another important factor was the lower cost of borrowing obtained by the bankers, in the
name of the Spanish Crown, on financial markets. The Spanish kings had somewhat of a
reputation for defaulting on their loans, so direct borrowing from small and medium investors
throughout Europe (who were the ones, in reality, financing the Spanish Crown), involved high
risk premiums and interest rates. The reputation and reliable networks of bankers like the Spinola
in Genoa allowed them to obtain contracts that were much more advantageous for the Spanish
Kings, and allowed them to borrow more (since the interest rates were lower).15
Bankers and men of money also played their role in the determination of economic and
fiscal policy for the crown. Considering their great experience and understanding of the financial
networks in Europe, they constituted a major asset to the Crown, which used them in an advisory 14 Alvarez Nogal, Carlos, L'argent du Roi et les hommes d'argent (XVIe-XVIIe siecles), 190-9215 Ibid, 192-94
7
capacity repeatedly. Such men worked side by side with government officials, sometimes even
occupying official posts themselves -leading to a blurring of the lines between public in private
interest in 16th and 17th century Spain. As such, one could not talk about public and private
money, or interests. They were symbiotic, and often intertwined.16
iii. Bankruptcies, and the Medio General negotiation process.
The state of Spain’s finances under Philip the IInd was nowhere near as drastic as has been
suggested by previous analysis. Expenditures did rise in the second half of the 16th century, but
so did the primary surplus generated by the crown. Using statistical analysis, Drelichman and
Voth conclude that “Philip’s debt was sustainable until at least 1584”17. In this model, the
default of 1575 is presented as a “temporary setback”, due to an “unforeseen increase in
expenditures in the two preceding years.”18 While the Spanish monarchy’s fiscal position grows
increasingly dire in the 1580s, namely due to the King’s Enterprise of England and the continued
fighting in the Low Countries, the significant defeats met by the King’s armies were extremely
unfortunate and could not have been predicted. As Drelichman and Voth remark, “had the
Armada not been destroyed, the Crown would have saved the expense of building a second fleet”
similarly, a victory in the Low Countries would have saved “vast military expenditures” and “the
rich cities of the Low Countries could have been taxed heavily.”19 As such, the outcome of the
Spanish military endeavors in the late 16th Century was almost a worst case scenario - and
certainly was probably not anticipated by the Crown, or those that did business with Madrid.
16 Ibid, 194-9517 Drelichman and Voth (2011), The Sustainable Debts of Philip II: A Reconstruction of Spain’s Fiscal Position, 1560-1598, 3018 Ibid19 Ibid, 31
8
When looking at the three episodes of bankruptcy under King Philip II's reign, one must
not forget that the term as we use it today is far removed from the meaning of the word, as it was
employed in XVIth century Spain. These episodes were an essential mechanism to the Crown, in
the management of its debt. They must not be understood as "wholesale repudiations of
obligations", but rather "a rescheduling of debts."20 Each crisis would start with a suspension of
payment on the short-term debt by the Crown, who would then go and negotiate with various
cities the raising of certain taxes and tariffs, in order to obtain additional revenue, in order to
negotiate some kind of financial settlement with the owners of the asientos it had just defaulted
on.21 During this process, the King would transfer some of his short term asientos into longer-
term juros. Sometimes, the King would provide other forms of compensation, that could take the
form of offices, titles, social incentives...22 Alvarez-Nogal and Chamley conclude that “evidence
of the actual dealings between the government and the Genoese bankers seems to indicate that a
significant part of alleged reductions were transactions at prices not far removed from market
values.”23 Overall, bankruptcies were not excessively harmful to those that lend to the Spanish
king.
