History - Spain - Philip Ii, 1556-98: Finance

. Woodward calls finance Philip's 'most serious domestic problem' in 1556

. In 1557, Philip was forced to suspend payments to creditors and replace with juros at 5% interest

. National debt stood at - In 1560: 25.5 million ducats; In 1575: 40 million ducats; In 1598: 85.5 million ducats

. 'The reign ended with an endless spiral of govenrment debt' - Kamen

. The 1557 state juro debt of 36 million had increased to 85 million by 1598

. By 1598, annual interest pauments were 4.6 million/year in contrast to the 0.35 million/year in 1516 - Thus, from 1516-98 interest payments increased by 1326% (250% under Charles and 528% increase under Philip)

. McKinnon-Bell argues that Philip cannot escape responsibility for this as he failed to develop a strategy for managing royal finance - Even Philip was painfully aware of his lack of financial understanding: "I do not wish to break my brains trying to comprehend something which I do not understand"

. The Council of Finance lacked cohesion and efficiency

. There were 3 departments within it - many members were bankers themselves/connected to bankers who encouraged Philip to take loans

. Espinosa was appointed in 1568 to try and make the Council of Finance work, but he couldn't bring change due to the entrenched interests

. In 1572, the very talented Juan de Ovando was appointed President of the Council of Finance, but Philip would not commit to his bold plans for solvency laid out in 1573 and declared bankruptcy instead in 1575 without consulting Ovando

. Woodward sees this as a clear case of Philip as an indecisive monarch who, instead of boldly supporting Ovando, sought multiple sources of advice and hesitated before making a decision

. It was difficult to get funds to the Low Countries, especially after the rise of English privateering

. From 1566-81, one aim of Spanish diplomacy was to secure the transfer of money across France e.g. In 1572, 500,000 ducats got to Alba this way

. After 1578, another route was created from Barcelona to Genoa and then via Milan - In 1584, 1586 and 1588, Farnese (Duke of Parma) got large sums this way

. Income increased significantly from 3 million in 1559 to 10.5 million ducats in the 1590s - but the fundamental problem was that spending rose even faster

. 'at no time did Philip succeed in raising enough cash to cover his expenses' - Kamen

. Kamen says taxation tripled from 1559-77, but over the next 20 years stagnated at about the 1580 level while inflation rose - suggesting that the Castilian taxpayer could pay no more

. Up to 1580, the tax rise may have been possible to support because of increased agricultural output but thereafter the burden was heavy

. From 1556-77, Crown income rose by 180%, from 1577-98 by only 48% and rising inflation caused real crown income to stagnate at about the 1580 level

. An important source of income that continued under Philip

. Principally levied on the towns of Castile - any alteration of collection needed Cortes approval

. In 1556, it gave 940,000 ducats/year to over 3 million by 1574

. Philip tried to increase this further in 1577 to 3,715,000 ducats/year but the Cortes resistance over the excessive demands and heavy shortfalls led to Philip reducing it the total by 1 million ducats

. There was a clear increase of the alcabala from the 1550s, but it was obvious that the 'encabezamiento' ceiling had been reached

. Revenues tripled in Castile and quadrupled in Seville as Philip regained control of customs houses which meant the Crown got customs duties directly instead of via tax farmers

. But the growth slowed after the 1580s, as wars with England, France and the Netherlands disrupted trade

. Philip continued the policy and the church increased its contribution to the Crown

. There was the subsidio tax on church rents, lands and clerical incomes - Philip received 5 of these over his reign at 420,000 ducats at a time

. From 1567, a new church tax, the excusado, was granted by the papacy and made 270,000/year for Philip

. The cruzada yield doubled to about 200,000/year by the 1590s - exploiting Carranza's vacant see meant that the church amounted to 20% of Crown revenues by the 1590s

. The 'Three Graces' were the cruzada, subsidio and excusado - They were paid by the whole Church across Spain and their yield increased fourfold to over 1.4 million/year in the 1590s

. The 'Royal Third' - Tercias Reales (of all tithes) gave 800,000 ducats/year by the 1590s

. Some of the income of bishops were taxed (pensiones), making about 270,000 ducats/year

. Philip also grabbed the Aragonese Military Order of Montesa, which brough in 130,000/ear

. By the 1590s, the church provided about 20% of government income

. This shows the amount of political contorl that Philip had over the Church (no parallel even in Protestant countries) and the way that a theoretically tax-exempt body was in fact financing the state

