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86 Bankruptcy of Empire

cover expenses on the occasion of natural catastrophes such as profound
agrarian crises, famines, and/or disease, phenomena common enough in the
ancien regime in Spanish America as in Europe.19
In contrast to the more archaic ¬nancial instruments mentioned, the long
list of interest-bearing loans issued in Mexico from the early 1780s reveals
features that re¬‚ect a certain degree of modernization in the management of
colonial public ¬nance, as is witnessed by new aspects of ¬nancial policy and
practice imported from across the Atlantic.20 (See Table 3.1 and for greater
detail Appendix III.2 on all loans issued between 1780 and 1810.) That the
colonial administration in Mexico should turn to local, wealthy investors
for this new kind of loan suggests that there existed a colonial ¬nancial
market, albeit of a rather special kind. One of the principal intermediaries
in the operation of this market was the powerful Merchant Guild of the City
of Mexico, which operated much as an investment bank, taking large-scale
deposits which were placed in the interest-bearing loans to the Crown; the
holders of these funds could later redeem them by selling the loan paper
to other wealthy investors.21 Whether this can be considered a secondary
market is a question that awaits future research.
One of the reasons for success in attracting investors in interest-bearing
loans was the increased ef¬ciency of the Bourbon tax administration that
assured regular debt service, particularly as it was effected in silver pesos.
The increasingly sophisticated management of public credit in Bourbon
Mexico is illustrated by the negotiation of loans issued in from the years
1782“1784 and later “ on a larger scale “ during the decade 1790“1800.
The colonial administration experimented with various types of interest,
repayment terms, ¬nancial premiums, and ¬scal guarantees that speak to
the increasing complexity of local ¬nancial policy and markets. But before
analyzing the donations and loan operations in some detail, it is relevant to
ask why metropolitan and colonial authorities found it necessary to resort
to a policy of extraordinary funding?

19 An excellent analysis of the measures adopted to ease the 1785/1786 crisis can be found in
the introductory essay by Rodolfo Pastor, in Enrique Florescano and Rodolfo Pastor La crisis
agr´cola de 1785“86. Selecci´n documental, vol. 1 (Mexico: Archivo General de la Naci´ n, 1981), pp.
± o o
20 Among the ¬nancial innovations in the viceroyalty was the creation of the Banco de Av´o de la
Miner´a (1784) as well as the introduction of royal interest-bearing loans (with the backing of the
tobacco monopoly) for the viceregal government. See W. Howe, Mining Guild and Guillermina del
Valle Pav´ n, “El Consulado de Comerciantes de la Ciudad de M´ xico y las ¬nanzas novohispanas,
o e
1592“1827,” Ph.D. thesis, El Colegio de M´ xico, 1997. The most detailed study of the process of
¬nancial modernization in the Spain of Charles III is Pedro Tedde, El Banco de San Carlos.
21 Detailed information on the sales and transfer of loan papers can be found in G. Valle Pav´ n, o
“Consulado de Comerciantes,” pp. 180“194.
Imperial Wars and Loans from New Spain, 1780“1800 87

Table 3.1. Principal Loans Raised in New Spain by the Royal Treasury, 1782“1802 a

Years (in Pesos) Interest Rate (%) Fiscal Guarantees Financial Agent
1781“1784 1,655,415 Non-interest-bearing Real Hacienda
1782 1,000,000 5 Averia tax Consulado de
1782 1,000,000 5 Mexico City mint Tribunal de Miner´a
1783 523,376 4 Tobacco and alcabalas Real Hacienda
1786 150,000 5 Consulado de
1790 100,000 5 Tribunal de Miner´a
1792“1794 1,559,000 Non-interest-bearing Real hacienda
1793 1,000,000 5 Increase on averia tax Tribunal de Miner´a
1793 1,100,000 5 Mexico City mint Consulado de
1794 1,000,000 5 Tribunal de Miner´a
1794 1,000,000 5 Consulado de
1795“1802 7,172,264 5 Tobacco monopoly Tribunal de Miner´a
and Consulado
1798 496,366 Non-interest-bearing Real Hacienda
1798 500,000 5 Mexico City mint Tribunal de Miner´a
Note: See Appendix III.2.
a The explicit purpose of all these loans was to assist in the Spanish monarchy with its wars.