20 Alvarez, Carlos, 2721 Alvarez-Nogal, Carlos & Chamley, Christophe, 20222 Alvarez, Carlos, 27 23 Alvarez-Nogal, Carlos & Chamley, Christophe, 211
9
C. Why did bankers lend?
i. Presentation of various models
For a long time, the generally accepted sentiment on lending to the Habsburg was that
banking was “a sober business punctuated by odd moments of lunacy [...] Genoese indulgence
[...] caused not only the first sovereign bankruptcy in 1557, but the second, third and fourth as
well.”24 Recent work from Mauricio Drelichman & Hans-Joachim Voth (2011), Carlos Alvarez-
Using Drelichman and Voth’s model (2011), based on a comprehensive dataset which
includes 438 lending contracts , signed between the King and his bankers, between 1566 and
1600, we can assess the motivations and the solidarity mechanisms uniting the lenders of the
King. As the primary provider of loans to the crown, Genoese bankers were the most prevalent
lenders in Madrid. They provided two thirds of the asientos loans, which the King needed to
fund his armies year-round when revenues were insufficient, or expenses greater than planned.
As such, they were an essential source of financing for the King, who could difficulty do without
their support. Genoese lenders often lend with one another, and there was a certain degree of
solidarity, born out of necessity, uniting them. When the King default on one loan, all other
bankers would impose a moratorium on new loans, making it very difficult for the crown to find
the funds it desperately needed. This is not to say that money was not available elsewhere, but
outsiders rarely lend to the King, since they knew how expendable they were - lacking the
network and community that unified the Genoese - therefore increasing the odds of the King
defaulting on his loan, since it would not affect his ability to borrow from his usual creditors in
the future.
24 The Economist, 23-29 September 2006
10
25
Bankruptcies were linked more to liquidity problems than to solvency issues. Philip II’s
finances were actually rather solid, or at least until the failure of the Spanish Armada and the
subsequent escalade in military expenses. Budget surpluses usually covered the costs of
servicing the debt. When the King stopped payments on loans, a negotiation process would begin
between his administration and creditors, leading to a mediatio general, which would be signed
between all involved parties, detailing the restructuring of the existing debt. While haircuts were
always part of the solution, the losses experienced by the crown’s creditors were never
excessively drastic, and since bankers only seldom invested their own money, or ever invested
alone, were rarely devastating. Only very few, small scale banking families were put out of
business in such a manner. For instance, during the 1575 default, the King repaid on average
25 Drelichman, Mauricio & Voth, Hans-Joachim. Lending to the Borrower From Hell: Debt and Default in the Age of Philip II, 1209
11
62% of the amount stipulated in the asientos he had defaulted on. During the 1595 default, the
losses were much more limited (approximately 20%).
ii. Profitability of lending?
In another paper26, Drelichman and Voth further their inquiries in lending practices of
16th century Spain, using the same data set. Here, they posit that lending to the King was
profitable, even when he defaulted on his loans, for a vast majority of those involved. Losses
sustained during the various episodes of insolvency of the second half of the 16th century were
more than compensated by the fairly high interest rate on the asientos. Because it is not the aim
of this paper, we will not enter in a detailed discussion of the dataset itself, or the model
generated form it (as it is not the aim of this paper), nonetheless a few useful observations can be
gleaned from their research. Firstly, the authors conclude that "after accounting for the effect of
these defaults, the average rate of return on short-term lending was 15.5%, more than twice the
long-term bond rate."27 Secondly, of the 60 families that lend their own money, during the 1566-
1600 period, "51 earned more than the long-term bond yield. Of the five families that actually
lost money, three invested little [...] the absolute losses of these five families amount to just over
75,000 ducats [...] this is less than 0.1% of total short-term lending to Philip II."28
iii. The Genoese network
The Genoese banker, as a network of individuals engaged in financial activities, were a
relatively close-knit group of individuals, who, although they were in direct competition with
one another, acted usually in concert with one another, when it came to lending to the Spanish
26 Drelichman, Mauricio & Voth, Hans-Joachim. Serial default, serial profits: Return to sovereign lending in Habsburg Spain, 1566-160027 Ibid, 1628 Ibid, 10
12
monarch, who returned the favor, and treated them equally - regardless of capital or influence.29
The Genoese bankers usually did not lend to the king alone; they co-lent with one another, based
on family ties, affinity or personal relationships. What resulted was a complex network, which
connected nearly every financial family in Genoa, with the Spinolas holding the central position
in the aforementioned network. The table bellow details the interaction between the families,
showing "total lending in thousands of 1566 ducats", where "thicker lines indicate higher average
lending."30 The network featured bellow accounted for 72% of the principle in the given year.
