. 47
( 64 .)


These strategic interests also help explain the active role of the British
Royal Navy in protecting both Spanish transatlantic shipping and the port
of C´ diz during the Napoleonic onslaught. But there were also solid, com-
mercial reasons for the participation of the navy in the Mexican silver
shipments. During the war, British merchants took over much of Span-
ish American trade in C´ diz. English trading ¬rms replaced most of their
competitors in the supply of goods to be sent out to the Spanish American
colonies and in exchange received most of the silver sent from the other side
of the Atlantic to pay for these goods. As historians Francois Crouzet and
Javier Cuenca have demonstrated in detailed studies, the British economy
bene¬ted markedly from the ¬‚exibility of its merchants in taking control of
different international markets during the war years. The obstacles created
by the continental blockade (set up by Napoleon) were overcome in good
measure by contraband and new trading strategies, including the increasing
control of the Spanish American commerce that went primarily through
C´ diz. This allowed them to obtain a high percentage of silver and gold
shipments which were indispensable to British military strategies but also
for sustenance of the great trades with India and China. In this sense, pro-
viding naval protection for the port of C´ diz and the Spanish American
¬‚eets during the Napoleonic war proved to be one of the essential secrets
of short- and long-term British economic and military success.

66 J. H. Sherwig, Guineas and Gunpowder, passim.
The Rebellion of 1810, Colonial Debts,
and Bankruptcy of New Spain

In 1810, a few months before the outbreak of insurgency in Mexico, the
erudite but pragmatic ecclesiastical administrator Manuel Abad y Queipo
wrote to the C´ diz Parliament (Cortes de C´ diz): “Our American possessions
a a
and especially those of New Spain, are disposed to general insurrection if
the wisdom of Your Excellencies does not prevent it.” The enlightened
bishop added that it would be necessary to abolish the tribute that weighed
upon the Indian peasant towns and villages and smooth the other exac-
tions that pressed upon the viceroyalty in order to partially remedy the
effects of the “bad government of the reign of Don Carlos IV.”1 The parlia-
mentary deputies at C´ diz took note of this and other reports arriving
from the American colonies and proceeded to abolish the Indian trib-
ute.2 The remedy, however, was insuf¬cient and came too late. Political
discontent in the colonies had reached a boiling point and con¬‚ict was
The collapse of the monarchy in Spain in 1808 and the birth of Liberal
government at C´ diz in 1810 had pronounced repercussions across all of
Spanish America. In most colonial territories the royalist authorities hung
on to power, but insurgency spread rapidly, a clear sign that the days of the
old colonial regime were numbered. The search for a new political order
across the Hispanic world was unexpected and contradictory.3 In several
cities and regions in Spanish America where the colonial administration
was relatively weak and local elites divorced from mercantilist policies,
independence movements quickly triumphed. This was the case in Buenos
Aires as well as in most of the rest of the viceroyalty of the Rio de la Plata,

1 Text of Manuel Abad y Queipo in Jos´ Mar´a Luis Mora, Cr´dito P´ blico, pp. 146“147 [facsimile of
e ± e u
the ¬rst edition of Mora™s essays published at Paris, 1837].
2 The abolition was decreed by the Cortes de C´ diz on March 13, 1811, although it had been abolished
previously in New Spain by Viceroy Venegas to arrest the massive insurrection led by Hidalgo from
September 1810 on.
3 See the excellent account of the diverse revolutionary movements in John Lynch, The Spanish American
Revolutions, 1808“1826 (New York: W.W. Norton, 1973).

