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69,000 pesos from their funds.
In short, the amounts lent by diverse ecclesiastical institutions to the
royal treasury were considerable. Nonetheless, as historian Guillemina del
Valle has stressed, the contribution of religious institutions of New Spain
to the diverse loans cannot be explained simply in terms of their loyalty
to the monarch. Equally important was the awareness of church ¬nancial
managers of the pro¬tability of investing funds in government securities
with an interest rate of 5 percent. It may be argued that such loans were
less risky than lending money to landowners whose properties were often
already heavily burdened with debts.64 Moreover, given the pro¬tability
of this type of investment, and the guarantees offered by the state, most
religious agencies did not demand short-term liquidation of their debts but
held on to the government paper.65
That the church and other privileged corporations of New Spain should
have participated enthusiastically to help raise loan after loan in the 1790s
suggests that there was not yet a major ¬nancial crisis in colonial Mexico. On

also much additional information in AGN, Donativos y Pr´stamos, vols. 2, 15, 16, 18, 19, 20, 25, 27,
and 28.
63 For more data on ecclesiastical contributions to the tobacco loan, see AGN, Consulado, vol. 312, ¬le
8, dossier 4 and A. Lavrin, “El capital eclesi´ stico,” pp. 52“55.
64 G. Valle Pav´ n, “Las corporaciones religiosas,” explains, for example, that the treasury of the Inqui-
sition in New Spain had been forbidden by high authorities in the metropolis to enter into loans
with no mortgage guarantee. But after the 1782 loan for the Crown, it was allowed to make that
kind of investment.
65 For details, see Guillermina del Valle Pav´ n, “El apoyo ¬nanciero del Consulado de Comerciants a
las guerras espanolas del siglo XVIII,” in Pilar Mart´nez and Guillermina del Valle, eds., El cr´dito
± e
en Nueva Espa˜ a, pp. 131“150.
138 Bankruptcy of Empire

the other hand, in the metropolis, both ¬scal and ¬nancial crises had already
become severe as was evinced by the ¬nancial reform adopted in 1798 under
the name of the Consolidaci´n de Vales Reales (Consolidation Fund for Public
Debt). This measure actually implied the disentailment of ecclesiastical
properties on a huge scale in order to cover the rapidly mounting de¬cits
of the Spanish monarchy. Despite the promise of revenues to be obtained
with this initiative, the Spanish crown was about to embark upon a dan-
gerous course which threatened to undermine its secular alliance with the
Catholic Church. The new ¬nancial strategy, however, was not extended to
Spanish America until the year 1804, when the government of Charles IV
resolved to do so, con¬ding that, once again, the colonies would save the

The Consolidation Fund as Second Royal Treasury
The urgency felt by the Spanish authorities to adopt a series of major
¬nancial reforms was the result of the growing de¬cits of the metropoli-
tan government. From the onset of the war with the French Convention
(1793“1795) the senior administrators of the Spanish Treasury had begun to
perceive the increasing incapacity of the Madrid Treasury to cover the enor-
mous expenditures created by military con¬‚ict. We have already noted that
the solutions adopted by the Madrid Cabinet to ¬nance the war included
introducing several new taxes, the issue of large quantities of domestic pub-
lic debt (vales reales), and the negotiation of foreign loans in Holland. But,
for the ¬rst time in the century, the debt burden became a major problem
for the Bourbon administration.
From the 1780s, the Bank of San Carlos had been the agency responsible
for paying interest on domestic debt paper as well as on the external bonds
issued in Amsterdam. From the mid-1790s, however, the bank directors
recognized the dif¬culty of the bank in ful¬lling this function as a result of
the growing scarcity of its own resources as well as of those of the Ministry of
Finance itself. They therefore sought new ways of overcoming the growing
dif¬culties involved in sustaining royal credit. In 1794 the managers of the
bank issued a number of reports in which they claimed that speculation
in public debt paper was impossible to control, criticizing the speculators
who mercilessly worked the Spanish ¬nancial markets.66 The fall in the
value of debt securities made it more and more dif¬cult to obtain loans
for the monarchy, a fact that obliged it to consider various options for

66 See, for example, the long, interesting document in AHBE, Archivo del Banco de San Carlos, leg. 708,
doc. 5, entitled “Real Orden para que el Banco informe en raz´ n de los medios para evitar la p´ rdida
o e
de los Vales Reales.”
Royal Church and the Finances of the Viceroyalty 139