This proportion was relatively stable through the year 1600, although a slight decrease was noted
following the default of 1575, when it dropped to 67%. The members of the network also often
passed collateral from one to another, which consolidated the cohesion of the network, and made
it more difficult for the King to make side deals, or for him to default on a single member of the
coalition.31
29 Drelichman, Mauricio & Voth, Hans-Joachim. Lending to the Borrower From Hell: Debt and Default in the Age of Philip II, 121830 Ibid, 121931 Ibid, 1220
13
32
33
32 Ibid, 121933 Ibid, 1222
14
iv. What recourse for bankers?
In normal years, a significant portion of the King’s financing needs were provided for by
the network of genoese bankers.34 While these bankers were often competing with one another,
there existed a rigid set of rules that informed their business dealings with the Spanish crown.
When Phillip II found himself in a position where he could not honor his financial commitments,
the Genoese coalition would act as a block - and impose a moratorium on lending, until the crisis
was resolved. This made lending by outsiders very risky (since the King had no incentive to
reimburse a banker outside of the network - as he had little leverage). There existed a strong
continuity in the families that lend to the Spanish Crown - very few new players appeared, and
very few pulled out.35 Despite attempts by the Spanish Crown to negotiate individually with
banking families during the defaults of 1575 and 1596 (namely, by offering the Spinola and the
Grimaldo families preferential treatment), these efforts failed and all investors eventually settled
with identical terms, through the medio general. Drelichman and Voth rightly conclude “the tight
network of mutual commercial and other relationships kept individual opportunistic behavior in
check.”36 While in times of crisis, the Crown did turn to outside lenders, like the Fugger family
in Germany, these lenders were always wary of the high risk they were accepting - since they
could not satisfy the entirety of the needs of the crown, they exposed themselves to large losses,
as the King would eventually have to settle with the Genoese bankers, who collectively were the
only ones capable of providing the amounts of capital needed.37
The stability of the relationship between the Genoese bankers and Philip II is apparent,
when looking at Drelichman & Voth's (2011) dataset. When a banker entered in a contract with
34 Ibid 35 Ibid, 122336 Ibid37 Ibid, 1224
15
the King, there was an 88% chance that he would do so again. And while the default of 1575 did
hurt some Genoese bankers, their share in the total financing of Philip II's debt was only reduced
by three percent - from 67% to 64%. On the other hand, German bankers, like the Fuger family,
actually increased their participation in royal financing - from 4.3 to 10.9% - after Philip's third
and final bankruptcy.38
v. Non-monetary rewards
As we have seen, the complex web of financial and economical relationships that bound
the crown, it’s administrators and various private individuals were not purely financial. Those
that facilitated lending for the Habsburg kings often had various interests in the economy of the
kingdom, and had much to gain in lending to the crown. Carlos Alvarez (2003) provides a
detailed explanation of nonfinancial perks that came with financing the crown’s needs. While
these are not easily quantifiable, “social status, power, prestige, political influence”39 were
certainly among them. In 17th century Spain, finance was not a purely economic activity; social
needs were an integral part of their job. Furthermore, as a banker to the crown, came the
privilege of living at the court, in Madrid, of the most powerful political and economic force of
Europe in the 1600s. This opened the door to a number of economic activities, more profitable
and less risky than lending to the King of Spain. For instance, the Fugger family obtained the
administration of two significant rents thanks to its role in lending to the crown.40 Private
individuals were an integral part of the Spanish fiscal administration, providing council and
serving as subcontractors for the servicing of many taxes. 41 The other major reason for lending
to the Spanish crown was that with it came the right to move the Kings silver through Europe - 38 Ibid, 121539 Alvarez, Carlos. The Role of Institutions to Solve Sovereign Debt Problems: The Spanish Monarchy's Credit (1516-1665), 3040 Ibid, 3241 Alvarez-Nogal, Carlos. L'argent du Roi et les hommes d'argent (XVIe-XVIIe siecles), 192-94
16
