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a
would spur a sharp rise in the value of the vales, while news of suspension
of shipments from Spanish America would provoke an equally abrupt fall
in prices. What is less known is that much of the silver shipped was raised
by a combination of forced donations and voluntary loans applied in the
colonies, but with greatest vigor and frequency in the viceroyalty of New
Spain. It is to this subject that we now turn.

88 The most detailed analysis of these operations is found in Pedro Tedde™s monumental Historia del
˜
Banco de San Carlos (Madrid: Banco de Espana/Alianza, 1987) and in his essay “Pol´tica ¬nanciera y
±
pol´tica comercial,” 139“217.
±
3
Imperial Wars and Loans from New Spain,
1780“1800



I have resolved that once only, and in character of a Donation, one peso be
contributed to Me by each free man, including Indians, and other castes that
make up the People; and two pesos from Spaniards and Nobles, making up
the many distinguished Subjects found in the Indies. . . .
Carlos III (August 17, 1780)

During the last third of the eighteenth century, the geopolitical and military
strategy adopted by the Bourbon regime to strengthen the Spanish empire
was based on an aggressive ¬scal campaign in both the metropolis and
the Spanish American colonies. Despite success in increasing tax income, a
succession of wars pushed expenditures beyond the rise in revenues: these
included a new war against Great Britain (1779“1783), the even more
costly war against the French Convention (1793“1795), and then two naval
wars with Britain (1796“1801 and 1805“1808). As a result, the Spanish
monarchy eventually found itself obliged to recur to debt, although this
was a recourse that royal of¬cials at Madrid had long avoided.1
For the greater part of the eighteenth century, the Bourbon regime in
Spain had used taxes to ¬nance rising defense expenditures and wars, in con-
trast with its imperial rivals, Britain and France, which issued huge amounts
of debt as a result of the pronounced expansion in military expenditures and
particularly of naval forces. Inevitably, the relative weight of debt service
tended to rise: in Great Britain debt service absorbed more than 40 percent
of state income in the 1780s, whereas in France, the ¬gure reached 50 per-
cent in 1788.2 In eighteenth-century Britain such high charges were met
without great dif¬culty as the issue of debt allowed for what is now termed
tax-smoothing, principally because the depth of capital markets facilitated the

1 Bourbon functionaries were bent on avoiding the Hapsburg legacy of excess indebtedness. An excellent
´
account of Hapsburg debt policies is found in C. Alvarez Nogal, El cr´dito de la monarqu´a hisp´ nica.
e ± a
2 On debt service in Britain in the eighteenth century, see J. Brewer, The sinews of power, p. 117 and in
France, A. Gu´ ry, “Les ¬nances de la monarchie francaise sous l™Ancien R´ gime,” Annales, Economies,
e ¸ e
Soci´t´s, Civilisations, 33, 2 (March“April 1978), 231.
ee


81
82 Bankruptcy of Empire

placement of government securities at low interest rates; these low rates, in
turn, were possible because of a consistent rise in revenues and the regularity
of debt service.3 In France, on the other hand, much of the debt contracted
after 1770 proved to be extremely expensive due to de¬cient ¬nancial poli-
cies and the dif¬culties faced by the administrations of both Louis XV and
Louis XVI in raising new taxes. In fact, the combined ¬scal and debt cri-
sis would contribute decisively to the outbreak of the French Revolution
in 1789.4
Surprisingly, during the greater part of the reign of the Spanish monarch
Charles III (1759“1788), debts and debt service remained low since tax
collection proved suf¬cient to meet expenditures in the metropolis, while
¬scal reforms in Spanish America covered the costs of burgeoning imperial
defense. But from the early 1780s, the rise in war expenses ¬nally forced
the cabinet at Madrid to seek loans and donativos (extraordinary contribu-
tions) both at home and in the colonies. The Spanish government began by
adopting a new and more modern debt policy from 1781 that was re¬‚ected
in the issue on a large scale of a new kind of public bond (vales reales) sold in
Spain but not in the Americas.5 However, these measures were insuf¬cient
to cover swelling military expenses in the Americas as a result of a succes-
sion of wars with Great Britain, which included numerous con¬‚icts in the
greater Caribbean. As a result, a new ¬nancial strategy was put in place in
the colonies, but one which combined archaic and modern elements.
The greatest increase of colonial debts in Spanish America was registered
in New Spain. There, in the last two decades of the century, the Crown col-
lected four universal donations (forced contributions), three non-interest-
bearing loans (known as “suplementos”), and nine interest-bearing loans
(see Table 3.1). Altogether, between 1781 and 1800 more than seventeen
million silver pesos were collected through loans and four million pesos
from donations in the viceroyalty.6 Nonetheless, the ¬nancial contributions