. Thus, devout as he was, Philip did not spend his money on the advancemnt of the Faith within Spain

. The Inquisition was forced to be self-financing and perpetually short of cash - by the mid-1570s, the cruzada and subsidio supposedly used for defending African outposts were being diverted to cover juros repayments

. The Biship of Toledo, Don Sancho Busto, accused Philip in 1574 of setting a worse example than Lutheran princes in his meddling with fiannce

. Hunt argues that Church income was less valuable than under Ferdinand/Isabella and Charles, amounting to 1.6 million ducats out of 10 million ducats total

. The rest of Europe assumed that Spain was rich from silver but much of the money from the New World did not reach Spain

. The effective loss of the northern Netherlands and royal reluctance to antagonise the southern provinces meant that Spain was the only source of tax revenue - efforts to make the Netherlands self-funding had proved disastrous in the attempt to impose the 'Tenth Penny' in 1570

. The cost of wars could be met only by borrowing - Most of the money came from Genoese bankers (as Spain lacked a state bank) whose interest was paid ny direct forwarding of whole treasure fleets

. In exchange, Genoese bankers had a monopoly on the sale of playing cards in Spain and control of salt works in Adalusia

. The Fuggers (German bankers) took control of mercury mines in Almaden and silver mines at Guadalcanal in southern Spain and guaranteed the property of the military orders

. By 1600, juro interest payments equated to 40% of total income

. The number of asientos (contracts for loans) rose steeply - 21 in 1566 to 50 in 1567

. In the lead up to the Armada, a number of enormous asientos were concluded, some individually more than a million ducats

. The 1574 debt stood at 74 million ducats and the income for the year was only 5.6 million (according to Ovando) - Parker says that although this figure was exaggerated, the total was still 60 million

. The Castilian Cortes agreed to the millones in 1590 during the afttermath of the Armada defeat - in order to pay for wars against England/French/Dutch

. This tax was to be collected every 6 years in addition to the servicios every 3 years - As a result, all inhabitants in Castile were taxed on meat, wine, oil and vinegar

. 8 million ducats were collected in 6 years - The most nasoc mecessities of life were being taxed, creating an unjust burden on the poor

. By 1598, the Cortes demanded an end to the millones and a reduction in the alcabala - Millones was massively unpopular with all and alcabala receipts fell during the period

. The servicio was a subsidy of 800,000 ducats payable over 3 years - used in 1558, 1567, 1573 and 1576

. In 1586 and 1592, the Cortes was uncooperative and made collection difficult, but on the other 6 occasions they voted the servicio without a murmur

. The middle and lower classes in the towns bore the brunt of the servicio as nobles and clergy were exempt

. Thus there is debate about whether the Cortes was subservient or not

. The Crown was entitled to a fifth of income of all mineral mined in the New World ('quinto real', royal fifth) - This gave 65 million ducats in gold and silver during Philip's reign

. Although never more than 20% of income it provided was hard cash and it allowed foreign policy aimns to be pursued - e.g. At critical moments, such as in 1566 the receipt of 1.5 million ducats funded Alba's Netherlands campaign and silver from the Americas explains why banks kept loaning to Philip

. Also in some years there were unexpected windfalls - 4.4 million ducats in 1597 and 5.7 million in 1595

. In 1556, there was 10.5 million pesos bullion reaching Spain, 30 million in the 1570s and 70 million in the 1590s - Potosi (Bolivia), Zacatecas and Guanajuato (in Mexico) were pouring out silver

. In the first half of the 16th century, the New World provided 220,000 ducats/year for the Crown - this had quadrupled by the 1560s and increased twelvefold by the 1590s

. Mainly accounted from the 'Quinto real' and American taxes such as the alcabala, customs duties and the cruzada

. Large sums were taken from private traders - 400,000 ducats taken in 1566, 1583 amd 1587 - the owners in each case were compensated with juros, the total from this source amounting to 8 million ducats

. The Crown gained 372,000/year in 1556 to 3 million/year in the 1590s from the New World

. From 1503-1660, 185,000 kilos of gold and nearly 17 million kilos of sivler reached Seville

. McKinnon-Bell calls the silver a 'mixed blessing' as the money allowed monarchs to run up huge debts and added to inflation

. Silver did add to inflation - much of the silver never landed in Spain as it went to pay bankers and a lot went to foreing merchants who took it out of Spain

. Population rise lef to a lack of food, inflation and high taxation - thus bullion was not the only cause of inflation