one of the most profitable activities of the time. Most of the King’s silver arrived from the
colonies in Madrid, where it was then distributed through Europe. As Carlos Alvarez explains,
“it was impossible to have access to the Castilian silver markets and not participate in the
financial system of the Monarchy.”42
42 Alvarez, Carlos. The Role of Institutions to Solve Sovereign Debt Problems: The Spanish Monarchy's Credit (1516-1665), 34
17
D. Case Study: The Financial Enterprise of Bartolome Spinola in Spain
Bartholome Spinola was one of the foremost, and most respected bankers of 17th century
Genoa. Carlos Alvarez-Nogal describes his activity as being first and foremost “a coordinator of
information and activity."43 The greatest difficulty associated with lending and borrowing, in
16th and 17th century Europe, was the gathering of information, and the establishment of trust
between various parties. Reliable financial information was difficult to obtain, even for wealthy
bankers, or royal authorities. Similarly, the networks that were required in order to establish
complex, short term lending agreements (like asientos) were a rare and expensive commodity,
which few mastered as well as Bartholome Spinola. The Spanish Crown did not necessarily trust
the numerous intermediary and agents it employed, and these agents were not necessarily well
equipped to establish financial contracts. As such, it was more logical for the Crown to rely on
the services of an experienced and savvy financial negotiator, whose networks of information
and intermediaries were superiorly qualified.44
In order to successfully manage an asiento contract, Spinola relied on a network of
individuals, each of which would accomplish a separate aspect of the contract, independently and
without knowing what the other actors involved might do. This required an absolute trust in the
ability, and the honesty, of each person involved in Spinola’s entreprise, in order to “harmonize
the the decision making process of a group of agents, which were working for a common
economical goal, in a manner than was more efficient than competitors.”45 The most efficient
way of accomplishing this, considering the very high costs associated with the communication of
information, was to employ agents in the proximity of every relevant financial or logistical
43 Alvarez-Nogal, Carlos. Le cout de l'information dans l'entreprise Bartolome Spinola en Espagne au XVIIeme siecle, 3 ["un agent de coordination d’activite"]44 Ibid, 445 Ibid, ["harmoniser les efforts dans la prise de decision d’un groupe d’agents qui poursuivait un objectif economique commun et qui tentait d’y arriver d’une maniere plus efficace que ses concurents"].
18
center. Instead of paying wages, Spinola would subcontract parts of asientos to local actors that
he could trust, and who would directly report to him. The absence of intermediaries was very
cost effective, and by sharing the risks (and the profits) associated a financial contract, a banker
would reduce the risks associated with an activity; if the risk is equally shared, then there is a
reduced chance that a specific actor will act unreliably.
Spinola’s financial operation relied on a horizontal, and not a vertical hierarchy. The
Genoese banker was at the center of a network of family members, trusted colleagues and
friends, who all reported directly to him. There was no hierarchy between his collaborators, who
all interacted directly with him. This required Spinola to shoulder a very large workload,
meaning that he was obliged to remain at the center of his network (in Madrid), and limit his
movement, to maximize work time. While such a simplified administrative structure did allow
for an efficient company, it also made Spinola the crucial element to his entreprise. As such,
upon death, financial organizations would also dissolve, since so much of the smooth functioning
relied on the network and the experience of the banker at the center of the web. Interactions,
between Spinola and his subordinates, therefore, were based not so much on fixed work contract,
but instead on “cooperation agreements” [accords de cooperation].46 Such agreements did not
imply a salaried remuneration, relying on a pooling of profits, which tended to incentivize
individuals to better perform their function, since their getting paid was directly dependent of the
quality of the work that they accomplished. Once again, the relational aspect of this work is
extremely crucial.47
Since trust between Spinola and his collaborators, and his agents, was so important, and
mechanisms for oversight were few and expensive, the easiest method to guarantee honesty was 46 Ibid, 8.47 Ibid, 27.