Origins of the Policy of Indebtedness in the Viceroyalty, 1779“1783
It is an axiom of political economy that when taxes cover total government
expenditure, no de¬cits exist and, consequently, no debt results. In this
regard, we have already alluded to the fact that during the greater part
of the eighteenth century neither the metropolitan government in Spain
nor the colonial administrations suffered from important de¬cits.22 This
broke with the legacy of the Habpsburg dynasty in the seventeenth century
which had accumulated a series of enormous debts that had “suffocated”
the Crown. During the ¬rst three quarters of the eighteenth century, the
Bourbon dynasty avoided debt like the plague but from the early 1780s,

22 P. Tedde, “Pol´tica ¬nanciera y pol´tica comercial,” pp. 139“217.
± ±
88 Bankruptcy of Empire

treasury of¬cials resolved to take a new tack. Pedro Tedde has demonstrated
that during the war with Great Britain (1779“1783) the increase of army
and navy expenses led to a short-term explosion of de¬cits in the metropoli-
tan treasury. These were covered “ as we have already indicated “ by the
introduction of a new debt instrument of the Spanish government known as
vales reales (royal bonds or promissory notes); their service being assured by a
new ¬nancial institution, the Bank of San Carlos, founded in 1782.23 After
the war, ¬nancial authorities were able to reduce de¬cits with increased
taxes and, at the same time, to gradually retire some of the public debt.
In the Spanish American colonies, particularly in the greater Caribbean,
military and naval expenditures, traditionally, were not met by loans, but by
increasing the remittance of tax surpluses from Mexico to Havana. Nonethe-
less, from the early 1780s, wartime ¬nancial requirements also increased so
dramatically that royal of¬cials ¬nally turned to the issue of loans. A case
study of the donations and loans promoted by the colonial administration
in Mexico can prove an excellent way to explore the complexity of colonial
¬scal and ¬nancial policies in the late eighteenth century and, perhaps,
facilitate comparative studies with other colonial regimes.
Colonial debts began to be contracted on a large scale during the adminis-
tration of a new viceroy, Mart´n de Mayorga (1779“1783), who was initially
reluctant to use extraordinary ¬nance to cover either increasing defense or
administrative costs. Such a position accurately re¬‚ected the contemporary
attitudes of royal of¬cials in the Americas, who preferred to rely on taxes.
Mayorga was a high-ranking military of¬cer of considerable experience
when he was named the viceroy of New Spain in 1779, the same year when
war was declared against Great Britian. He was charged by Charles III with
strengthening the army of New Spain and ensuring the ¬nancing of the
garrisons and colonial administrations in the greater Spanish Caribbean. At
the same he was instructed to continue “ when possible “ with the deliveries
of silver and gold to C´ diz.24 In order to secure these major objectives, the
Crown insisted that he apply a forced loan in the viceroyalty.25

23 P. Tedde, El Banco de San Carlos.
24 In late 1779, G´ lvez ordered Mayorga to send funds to the Spanish settlements in Cuba, Puerto
Rico, Trinidad, and Louisiana to neutralize the vessels of the British Navy and to prepare for the
reconquest of Florida, ceded to England in 1763. In less than two years, Mayorga ordered the transfer
of 15 million pesos from Veracruz to Cuba, together with provisions and munitions worth almost
1.5 million pesos. At the same time, he ordered the embarkation of one of the best Mexican infantry
corps, the Crown Regiment (Regimiento de la Corona), destined for Havana to which he added a
corps of 1,600 marines to be incorporated into the crew of the Spanish squadron; see J. A. Lewis,
“New Spain during the American Revolution” and C. Marichal and M. Souto, “Silver and Situados,”
25 The royal instruction for the American donation was published in August 1780, but Mayorga did
not want to apply it immediately.
Imperial Wars and Loans from New Spain, 1780“1800 89

In spite of the many demands by metropolitan authorities, Mayorga did
not apply donations (forced contributions) nor did he contract loans during
the initial stages of the war with Britain, but rather preferred to exploit to the
maximum the traditional ¬scal instruments at his disposal by increasing
tax rates. In this he followed in the footsteps of his predecessor, Viceroy
Antonio Mar´a Bucareli (1771“1779), who had devoted much attention to
improving piscal receipts.26 Mayorga began by imposing higher rates in
1779 on the sales taxes known as alcabalas and on pulques (the principal
alcoholic beverage of the popular classes in Mexico). He also attempted
to reduce administrative expenditures to compensate for the extraordinary
increase in the defense budget.27 Even so, the tax monies raised and/or saved
after two years did not suf¬ce to cover the huge demands of the military
garrisons in the Caribbean and the naval expeditions against the southern
¬‚ank of North America.
How and where could the viceroy ¬nd additional resources? An enor-
mous portion of regular tax revenues was already committed to sustain
the Caribbean treasuries, while the rest was absorbed by military expenses
within the viceroyalty and by regular remittances to the treasury at Madrid.
Rigidity characterized many of these disbursements since a number of ¬s-
cal branches in colonial Mexico had been assigned the task of paying quite
speci¬c expenditures. For example, the surplus income of the postal service
of New Spain was sent annually to Havana to cover naval outlays at this
strategic port.28 Similarly, a part of the pro¬ts obtained from the sales of the
mercury monopoly was remitted to Cuba to assist the tobacco monopoly
¬nance the purchase of tobacco leaf from local planters on the island.29
In addition, most of the surplus income of the Mexican mint (la Casa de
Moneda) and certain taxes on of¬ceholders (vacantes y medias anatas) were

