Building an empire in the new world. Taxes and fiscal policy in hispanic america during the seventeenth century

Abstract

The present dissertation provides a general perspective as well as an analytical interpretation of the fiscal system developed by Spain in Hispanic America between 1600 and 1699. The objective is to contribute to a more nuanced understanding of the economic institutions of Hispanic America by studying an epoch, the seventeenth century. The hypothesis is that the fiscal structure of Spanish America developed gradually into a complex system that reached its maturity during the epoch of study. In fact, it became one of the most efficient taxation systems of the period in the entire Atlantic World. The effort to create this institutional structure, and its ulterior development, was, first and foremost, an enterprise that helped build one of the first modern global empires. Taxation in Hispanic America gradually developed into a complex system that was determined neither by its varied branches (ramos) nor by mere chance; the central administration used the limited set of tools at its disposal to maximize taxation and allocate the resources rationally. Whether this strategy meant that the resources should be accumulated to be sent to Seville, sent to other parts of the Empire, or spent locally, depended on a complex negotiation that encompassed the Crown, which tried to centralize taxes through its Real Hacienda, and all the actors in the Indies. To better appraise what empire-building and state-capacity meant within the Hispanic Empire during the early modern era, it is necessary to present information about three key factors. First it is necessary to have a clear idea of the institutional structure, both the tax administration and the taxes themselves, as this provides insight on how the taxes were collected, who paid them, how the revenues were allocated and the accountability of the system. The second key subject is the explanation of the efficiency of the fiscal structure and its adequacy to tax the Hispanic American colonies and to address this problem it is imperative to measure the amount of the Crown’s revenues and its expenses in the New World. The final element is the crucial problem of agency; the directives issued by the central government regarding taxation allow us to understand better the economic policy of the Monarchy towards its American empire. Although there are some secondary sources to help with this endeavor, some of these materials are too general to really answer the questions posed by our research agenda which have required finding more detailed information based on primary sources from new archival materials. Providing a rich empirical background, both of qualitative and quantitative data, constitutes another motivation of the present dissertation, as the data collected and presented hereafter can help other scholars to construct analytical models and to further test the hypotheses proposed. The first chapter of the dissertation explores the institutions that made possible the administration of the taxes in Hispanic America. We analyze the structure of the Real Hacienda. These were not a by-product of some stochastic process but a rational outcome, which was a public-finance system that could be seen as perhaps the most modern of the western world by that epoch. Needless to say, the policies of the central administration had to be harshly adjusted to fit into a complex social and economic reality in Hispanic America. The institutional design proved to have several flaws that created problems during the whole period. However, the institutions also adjusted to this reality, which is why it is relatively easy to find many innovations if compared to the original fiscal system. The second chapter is devoted to analyzing the evolution of the taxes that composed the fiscal revenue of royal finance in Spanish America. We assess the income of the royal exchequer. The careful reconstruction of the fiscal categories allows us to compare the public finance system of the New World with its Castilian matrix, showing the differences among them. The trajectory of each of the tax categories shows the complexity of taxation on the continent. The analysis of the trends shows the increasing importance of trade taxes as an answer to the problem of increasing tax collection to sustain the Empire in America, Asia, and Europe. The chapter also highlights the Real Hacienda’s capacity to administrate the fiscal income directly or to use some other mechanisms such as tax farming to increase the efficiency of the public finance system. The third chapter reconstructs the evolution of the expenditures in the colonial fiscal and financial system. How and where a government allocated its fiscal revenue is critical to understanding the government’s capacity to provide public services such as military defense and justice. The remittances of fiscal bullion to Castile declined across the century. Instead, the chapter details how the Hispanic Empire spent most of its fiscal resources on the continent’s military defense. For example, the situados for the Caribbean and the Philippines -remittances sent from fiscally rich colonial treasuries to other fiscally poor treasuries- were not simply a phenomenon of the eighteenth century. Furthermore, it should also be noted that the Crown also used part of its resources financing the government and public works in America, as will be seen in this thesis. The fourth chapter presents a synthetic vision of fiscal revenue and expenditure in Hispanic America during the seventeenth century. It compares the tax composition and the expenses of the different reigns that occurred since Philip II’s government. The main result of the assessment is the evidence presented regarding the increasing importance of trade taxes within the Hispanic American fiscal regime. The chapter also compares the evolution of the two main areas of the Hispanic Empire in America, the viceroyalties of Peru and New Spain and presents a model to measure the fiscal burden. The fifth chapter reconstructs how the fiscal policy towards the Indias Occidentales (the term frequently used by the Crown for Spanish America) was designed and applied. The center of the analysis changes from the quantitative to the qualitative aspect of taxation. This chapter evaluates the problems faced by the Crown to enforce