Alonso García D. (2008) For the monarchy: entrepreneurs on call

Alonso García, David (2008) “Finances royales et monde financier dans la creation de la monarchie espagnole (xvie siècle)” in Les finances royales dans la monarchie espagnole (xvie-xixe siècles), ed Anne Dubet. Rennes: Presses Unioversitaires de Rennes, 175-186.

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Early modern governments’ reliance on private finance has usually been interpreted as a sign of weakness. This is an anachronism; the use of private finance is the result of a strategy from the sovereigns (p.175). In Spain, the crown sees the involvement of the merchants in the tax-collection process as a way to enrich the kingdom (p.176).

In the early decades of the 16th century, tax-farming has not only direct benefits but also gives an appreciable edge to the farmer in the competition with other merchants as it guarantees a unique access to information, means of transportation, etc. The advantages were further increased as the rise of tax-collecting partnerships (companies) enabled these groups to operate all over Castile (p.177). The exchange thus created helped the development of the kingdom as one discrete homogeneous entity.

Thos partnerships were also a unique occasion for one to build a social network encompassing merchants and members of the social and political elite, it was also an important mean to increase one’s prestige (p.178). These positive externalities explain why the farmers were commonly willing to take a loss on their tax-collecting activities (p.179).

For the government it was a unique occasion to accede to the more advanced private financial institutions such as the fair of Medina del Campo (p.180). A new position is even created: obligado a guardas (entrepreneurs on call). Their role was to provide the necessary liquidities to the individual ambassadors, generals and other civil servants during their tour of duty. Their credit was securitized by a tax (p.181).

At a local level, cities also hired merchants to collect their taxes (p.182). However in case of crisis, the farmers run a significant risk to go bankrupted, which did create a non-trivial income instability for the state. Unsurprisingly many financiers involved with the government ended their lives debt-ridden or even in jail (p.183). Responding to the crisis, interests on the farmers’ advances jumped from 3% around 1500 to over 14% twenty years later.

Bad debts had accumulated and the kingdom could barely cover the expenses undertaken by Charles V to become emperor and to defend his realm from France. However the system persisted (p.184). Nonetheless Spanish public finance slowly evolved towards a process more centralized and relying chiefly on international bankers rather than local ones (p.186).

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