26 In fact, Bucareli retired the greater part of the colonial government™s term and ¬‚oating debt and
regularized payments to garrisons (situados) in the Caribbean: Bernard E. Bobb, The ViceRegency of
Antonio Mar´a Bucareli in New Spain, 1771“1779 (Austin: University of Texas Press, 1962), pp. 222“
27 Consistent with this effort, the viceroy™s salary was reduced by half (30,000 in place of 60,000
pesos). More serious and cruel were reductions in the daily subsistence payments to convicts and
other forced labor that undertook public works: the administrator in charge of the treasury Pedro de
Cosio reduced each prisoner™s supplies from two to one real per day, eliminating among other things
the only “luxury” they had, the half real to buy tobacco and drink: J. A. Lewis, “New Spain during
the American Revolution,” pp. 172“173 and 175.
28 Heladio Galeana, “La renta de correos como monopolio estatal en la Nueva Espana,
1766“1821,” Master™s thesis, Universidad Aut´ noma Metropolitana-Iztapalapa, Mexico, 1998,
Table 1.
29 Antonia Herrera Heredia, La renta del azogue en Nueva Espa˜ a, 1709“1751, (Sevilla: Escuela de Estu-
dios Hispanoamericanos, 1978), pp. 156“158 and 261, notes that in the ¬rst half of the eighteenth
century, half of the ¬scal receipts from the sale of mercury in Mexico were used for this purpose.
90 Bankruptcy of Empire

habitually sent to the Cuba Treasury while the remainder went to Spain.30
Furthermore, the most productive of all ¬scal branches, the Mexican tobacco
monopoly, had the obligation to send the greater part of its net income to
the metropolis.
Owing to the extraordinary demands generated by the war with Britain
and the insuf¬ciency of the funds sent from New Spain to colonial garrisons
in the Caribbean, Mayorga decided to adopt a heterodox measure. He pro-
ceeded to send accumulated surpluses from the tobacco monopoly to cover
war expenses in Cuba “ a measure that contravened traditional regulations,
stipulating that such monies would be destined exclusively for the Iberian
peninsula. In fact, the viceroy ordered that the huge sum of twelve million
pesos from New Spain™s tobacco monopoly be sent to Cuba between 1780
and 1783, but even this did not prove suf¬cient to cover all costs required
by the naval and land forces.31
After the ¬rst and impressive effort to ¬nance the enormous expenditures
of the ongoing military-naval expeditions in the greater Caribbean, 1780“
1781, Mayorga™s resistance to loans and donations began to crack. The
Spanish campaign to reconquer Florida as well as the reinforcement of
positions in Louisiana, led by general Bernardo G´ lvez (nephew of the
minister of Indies), required additional ¬nance. In March 1781, the viceroy
¬nally decided to employ the royal authorization which he had received from
Charles III to collect a large donation (donativo gracioso) from the Mexican

The “Gracious Donation” of 1781“1784: Compulsion as a Financial
Instrument of War
When Viceroy Mayorga gave orders in 1781 for the collection in Mexico of
the “universal donation” (originally decreed in August 1780 by Charles III)
he was acting on the basis of many precedents in the history of Spain and

30 It is dif¬cult to determine exactly what proportion of the Casa de Moneda™s funds went to the
metropolis and what to Cuba. Victor Soria has reconstructed the situado series and remarks: “Between
1777 and 1780, the consignment of funds to the Crown by the Casa de Moneda reached an average
of 623.512 pesos . . . between 1781 and 1785, 952,000 pesos . . . in the quinquenium 1786“1790,
1,139,165 pesos, increasing in the following quinquenium to 1,440,000 . . . later declining (1795“
99) to 1,160,000. The shipment of funds reached their highest annual average in 1801“1805
with 1,502,670 pesos.” Victor Soria, La Casa de Moneda bajo la administraci´ n borb´nica, 1733“1821
o o
(Mexico: Universidad Aut´ noma Metropolitana, 1994), p. 141.
31 J. A. Lewis “New Spain during the American Revolution,” p. 219. Much of the money went to
the important naval force under the command of Admiral Cacigal that operated throughout the
Caribbean during these years, attacking the English garrisons in the Bahamas, Jamaica, Honduras,
and Florida. At the same time, the military expedition, led by General Bernardo de Galvez, was
charged with taking possession of the fort at Pensacola and to reinforce the Spanish positions in New
Orleans and above, along the Mississippi river.
Imperial Wars and Loans from New Spain, 1780“1800 91

the Americas. What were the chief characteristics of this type of exaction?
According to Miguel Artola™s well-documented study on Spanish royal
¬nances in the ancien regime, donations (donativos) were ¬rst collected in
Spain by Phillip II during the late sixteenth century, but became more
frequent during the reign of Philip IV in the ¬rst half of the seventeenth
A number of these donations were collected in the colonies during the
Hapsburg reign, especially from corporations such as the merchant guilds
of Lima and Mexico and the church, occasionally being complemented by
requests for non-interest-bearing loans (suplementos). The donations implied
outright gifts while the suplementos were, in principle, to be returned to the


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