its fiscal policy during the century. The crisis experienced in the traditional revenue sources for the Crown in America, mining taxes and tribute (tributos) during the first half of the century, led to the necessity to improve tax recollection in America. The path found by the Crown was to increase trade tax rates. To facilitate taxation, the government promoted cooperation with the local elites of the continent. The mechanisms of tax negotiation in Hispanic America show clearly the complex interaction between the Crown and the settlers. The sixth chapter provides insight into how the government in Madrid designed its budgets and fiscal packages destined to impulse projects to reinforce the security of the communications between America and Castile and the military defense of the continent. The secretaries of the Council of the Indies (Consejo de Indias) formed the plans with the aid of experts in military operations, naval engineering, and resource management coming from the Council of War (Consejo de Guerra) and the Central Council of Finance (Consejo de Hacienda de Castilla). The use of information from all the parts of the colonies played a crucial role in producing the plans that would become active fiscal policy once the Crown decide to remit them to America as royal orders, cédulas, and decrees. The conclusion ponders the dissertation’s contributions to the knowledge of the state capacity in Hispanic America and the development of public finance during the seventeenth century. We also show the roadblocks encountered across the research project and propose paths for future research. During the XVIIth century, the royal finance system became the Crown’s primary tool to build an Empire in the New World. The Real Hacienda framework reached maturity and converted into the fabric that coalesced the many institutions that composed the Hispanic Empire in America. This public finance system permitted the governmental apparatus’s functioning, the continental defensive system, and the public works. The institution’s analysis has shown that the government actively sought these developments, assembling a homogeneous fiscal system in the process. Chance was not behind the results obtained throughout the century. The public finance system in Hispanic America, the Real Hacienda, became the vector that connected the Hispanic Empire by collecting, transferring, and spending the fiscal resources necessary to implement the Crown’s policies. Without the Real Hacienda, the Hispanic Empire in America would have evolved into a heavily fragmented and heterogeneous system with countless administrations sparse across the vast territories in the American continent and the Philippines. Part of the explanation behind the resilience of the Hispanic Empire in America resides on the public finance system’s capacity to channel resources throughout the continent. This tour de force over the Hispanic American royal finance system has shown many of its highlights and limits. The Cajas Reales collected the taxes at a provincial level, enabling the contributors to pay their taxes conveniently. Then, the treasury offices paid for the public services that were situated closely. The resources could have originated solely from the taxes collected locally, had the province collected enough to pay for them. It was often the case that the province was unable to cover the expenses required by the exchequer entirely and received external fiscal resources to balance its budget. The audit system and the central direction enforced a limited set of policies regarding the fiscal surplus’s final destination at the provincial, viceregal, and imperial levels. However, it is also true that the fiscal administration was unable to charge all the taxes directly and had to resort to tax farming for most of the trade taxes. The government decided to utilize third parties to collect taxes to improve the efficiency of the system. Although the audits’ enforcement was slow, and the administration remained plagued with corruption, the fiscal system functioned well enough to accomplish its primary goals. The evolution of the fiscal categories that composed the Hispanic American Real Hacienda’s revenue suffered a transformation throughout the century. The traditional sources of fiscal revenue, the mining taxes, and the tributos experienced a downturn during the XVIIth century. Whereas by the quinquennium 1580-1584, mining taxes and tributes composed 67.33% of the Real Hacienda’s total revenue, a century later (1680-1684), they represented only 29.48%. The Real Hacienda filled the gaps left by the categories by increasing the rates over trade taxes, creating new royal monopolies, taxing the bureaucracy, and selling parts of the jura regalia. During the observation for Philip II’s reign, trade taxes, royal monopolies, and extraordinary income composed 25.42% of the royal exchequer revenue. By 1680-1684 they represented 40.53% of the total. We have described these changes as the rise of trade taxes. Behind these developments was an economy complex enough to sustain taxation over the circulation of goods. The societies in the New World that demanded consumption goods provided by international markets. Despite the challenges, the Crown managed to increase the total fiscal revenue throughout the century. Parallel to these changes in the Real Hacienda’s revenue composition, another crucial development occurred in America. New Spain took over as the leading provider of fiscal resources for the Crown in America. We have shown how fiscal revenue increased in northern viceroyalty since the 1650s and surpassed Peru’s by 1665. New Spain experienced a marked expansion of its economy during these years. The population grew, mining production expanded, regional markets thrived. As a result, the Crown targeted New Spain and increased the fiscal burden. An inhabitant in New Spain might have sustained a fiscal burden similar to that in Castile during the second half of the XVIIth century. Contrary to the north’s developments, the royal exchequer in Peru experienced a reduction of overall fiscal revenue after the 1640s. The problems experienced in Potosí were behind the underwhelming fiscal output of the southern viceroyalty. Nevertheless, Peru’s revenue did not fall at the same rate as the mining production in the La Plata district during the second half of the century. The increased