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

of Spain's wars. 10

9 Drelichman, Mauricio & Voth, Hans-Joachim, 910 Alvarez-Nogal, Carlos & Chamley, Christophe, 199

5

B. How were the instruments used

i. How did the lending process take place?

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-

Nogal & Christophe Chamley (2011), amongst others, strongly disputes this claim.

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

Bibliography

- Alvarez, Carlos. "The role of institutions to solve sovereign debt problems: The Spanish Monarchy's Credit (1516-1665)." Working Paper 03-08, Economic History and Institutions Series 04, February 2003, Universidad Carlos III de Madrid.

- Alvarez-Nogal, Carlos. "L'argent du roi et les hommes d'argent (XVIe-XVIIe siècles)." Les finances royales de la monarchie espagnole (XVIe-XIXe siècles). Ed. Anne Dubet. Rennes: Presses Universitaires de Rennes, 2008. Print.

- Alvarez-Nogal, Carlos & Chamley, Christophe. "Debt policy under constraints: Philip II, the Cortes, and the Genoese bankers." The Economic History Review, 67, 1 (2014), pp. 192-213.

- Alvarez-Nogal, Carlos. "Le cout de l'information: L'exemple de l'entreprise Bartolome Spinola en Espagne au XVIIe siècle." Rives nord-mediterraneennes, 27 (2007).

- Conklin, James. "The Theory of Sovereign Debt in Spain under Philip II." Journal of Political Economy, Vol. 106, No. 3 (June 1998), pp.483-513.

- Drelichman, Mauricio & Voth, Hans-Joachim. "Serial default, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600." Explorations in Economic History, 48 (2011), pp. 1-19.

- Drelichman, Mauricio & Voth, Hans-Joachim. "Lending to the Borrower from Hell: Debt and Default in the Age of Philip II." The Economic Journal, 121 (December 2011), pp. 1205-1227.

- Drelichman, Mauricio & Voth, Hans-Joachim. "The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598." Accessed at http://eml.berkeley.edu/~webfac/cromer/e211_f07/voth.pdf, on March 20th, 2015.

- Dubet, Anne. "Les finances royales de la monarchie espagnole (XVIe-XIXe siècles)." Rennes: Presses Universitaires de Rennes, 2008. Print.

- Gelabert, Juan. "Castile, 1504-1808." The Rise of Fiscal States in Europe c.1200-1815. Ed. Bonney, Richard. Oxford: Oxford University Press, 1999. Print.

23