Several reform proposals advocated adoption of the British model of pub-
lic debt management, while others appealed to the quite different ¬nancial
experiments that had been applied by the French revolutionary government.
The British example of managing the debt with a sinking fund was par-
ticularly attractive for the senior ¬nancial authorities in Madrid, since they
believed that by adopting a similar mechanism they might be able to cover
the debt service and liquidate a portion of the principal of Spain™s internal
debt. The same of¬cials pressed to obtain royal permission for assignment
of different tax branches to this end, but eventually they were forced to
recognize that in order to obtain suf¬cient capital for the future sinking
fund, it might be necessary to adopt radical policies for the disentailment
(desamortizaci´n) of ecclesiastical properties, such as those applied from 1791
in neighboring France.67
During the ephemeral peace of 1795“1796, which lasted only fourteen
months, the ¬nancial reform proposals were suspended. The resumption of
remittances of American silver to Spain contributed to the recovery of the
market value of the public debts securities and there was a brief ¬nancial
respite. Nonetheless, the outbreak of naval war with England in December
of 1796 soon provoked a new bear market: news of the disastrous naval
defeat of Cape Saint Vincent (1797) caused a precipitous fall in the price of
bonds of the Spanish internal debt. (See Figure 4.2.) The markets re¬‚ected
the fact that the metropolis™ latent ¬nancial crisis was now out in the open.
Expenditures continued to rise while taxes declined, particularly customs
revenues which were hard hit by the naval war and by the subsequent suspen-
sion of transatlantic trade. Customs revenues “ the single most important
tax branch in Spain “ dropped by 75 percent in 1797 and stayed depressed
for ¬ve long years. Also hard hit were the remittances of silver that came
as ¬scal surpluses from the American colonies: in the years 1790“1796 the
metropolitan treasuries had received an average of more than 7 million pesos
per year from the colonies in remitted tax revenues, but after 1797 these
dropped to 2.3 million pesos.68 (See the Appendix, Table 1.2.) The result of
the abrupt drop in revenues was a ¬scal and ¬nancial catastrophe. The Min-
istry of Finance could no longer cover all its military disbursements, and the

67 Admiration for the British model of public debt management is evident from the reports (Memorias)
of eighteenth-century, Spanish ¬nance ministers. See the summaries of the Memorias in J. Canga
Arguelles, Diccionario de Hacienda, vol. 2, pp. 125“191. Given the ostensibly conservative character
of Charles IV™s administration, ¬nancial of¬cers avoided making explicit reference to the ¬nancial
experiments carried out during the French Revolution in the years 1790“1794, including disen-
tailment and the issuance of assignats. A detailed analysis of the French reforms is to be found in
the monumental study of Francois Crouzet, La grande in¬‚ation: la monnaie en France de Louis XVI a
¸ `
Napol´on (Paris: Fayard, 1993).
68 For annual data, see tables in Jos´ Patricio Merino, Las cuentas de la Administraci´ n central espa˜ ola,
e o n
1750“1820 (Madrid: Instituto de Estudios Fiscales, 1987).
140 Bankruptcy of Empire

1794 1795 1796 1797 1798 1799 1800 1801 1802 1803 1804 1805

Figure 4.2. Annual market prices of vales reales in the years 1794“1808 in Spain.
Source: Pedro Tedde, El Banco de San Carlos (1782“1829), Madrid: Banco de Espana,
Alianza, 1988, p. 234.

Bank of San Carlos was unable to adequately service both the foreign debt
held in Holland and the domestic debt, particularly the famous vales reales.
New ¬scal and ¬nancial instruments were now desperately needed to
permit the Spanish government to obtain additional resources and alleviate
growing de¬cits. There now appeared to be no alternative but to carry out
a radical reform, which included both debt restructuring and a campaign
to forcibly obtain much capital from the Catholic Church, the oldest ally of
the Crown. The reform began by assigning additional powers to the govern-
ment™s Sinking Fund, known as Caja de Amortizaci´n de Vales Reales, which
was instructed to take charge not only of internal and external debt service
payments but also of a broad range of military and ¬nancial requirements.69
The establishment of the Consolidation Fund (Consolidaci´n de Vales Reales)
in 1798 represented a further step that implied a series of fundamental
changes in the monarchy™s ¬nancial administration. Among other things,
the measure heralded recognition of the inef¬cacy of the Bank of San Carlos
as the government™s international ¬nancial agent, being replaced, in part,
by the fund.70

69 Already by 1798, the Sinking Fund (Caja de Amortizaci´ n de vales reales) was responsible for the greater
part of operations related to the Spanish government™s public debt management, but from then on
its functions were rede¬ned and expanded to be converted into the Royal Consolidation Fund (Real
Caja de Consolidaci´n). For details, consult the excellent report, prepared in 1808 by the director
of the Manuel Sixto Espinosa fund (caja Manuel Sixto Espinosa) at the request of the Napoleonic
government, entitled “Resumen hist´ rico de la Real Caxa de Consolidaci´ n.” [Historical Account
o o
of the Royal Consolidation Fund] Archives Nationales (Par´s), AF IV, 1608 B-2.
70 On the operational failures of the Banco de San Carlos, see the penetrating analysis by M. Artola,
La hacienda del antiguo r´gimen, pp. 423“428. On the expanded functions of the Real Giro (Royal
Royal Church and the Finances of the Viceroyalty 141