revenue in trade taxes reinforced the viceregal capital’s centrality in the Crown’s overall fiscal design. By the 1650s, Lima’s treasury office surpassed Potosí’s as the leading provider of fiscal revenue in the southern viceroyalty. Despite the complications experienced in the viceroyalty, the fiscal burden in Peru did not fall. The diversification of the revenue allowed the Crown to maintain, at least, taxation levels experienced at the beginning of the century. If the revenue experienced substantial alterations in its composition, the expenses of the Empire suffered an even more profound change. The primary fiscal category of the Royal Exchequer during the XVIth century, the remittances to Castile, reduced significantly after the 1640s. In 1605-1609, the Real Hacienda shipped 29.87 of its fiscal assets to Seville. However, by 1685-1689, the remittances required only 0.45% of the total expenses in America. The Crown used these fiscal assets to finance the military defense in the Atlantic and the Pacific. It also used an increasing number of resources to pay the bureaucratic apparatus in the New World. Military defense and administrative expenses occupied only 20.89% of the expenses by the beginning of the century (1605-1609). By Charles II’s reign (measured for the quinquennium 1685-1689), they comprised 57.3% of Hispanic America’s public expenditure. The Crown decided to spend the bulk of the Real Hacienda revenue on the continent, providing public services such as military defense, justice, and public works. Peru remained the leading spender of fiscal assets in America. New Spain did not surpass Peru’s expenditure levels even during the downturn experienced in the southern viceroyalty during the 1660s. The reason behind this development is New Spain’s commitments to finance the military defenses in the northern Caribbean and the Philippines. Whereas Lima conducted the Pacific defense directly, Mexico city transferred much of its fiscal surplus to pay for the defensive system in Havana, Santo Domingo, La Florida, and Puerto Rico. The Crown also shipped an increasing amount of fiscal bullion and monies to Manila, to sustain its enclave in Asia. The dissertation has portrayed a public finance system in Hispanic America whose categories and functioning we would hardly characterize as extractive. Instead, the Real Hacienda developments in Hispanic America exhibit many characteristics close to contemporary European public exchequers, especially those in Castile. The idea of a colonial and entirely dependent royal exchequer whose only motive is to transfer resources to Europe does not fit with the evidence assessed here. The decision of phasing out the shipments to Castile had long-term effects on the relationship between the local elites in America and the Monarchy. Philip II’s government battled with the settlers in America to enforce royal power throughout the continent. Control over the taxes of an ever-increasing mining production allowed him to restrain the settlers’ capacity to control the tributos. Moreover, under Charles I and Philip II, the Crown created a series of institutional frameworks in the New World to ensure the Monarchy’s agency in the American enterprise. However, the relationship with the elites in the continent remained strained. By Philip IV’s epoch, the situation had changed significantly. To survive the onslaught of the competing European powers, the Crown needed to increase America’s fiscal resources. The cooperation of the settlers was needed to revamp the fiscal assets in Hispanic America. The fiscal policy followed by the Crown in America reflects this change. We have characterized these developments as a fundamental change that introduced many new tax negotiation mechanisms within the continent. The Consejo de Indias, together with the other organs of the Empire, such as the Consejo de Estado, the Consejo de Hacienda de Castilla, and the Consejo de Guerra, elaborated the budgets necessary to impulse the Crown’s fiscal policy in Hispanic America. The fiscal information generated by the Real Hacienda was critical to develop the plans that the government would convert into active fiscal policy. The Consejo de Indias ordered audits to the accounts of the Cajas Reales in America to evaluate the impact of its policies in the New World and followed the developments of the revenue closely. The data shows that policies as crucial for the Crown, as the Unión de las Armas, were by no means a failure. In the case of the Union for Peru, we could even consider it a moderate success. The data presented throughout the dissertation allows assessing the fiscal categories’ principal trends and the Real Hacienda’s overall trajectory in the continent. However, it is also true that we will need better data to assess the trends and the relative importance of specific fiscal categories. The problem is especially acute in the expenditure of the Cajas Reales in Mexico City and Lima. Abating the unknown category will be possible only by working on the libros mayores and receipts contained at the Contaduría section of the Archivo General de Indias. Peru and New Spain are the zones that have received most of the attention from the specialized literature. It is beyond any doubt that the interest is entirely justified, for these were the mainlands of the Hispanic Empire in America. However, there are still many gaps in our knowledge of the Caribbean and Central America’s fiscal structure. We need to incorporate the data of fiscal revenue and expenditure of critical zones in the Caribbean and Central America. We also need to deepen our knowledge of the functioning of the Real Hacienda in the Philippines. Incorporating data for the Cajas Reales in these zones will provide nuance to the assessment of the public finance system we have provided here. Even though we have covered the century’s central debates regarding tax policy, we still have to integrate more information for the second half of the XVIIth century, particularly the AGI’s ledgers containing the last part of Charles II’s reign. The discussion regarding the fiscal policy in Hispanic America has to continue incorporating evidence from the Council’s debates. In the same vein, we have to test and delimit the framework to analyze the Hispanic Empire’s fiscal policy, with information coming from the archives in the capitals of the Empire in the New World.