19
by knowing well the people one worked with, which can be accomplished most economically by
working with people directly from one’s entourage. As such, it is not a surprise that bankers like
Spinola tended to employ and associate with people directly from one’s community (religious,
lingual), or even better, one’s family. People were far less likely to act immorally, or deceive
people they were forced to live with on a daily basis, and the threat of social ostracisation
certainly made the opportunity cost of fraud or deception much higher.48
Alvarez Nogal provides us with concrete examples of the workings of Spinola’s
entreprise. For instance, when a contract called for the delivery of a certain amount of a currency
to several places, one of which where Spinola did not have an agent, he would simply
subcontract that portion of the contract to another banker he could trust, who did possess an
agent in the aforementioned place.49 Business relationships between Spinola and other trading
companies were not exclusive, and one company could deal with several bankers, who might be
in competition with one another. The underlying idea was to provide as much flexibility and
facility in financing contracts that were often stipulated the delivery of very large sums, in places
where Spinola may not have associates of his own. When such business relationships were
established, criterion like “continuity in work, seriousness, discretion, punctuality in transactions,
knowledge of the trade and a mutual understanding of the language in question”50 were often
determinant.
Spinola's enterprise often relied on temporary hires, in order to fulfill material aspects of
contracts, particularly asientos, that required the delivery of a sum of a certain currency (or a
physical good, like food, wool, sugar, military supplies...) to a certain place. In such cases, a 48 Ibid, 9. 49 Ibid, 6.50 Ibid, 13 [“continuite dans le travail, serieux, discretion, ponctualite dans l’execution des ordres, une parfaite connaissance de la societe et de la langue dans lesquelles on travaillait.”]
20
comisario would be hired, whose function it was to supervise the logistics of the safe transfer
and delivery of the goods to their final destination. This job was crucially important, as the goods
or sums transported were often very precious, and required a collaborator of the utmost trust and
reliability. Instead of hiring different individuals based on need, Spinola would gradually attempt
to increase the loyalty of a temporary hire by repeatedly employing the same person, each time
granting him increased responsibility in the venture, and remunerating based on performance,
upon delivery.51
As we have just seen, the most efficient business model for a banker in pre-modern
European societies of the 16th and 17th centuries was a small, highly centralized one, where the
leading figure would hold direct relationships with all of his collaborators, who were carefully
selected according to strict criterion, in order to maximize trust and therefore success. Even
temporary hires were provided incentives to remain faithful and pay was often provided as a
fraction of the entire contract, which made good performance in the interest of all involved. The
only disadvantage of this model lay in the fact that the business was entirely dependent on the
man at its center - and could collapse instantly upon his death.52
51 Ibid, 1552 Ibid, 18
21
Conclusion
What kind of observations can we draw about the human and financial networks centered
around the Spanish crown in the second half of the 16th century? The levels of centralization,
wealth and the military might of Philip the IInd was the greatest Europe had seen since the
Roman Empire, more than a thousand years earlier. Firstly, it is apparent that the policy of the
Crown was well thought out, and made the best of a society where information, and transfers of
money and goods were logistically extremely difficult. It managed an large Empire with
contested borders, in a state of semi-permanent warfare, despite lacking the financial networks
and fiscal policies of a modern state, and did so quite successfully. While defaults did occur, due
to the precarity of it's fiscality, their effect was much less dramatic than historians have
previously thought. The risk of default was accepted by bankers, who often stayed faithful to the
Crown and remained in its service for generations, testifying to its profitability for both the King
and European bankers, particularly the Genoese.
The relationship between these two parties were strongly symbiotic and the contemporary
boundaries that we of conceive today, between private and public money and interests, did not
exist. Those that lend to the King were often part of his administration; collecting taxes,
providing council and holding various administrative offices, providing the former with greater
fiscal stability, while the former profited financially, socially and politically from the
relationship. Public and private spheres were, in a way, a single entity.
22
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