238 Bankruptcy of Empire

including Uruguay and Paraguay in the years 1810“1811. Similarly, in
Chile, republican movements triumphed brie¬‚y between 1811 and 1814
although they were later repressed by royalist forces (sent by the viceroy
of Peru), until in 1818 these forces were ¬nally evicted and independence
consolidated. Conservative forces and royalist military of¬cers also stymied
the initial success of insurgents in Caracas, leading to prolonged civil war
in Venezuela and then in the neighboring viceroyalty of New Granada,
where war between the royalist armies and insurgent forces, led by Sim´ n o
Bolivar, ran for over a decade. In the silver-rich viceroyalty of Peru, on the
other hand, the power equilibrium continued to be favorable to the colonial
administration which was able to impose its will and impede insurgency for
more than a decade.4 From Quito to Lima and Potos´, royalists continued
to govern until the early 1820s and, as a result, the traditional heart of
Spanish administration in South America remained loyal to monarchy and
In late colonial Mexico the royalist regime also held onto power until
1821, but it was confronted by extensive popular rebellions. The year
1810 signaled the outbreak of insurrection in Mexico, led by the sol-
dier priests Miguel Hidalgo and Jos´ Mar´a Morelos, although colonial
e ±
authorities and troops held sway in practically all cities for a decade. The
revolts that broke out in central Mexico in September of 1810 were the
prologue of an extended civil war (and, in many ways, also a class war),
a con¬‚ict that confronted the viceregal administration and its allies (mil-
itary of¬cials, church hierarchy, and economic elites) with different rebel
groups that enjoyed broad popular support.5 The former kept control of the
large colonial army and therefore the royalist administration remained in
power, although forced to defend against extensive guerrilla warfare in the
During the years of domestic warfare, the great majority of the lead-
ing merchants, silver miners, and landowners of colonial Mexico remained
closely identi¬ed with the traditional regime, with its hierarchic social and
corporate order and its religious, political, social, and economic practices.
Their interests lay in supporting the monarchy and the status quo, which
explains why they were willing to ¬nance the counterrevolutionary struggle.

4 On the counterrevolution in Mexico and Peru, see Brian Hamnett, Revoluci´ n y contrarrevoluci´ n en
o o
M´xico y el Per´ : liberalismo, realeza y separatismo, 1800“1824 (M´ xico: Fondo de Cultura Econ´ mica,
e u e o
5 Brian Hamnett, “Absolutismo ilustrado y crisis multidimensional en el per´odo colonial tard´o,
± ±
1760“1808,” in Jose¬na V´ zquez, ed., Interpretaciones del siglo XVIII mexicano (Mexico: Nueva Imagen,
1992), p. 78, points out that it would be tempting to postulate a polarization between Europeans
and Americans (within the elite of New Spain) but that such an opposition never existed. The
wealthy joined hands against the insurgents during the entire war. He argues that the polarization
was propaganda invented by nationalists after independence.
Rebellion of 1810, Colonial Debts, and Bankruptcy of New Spain 239

Their loyalty to the Crown had been systematically demonstrated for
decades and they continued to provide a series of smaller loans to the roy-
alist forces that battled the insurgents within Mexico for another ten years.
Yet both ¬scal and ¬nancial resources of the colonial regime were already
seriously depleted by 1810, and the wars only accentuated the growing
Ten years of war caused the de¬nitive bankruptcy of the viceroyalty of
New Spain and help explain why the royalist administration collapsed so
abruptly in 1821. But, as we have already seen in detail, the ¬nancial crisis
had its roots in the prolonged drainage of tax funds and incessant demands
for loans by the Spanish crown to pay for numerous international wars
between 1780 and 1810. In previous chapters, we have provided estimates of
the huge volume of tax remittances as well as loans raised in colonial Mexico.
In this chapter, we provide estimates of total government debt outstanding
in 1810 and years immediately following, distinguishing between creditor
groups. These colonial debts increasingly became a source of grievances
during the war years insofar as the royalist administration faced increasing
dif¬culties in covering debt service. A provisional balance is presented of
the different categories of debt as well as rough estimates of the capital
depletion experienced by the privileged corporations, which participated
in the royal loans up to 1810.

The Colonial Debt in 1810
While not underestimating the effects of aggressive tax policy of the Bour-
bon™s administration, this book has devoted special attention to the colonial
debt. Our study suggests that it is important to attempt to evaluate the
impact of the government™s debt policy on the society and the economy of
Mexico, although there is a clear need for more research on its impact during
the wars of independence and in the immediate postwar. The present study
concludes with a more limited objective which consists in offering some
quantitative estimates of the colonial debt by sector around 1810: here we
summarize information on the loans, supplements, and donations studied
in previous chapters.
On the basis of the abundant archival materials reviewed, it is possible
to af¬rm that between 1780 and 1810 the royal administration in Mexico
collected at least thirty million pesos from individuals and corporations
in the shape of loans and ¬ve million pesos as donations, all of which
were shipped abroad. These ¬gures for total indebtedness are substantially
lower than those of other historians, particularly Herbert Klein, who has
suggested that the colonial public debt grew by leaps and bounds, partic-
ularly, after 1800. Klein™s calculations of debt, however, are based on the
annual treasury summaries (cartas cuentas), which should be disaggregated
240 Bankruptcy of Empire