The most important functions assumed by the Consolidation Fund
involved the management of the internal and external public debt. To cover
domestic debt service (in particular the interest payments on vales reales),
the decrees of April 6 and 8, 1799, established that the treasury of the fund
would receive revenues from at least ten important taxes.71 On the other
hand, to amortize the vales (actually a form of public bond), an additional set
of funds was designated, the most important being the monies to be derived
from sale of properties of a broad range of ecclesiastical foundations known
as Obras P´as y Capellan´as. Other resources were added to the treasury of the
± ±
Consolidation Fund, including the sales of a set of estates belonging to the
Crown but not deemed indispensable for the royal family; the product of
the auctions of the old Jesuit properties that had been expropriated by the
state many years before (Temporalidades) in Spain and America; and the sale
of some properties of the aristocratic Military Orders (Ordenes Militares).
With this regular and extraordinary income, the Consolidation Fund
acquired a singular ¬nancial importance. As Richard Herr points out:
Although the ¬nal results (of the Consolidation) could not be predicted at the
beginning, the long term impact was to create a second state treasury charged with
the national debt, with its own income and funds that came to be known as the
Consolidation Fund (Fondo or Caja de Consolidaci´n).72
Apart from covering the debt service, the treasury department of the
Consolidation Fund was responsible for covering the expenses of several gov-
ernment military departments. For example, from 1798 onward, it became
responsible for the greater part of supplies to the navy and some army
As director of the Consolidation Fund, Manuel Sixto Espinosa soon
became the second most powerful man in the ¬nancial machinery of imperial
Spain, although he acted in close coordination with the Minister of Finance,
Miguel Cayetano Soler. Given rising ¬nancial demands and declining ¬scal
receipts in the metropolis, Manuel Espinosa began to acquire a pronounced
interest in New Spain™s ¬nancial resources, particularly as they came in the
form of silver pesos. The extension of the Consolidation Fund to Spanish
America was rati¬ed in late 1804, six years later than in the metropolis.

Remittance Of¬ce) after 1802, see “Reglamento e instrucci´ n del Real Giro de Tesorer´a Mayor,
o ±
Madrid (1802),” in AHBE, Archivo del Banco de San Carlos, leg. 708.
71 See the list of revenues assigned to the Caja de Amortizaci´ n in Pedro Tedde “Crisis del Estado y
deuda publica a comienzos del siglo XIX,” Hacienda P´ blica Espa˜ ola (1987), pp. 188. See text of
u n
the decree in M. Sugawara, La deuda p´ blica, 1976, p. 305.
72 The quote is from the essay by Richard Herr, “Hacia el derrumbe del antiguo r´ gimen: crisis ¬scal
y desamortizaci´ n bajo Carlos IV,” Moneda y Cr´dito, 118 (1971), 50. This pioneering research was
o e
later expanded into the major study by the same author in his work titled Rural Change and Royal
Finances in Spain at the End of the Old Regime (Berkeley: University of California Press, 1989).
142 Bankruptcy of Empire

The Consolidation Fund and the Appropriation of Church Assets
in New Spain, 1804“1808
The tardy implementation of the Consolidation in the colonies was probably
due to the fact that treasury of¬cials in Madrid knew that the American
church possessed fewer properties (in the form of urban and rural real estate)
than in Spain. In contrast, it was well known that religious institutions in
Mexico and other colonies did have considerable amounts of capital, most of
which was administered by religious foundations to which wealthy persons
had left monies in legacy. These funds were usually lent to different groups
of landlords, miners, and merchants, shaping the essential foundation of
the long-term credit system of the colonial economy. But touching those
assets was potentially dangerous, as it risked provoking the opposition of
many private debtors and of the Catholic Church itself.73
Despite the clear danger of alienating both the colonial wealthy and the
church, the imperial authorities decided in 1804 to act with severity and
¬rmness in the ¬nal campaign to drain as large a volume of funds as possible
from religious institutions in New Spain and the other American colonies.
By extending the Consolidation to the whole of the Spanish empire on
November 24, 1804, the Madrid Cabinet sent the unequivocal message
that it considered that the time had come for the church to transfer the
larger part of its liquid assets to the state. This was, however, not strictly
speaking an expropriation since the religious institutions were to receive
public bonds (paying 3 percent interest) in exchange for delivering their
outstanding money capital.74 Moreover, as the royal edict indicated, not all
ecclesiastical assets were to be affected:

Properties belonging to churches and religious communities will not be included


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