. The New World may have damaged Spain more than help it - From 1530-1600, Spanish inhabitants could afford 20% less goods and most of the bullion went to foreign bankers and merchants

. There was a huge demand for textiles in the New World, but it was largely met by imports from the Low Countries and even England - so not helping Spain

. As young men left the land to emigrate or seek fortune in the trading cities of Cadiz and Seville, shortage of agricultural products worsened

. In the years of drought/plague, the towns could not be fed without importing Calabrian grain and so prices continued to rise

. Perhaps the New World wealth encouraged the extravagant foreing policies of Philip (and Charles)

. Ironically, there was a shortage of coin in Spain as foreign merchants, sailors and mercenaries all preferred to take their pay in silver ocin so it left Spain at a fast rate

. Philip also resorted to selling lands, titles and offices with the future impact of reduced revenue and an impact on the effectiveness of government

. The sale of common lands ('baldios') peaked in 1587 when they brought in 357,000 ducats - The total from baldios/church lands and towns was 4.8 million ducats by 1598

. The sales of towns peaked in 1582 when they produced 410,000 ducats - the sale of towns led to long term alienation of revenue as in many of the towns, the new owner then had the right to collect the alcabala

. The Duke of Alcala bought 1,500 vassals in Seville for 150,000 ducats in 1559

. The sale of offices was very popualr - It began in 1545 but peaked under Philip

. Most of the sales were in cities and towns where oligarchies looked to tighten their politicial control - In 1567 alone, the Crown got 270,000 ducats

. Hidalgo status was also sold, this peaked in 1567 yielding 75,000 ducats ut ferwer than 70 were bought in the whole reign so other, more attractive ways were found to gain noble status

. The alienation of sources of Crown authority and strengthening noble/town power, was a heavy price to pay for the short term boost of ready cash

. There was too much burden on the Castilian taxpayer

. There were two main sources of income; Castile and the New World - Aragon was poorer, the Dutch were in revolt, and Italy was not prepared to contribute to campaigns in the Low Countries or the Atlantic

. The burden on the Castilian taxpayer increased by 430% at the same time when normal wages only rose by 80%

. The Low Countries had been a source of tax for Charles, but with the rebllion this turned into no tax and major amounts of money spent to put the revolt down

. In the first decade of his reign, Philip gained roughly 4.4 million ducats from 1570-71 to under 900,000 from 1572-73, while the costs of combatting the Dutch Revolt in the same period was 3.5 million

. After 1572, the Low Countries ceased to be a financial asset and turned into a major financial burden

. Other parts of the Empire were unwilling to contribute to the defence of the Empire when their own interests were not invovled - In the fuero provinces of Aragon, there were too many obstacles to raising money and there were only 5 servicios in the whole reign

.'His expenditure seldom bore any logical relationship to his resources, and shortage of money was a perennial problem' - Hunt

. Spending rose faster than income

. There were 4 bankruptcies - In 1557, 1560, 1575 and 1598

. These debts tended to be long term and extended due to more juros and short-term high interest asientos that had to be paid on a specific date - Thus, the problem never went away

. The King could never win these trials with Genoese bankers and his short-term gains carried long-term financial penalties that eluded the Prudent King as finance was his 'blind spot' (Woodward)

. The 1557 bankruptcy was a legacy of Charles' war spending and this nearly crippled the Fuggers, so the Genoese lenders stepped in

. Each bankruptcy was a short-term policy desinged to free himself from Genoese bankers, but he never managed it and his future borrowing was often at a higher rate of interest

. After the 1575 bankruptcy, the Army of Flanders went unpaid for a year, resulting in a series of ruinous mitinies and the sack of Antwerp that created more support for the Durch rebels, thereby furthering the Dutch Revolt and Spanish difficulties

. Court expenditure was low - Philip did not have expensive personal tastes and his court spending was minimal, the spending rarely exceeded 450,000 ducats/year

. Artistic patronage and interest in architecture were his main personal costs - e.g. his new Escorial palace cost 5.5 million ducats but this was spread over 20 years

. Spent 14 million ducats on palaces and garden, filling htem with expensive artefacts costing 7 million in total

. Administrative costs were small - Major office holder were grandees and they were expected to be self-financing

. The Duke of Alva claimed he had spent over 500,000 ducats in the king's service; 66 corregidores and the 500 senior letrados were on low salaries