3 The ¬nancial strategies of the British government re¬‚ected the capacity of what is today known as tax
smoothing: it spreads out the cost of expenditures in an ef¬cient manner with low-interest debt, thereby
avoiding ¬scal crises. For the theoretical explanation, see Robert J. Barro, “Government Spending,
Interest Rates, Prices and Budget De¬cits in the United Kingdom,” Journal of Monetary Economics,
20 (September 1987), 221“248.
4 Two excellent studies are Eugene N. White, “Was There a Solution to the Ancien Regime™s Financial
Dilemma?” The Journal of Economic History, 49, 3, (1989), 545“568 and Francois R. Velde and David
R. Weir, “The Financial Market and Government Debt Policy in France, 1746“1793,” Journal of
Economic History, 52, 1, (1992), 1“39.
5 On the new Spanish debt policies, see Pedro Tedde, El Banco de San Carlos, 1782“1829 (Madrid:
˜
Alianza-Banco de Espana, 1988), Chapter 2 and M. Artola, La hacienda del antiguo regimen, pp. 369“
404.
6 For details see Appendix III.2, with lists and details of all loans and donations of New Spain between
1780 and 1810. Between 1782 and 1793 a little more than three million pesos were supplements “
short-term loans “ without interest.
Imperial Wars and Loans from New Spain, 1780“1800 83

from Mexico were not the only ones granted to Spain to prosecute costly
wars. A number of short- and long-term loans began to be raised in Cuba,
Guatemala, New Granada, Peru, Chile, and other Spanish American terri-
tories, although, generally, these were of smaller amounts and came later
than the Mexican loans.7 It was after the turn of the century that the Spanish
colonies in South America began to make major contributions to the Crown
as witnessed in the case of the viceroyalty of Peru, where miners, merchants,
landed aristocrats, and various institutions including the secular and regu-
lar orders of the church contributed some six million pesos in the shape of
war loans between 1804 and 1815.8
Whether in Mexico or Peru, the royal loans required the explicit collab-
oration of colonial elites that held large reserves of capital, basically in the
shape of silver pesos. In New Spain most loans were contracted through
the services of the Mexico City Merchant Guild (Consulado de Comercio) and
the Mining Tribunal (Tribunal de Miner´a), although in both cases these priv-
±
ileged corporations were assisted by the Catholic Church, which also played
a major role in the ¬nancial advances to the Crown. The large amounts of
capital mobilized for the loans were testimony to the great wealth of the
colonial Mexican plutocrats (merchants, silver miners, and landowners) who
rivaled the wealthiest Europeans in the late eighteenth century. The royal
administration at Madrid was acutely aware of the importance of private
¬nance in the colonial realms, particularly at times of war when the Crown
needed all the ¬nancial support it could obtain.
The key role of powerful, local intermediaries suggests the impor-
tance of taking into account the operation and special character of colonial
credit markets “ a fact underplayed in most of the historical literature on
eighteenth-century Spanish America.9 Nonetheless, it would be a mistake

7 On loans for the Crown from colonial Peru, see the study by Alfonso W. Quiroz, Deudas olvidadas:
instrumentos de cr´dito en la econom´a colonial peruana, 1750“1820 (Lima: Ponti¬cia Universidad Cat´ lica
e ± o
´
del Peru, 1993), pp. 140“149 which should be complemented with Timothy Anna, The Fall of
the Royal Government in Peru (Lincoln: University of Nebraska Press, 1978), pp. 11“14. Some loans
from the merchants of Havana are registered in Julio Le Riverend, Historia econ´mica de Cuba (Havana:
o
Instituto Cubano del Libro, 1974), pp. 134“135 and in Johanna Von Graffenstein, “M´ xico y el Caribe
e
˜
durante los anos de la emancipaci´ n, 1779“1808,” Ph.D. thesis, Universidad Nacional Aut´ noma
o o
de M´ xico, 1994, p. 103 as well as extended comments in R. de la Sagra, Historia econ´mico-pol´tica
e o ±
y estad´stica, pp. 240“265. For donations and loans from the Captaincy-General of Guatemala, see
±
references in Ralph Lee Woodward, Central America, A Nation Divided (Oxford, Oxford University
Press, 1985), p. 70; for New Granada, see J. L. Phelan, The People and the King, pp. 28“29; and for
Chile, see references in Sergio Villabos, “Opposition to Imperial Taxation,” in Robin Humphreys and
John Lynch, eds., The Origins of the Latin American Revolutions, 1808“1826 (New York: Alfred Knopf,
1965), pp. 135“136.
8 A. W. Quiroz, Deudas olvidadas, pp. 140“149.
9 For several studies on the colonial credit system in the second half of the eighteenth century in Mexico,
see Leonor Ludlow and Jorge Silva, eds., Los negocios y las ganancias: de la Colonia al M´xico moderno
e
84 Bankruptcy of Empire

to describe the ¬nancial activity of the period simply in terms of modern
markets. In the absolutist regime the Crown had recourse to a peculiar com-
bination of old and new ¬nancial instruments: royal functionaries turned to
the powerful privileged corporations for loans, but they also had recourse
to more coercive methods of obtaining funds from popular sectors.
In this chapter we review the principal ¬nancial operations adopted by
the colonial administration of New Spain between 1780 and 1800 to assist
in imperial defense and to help cover de¬cits of the metropolitan treasury
in its successive wars with Britain or France. We emphasize the inherent
contradictions in ¬nancial policy which combined the very different prin-
ciples of coercion and collaboration.10 This speaks to some of the archaic
characteristics of colonial ¬nancial relations but also to the slow emergence
of what may be considered more modern ¬nancial markets in Bourbon
Mexico.

Royal Donations and Loans in the Colonies: Between the Archaic
and the Modern
Colonial debts are a subject that has been largely neglected in the colonial
history of Mexico as well as in most of the rest of Spanish America. Our sur-
vey of the ¬nancial instruments used by the Crown to obtain extraordinary
resources from New Spain to cover war expenses focuses on their diversity.
The review of the ¬nancial tools adopted by the colonial government also
reveals their contradictory nature: some were clearly archaic, while others
had modern characteristics. This is not strange, because the late eighteenth
century was a time of ¬nancial innovations in the north Atlantic world, the
impact of which was also felt in the Spanish-speaking realms.11 As Larry
Neal has demonstrated in a seminal book, this was the age of the rise of