. In terms of warfare, in many ways Philip was no different to Charles - The Netherlands especially became the equivalent for Philip what the N.German Protestant states had been for Charles

. War was the only area where Philip could have made significant savings but he was not prepared to do that - He believed he was appointed by God and his responsibilities to God meant finances were not an issue for him

. Spain's resources were insufficient to meet the demands of the empire

. The Castilian economy could not cope with constant warfare

. Short-term expedients were employed to maintain next season's campaigns which mortgaged the future to pay for the present

. Windfall from the New World was squandered on war and not invested in the Spanish economy - thus, the economy could never support the ambitions of a great power

. Revenue was raised from a 'broader and deeper range of sources'

. Spain did become a stronger and greater power under Philip II, despite whatever financial problems existed!!

. By 1587, Spain was maintaining 100,000 soldiers throughout the Empire. In 1566, spending on war in Spain, the Mediterranean and Netherlands was under 2 million ducats - 4 million in the 1570s, 10 million ducats by the end of the reign. Under Philip 9,000 men a year were recruited on average from Spain - In crisis years, such as 1580, the total could rise to 20,000. Between 1567 and 1574, nearly 43,000 men left Spain to fight in Italy and the Low Countries at the very time of the Morisco Revolt (1568-70)

. In 1580, an army of 67,000 was in Flanders and another one of 37,000 marched on Portugal

. In 1571 alone, 18.5 million ducats were paid by Castile for Dutch and Mediterranean campaigns

. The Armada campaign against England in 1588 cost 10 million ducats alone - an enormously costly failure

. By 1598, Woodward argues an estimated that 10 million ducats/year were needed to maintain Spain's armed forces - a fivefold increase from the 1560s

. War with France at the start of the reign to 1559 and the next 5 years - the most peaceful and least costly of the reign

. In the 1580s, Spain were drawn into France's internal conflicts subsidising the Catholic League

. From 1582, Philip started to fund the Catholic cause in France on a modest scale but from 1585, he spent over 8 million in a decade

. From 1590-98, 30 million ducats were used to fund Spanish army campaigns in France

. The Dutch Revolt cause Philip's largest spending and 'brought the Spanish treasury to its knees' (Kamen)

. Forces grew from a garrison force in 1560 to 67,000 in 1572 - costing an estimated 80 million ducats over 40 years as spending increased as England and France became increasingly involved in the conflict

. War in the 1570s cost 700,000 ducats/month

. By December 1572, Alba owed his troops 20 months wages - The 1567-86 government sent an average of 1.5 million ducats/year to Flanders (30 million in total)

. The 1588 Armada was the single most expensive campaign at 10 million ducats

. After 1588, there were 2 further Armadas in 1596 and 1597 - the one in 1597 had 98 ships and 17,000 men

. As most troops were deployed abroad, Iberia was never secure - Sir Francis Drake raided Vigo in 1585 and 1589

. Cadiz was attacked in 1587 and 1596 - losses estimated at 20 million ducats in 1596 and a witness of the devastation lamented that 'no poweder, no swords. no weapons of any sort' were available for defence

. In the 1560s and 1570s, such as the siege of Malta in 1565, Lepanto in 1571 and the domestic Morisco Rebellion from 1568-70

. Lepanto in 1571 cost 1.1 million ducats - Italy contributed 400,000 ducats and Spain supplied a third of galleys and 40% of the men

. There were significant costs in protecting Spain's coastlien against piracy, especially in the 1560s and 1570s with North African raiders on the Mediterranean coast, but then English raids on the Atlantic coast from the 1580s

. Djerba disaster in 1560 led to massive naval spending - From 1560 to 1574, 300 galleys were built at a cost of 3.5 million ducats and thus Philip had a naval power 4 times greater than Charles

. By 1587, Philip was maintaining 106 ships in the Atlantic - Kamen sees that this revolutionary move meant Philip could fully commit to the Atlantic and that this was a decisive shift away from the Mediterranean

. One reason for the rise in costs was an increase in the cost of war as technology improved - There were radical changes in fortifications from the 1520s implemented by Charles and Philip to defend Dutch towns from French attack

. Star-shaped fortifications with overlappign fields of fire made fortresses hard to take and so sieges lasted logner - Antwerp held out for a year against Spain from 1584-85

. The Armada, 17 years after Lepanto, cost 10 million ducats (70% met by Castile) - The Armada fleet was no larger than Lepanto but had 8/9 times the firepower, which increased the cost of powder and shot as a result