(M´ xico: Instituto de Investigaciones “Dr. Jos´ Mar´a Luis Mora,”/UNAM, 1993); Pilar Mart´nez
e e ± ±
L´ pez-Cano, ed., Iglesia, estado y econom´a, siglos xvi al xix (M´ xico: UNAM, 1995); and Gisela von
o ± e
Wobeser El cr´dito eclesi´ stico en la Nueva Espa˜ a: siglo XVIII (Mexico: UNAM, 1994).
e a n
10 Actually, this combination of contradictory principles is typical of the majority of governments
identi¬ed as absolutist regimes, while consensus is normally linked to parliamentary regimes. See
discussion of these issues in R. Bonney, ed., Economic Systems and State Finance (Oxford: Oxford
University Press/The European Science Foundation, 1995), pp. 423“431 and Hilton. L. Root,
Construction de l™Etat moderne en Europe: La France et l™Angleterre (Paris: PUF, 1994), Chapters 8
and 9.
11 The origins of modern ¬nancial instruments are the object of a historiographical debate. See James
C. Riley, International Government Finance and the Amsterdam Capital Market, 1740“1815 (Cambridge,
U.K.: Cambridge University Press, 1980) and Larry Neal, The Rise of Financial Capitalism: Interna-
tional Capital Markets in the Age of Reason (Cambridge, U.K.: Cambridge University Press, 1990).
ˆ
Also see the penetrating analysis in Marie Therese Boyer-Xambeau, et al., “A la recherche d™un age
´
d™or des march´ s ¬nanciers: int´ gration et ef¬cence au xviiie si` cle,” Cahiers d™Economie Politique, 21,
e e e
(1992), 33“65.
Imperial Wars and Loans from New Spain, 1780“1800 85

modern capital markets in England and Holland.12 But changes were also
taking place in France and other Catholic monarchies, although at a slower
pace.13
In the case of Spain and Spanish America, archaic and modern ¬nan-
cial institutions coexisted. Among the former were donations (donativos)
to be paid by every head of household in the viceroyalty. The donativos
had a medieval origin but had been applied systematically from the six-
teenth to the eighteenth century in Spain.14 They were ¬rst applied in the
Americas at the end of the sixteenth century during a series of interna-
tional wars.15 It is symptomatic of the archaic nature of donations that they
could only be compulsory. Similar to taxes, the universal donations exam-
ined here (decreed in 1781, 1793, 1795, and 1798) were secular, ¬nan-
cial instruments which obligated the population as a whole to contribute
funds to the monarchy. Their collection depended not only on a system-
atic effort on the part of royal tax of¬cials but also on launching religious/
patriotic campaigns to obtain funds from all sectors of colonial society,
ranging from the poorest inhabitants to the most opulent individuals of
New Spain.16
Another somewhat antiquated form of extraordinary ¬nance was the col-
lection of non-interest-bearing loans that were requested repeatedly from
the great merchants and landowners of New Spain. These credit instru-
ments had some coercive characteristics insofar as the monarchy brought
pressure to bear on colonial privileged corporations to collaborate in great
emergencies.17 But it is also clear that providing advances to the Crown was
a way for rich lenders to accumulate political capital: according to a detailed
study by Doris Ladd, more than a dozen wealthy miners and merchants in
New Spain received titles of nobility in exchange for their generous contri-
butions to the Crown.18 Moreover, it should be noted that not all donations
nor interest-free loans had military purposes since some were also used to

12 Larry Neal, The Rise of Financial Capitalism.
13 Marc Potter and Jean Laurent Rosenthal, “Politics and Public Finance in France,” 577“612.
14 An example of the continuity of these exactions in Spain can be found in the case of the city of
C´ diz, where not less than twenty-six donativos were collected between 1555 and 1763. See J. Canga
a
Arguelles, Diccionario de Hacienda, vol. 1, p. 164.
On the ¬rst loans (donativos graciosos) applied in the New Spain “ beginning in 1599 “ there can be
15
found documentation in Archivo General de la Naci´ n (AGN), in the branch of documents titled
o
Archivo Hist´rico de Hacienda, vol. 1292.
o
See Appendix III.1 for a complete list of conditions and amounts of donations to the Crown imple-
16
mented in New Spain between 1780 and 1810.
Forced loans, known at times as secuestros, had been frequently applied against the Indies traders from
17
the middle of the sixteenth century onward: for lists see M. E. Mart´n Acosta, El dinero Americano,
±
pp. 198“199.
Doris Ladd, The Mexican Nobility at Independence, 1780“1826 (Austin: University of Texas Press,
18

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