to avoid double counting and other accounting problems.6 While our esti-
mates of the government™s colonial debt with the private sector are more
modest, this does not imply that they did not have important economic
The argument made here is that one of the greatest disadvantages of
the colonial debt was that the money lent (or donated) was not invested in
Mexico itself but simply shipped abroad to pay for the military expenses
and debts of the Spanish crown. The amounts lent were never returned by
the principal debtor,the metropolitan treasury, which in fact required that
both interest and principal be repaid to local investors by the treasuries of
the viceroyalty. As a result, these colonial debts reduced capital assets in the
economy and, at the same, increased the future tax burden of the inhabitants
of New Spain. Their economic effects were altogether different from the
adoption of a public debt policy in which government borrowing results
in stimulus to the domestic economy by means of public expenditures. In
contrast, the colonial debts were little more than a way of extracting private
savings from New Spain™s economy for transfer to the metropolis.7
A key issue then is to evaluate how important this debt was in terms of
the principal sources of capital that colonial corporations, institutions, and
individuals had available for investing in the economy.8 To proceed with
this discussion, it is useful to analyze the total amounts collected for the
Crown by the various privileged corporations of colonial Mexico.
Among the most important contributions to the Crown were those real-
ized by the wealthy members of the merchant guilds of Mexico City and
Veracruz. Over the years the Mexico City Merchant Guild was responsible
for the administration of seven interest-bearing loans between 1782 and

6 H. Klein, Las ¬nanzas americanas, p. 112, af¬rmed that “loans and private subsidies reached 5.8
million pesos per year in the 1780s and 21.6 million pesos per year in the ¬rst decade of the new
(19th) century.” However, loans from the private sector to the Crown were actually much lower than
these ¬gures suggest as demonstrated by thorough analysis of the documents in the Archivo General
de la Naci´ n in branches such as “Pr´ stamos y donativos” and “Consolidaci´ n.” Nonetheless, further
o e o
research is needed on the accumulated debts in speci¬c branches of colonial treasuries, which should
be treated separately from private loans. The considerable problems of double accounting from 1787
until the end of the colonial epoch are cited in P. P´ rez Herrero, Los bene¬ciarios del reformismo borb´nico,
e o
pp. 207“264, among other authors.
7 Abad y Queipo in J. M. L. Mora, Cr´dito P´ blico, p. 129 wrote in 1810: “As the extraction of metallic
e u
currency from New Spain is without return and has exceeded annual minting, the lack of money in
circulation is now felt and each day will be felt even more. . . . ”
8 H. Klein, Las ¬nanzas americanas, p. 150, argues “this tax on individual savings was in fact a tax on
the local capital market.” J. Coatsworth, “Obstacles to Economic Growth,” 80“100, and E. C´ rdenas, a
“Algunas cuestiones sobre la depresi´ n mexicana,” in E. C´ rdenas, comp., Historia econ´mica de M´xico,
o a o e
pp. 27“56, refer to the problem of the impact of transfers (including the money for the loans) on New
Spain™s investment rate; nevertheless, in a later revision, J. Coatsworth, Or´genes del atraso, pp. 108“
109, argues that he considers an increase in the availability of this capital would not have produced
a substantial increase in investment.
Rebellion of 1810, Colonial Debts, and Bankruptcy of New Spain 241

Table 8.1. Loans for the Spanish Crown Administered by the Mexico
City Merchant Guild 1780“1811 (in Pesos)

Year Interest-Bearing Loans Interest-Free Loans
1782 1,000,000 1,655,415
1790 100,000
1793 1,000,000
1794 1,000,000
1795“1802a 3,100,000b
1809 850,000 1,393,500
1810 983,000 2,500,000
181l 1,194,000
subtotal 8,033,000 6,742,915
Note: See Appendix III.2.
a The interest-bearing loans included subscriptions by a large range of
investors. The interest-free loans were mainly advanced by the great
merchant houses.
b The tobacco loan.

1810, in which investors subscribed more than eight millions pesos. (See
Table 8.1.) Guild members contributed a considerable proportion of the
relatively large loans with the silver assets which they habitually reserved
for the import“export trade. When trade declined as a result of naval war,
investing money in crown loans at a 5 percent interest rate could be con-
sidered a reasonable investment. But not all contributions came from the
merchants since other social groups also invested signi¬cant amounts of
Somewhat different were the non-interest-bearing loans “ called supple-
ments “ that were advanced to the Crown almost exclusively by the larger
merchants of the viceroyalty in 1782, 1809, 1810, and 1811, for a grand
sum of approximately of seven million pesos. While a portion of these funds
were returned to the moneylenders, none of the funds borrowed by Crown
in the last two years 1810 and 1811 were repaid, a fact which reduced con-
¬dence in of¬cial ¬nancial practice after the beginning of the insurgency.9
As Guillermina del Valle has argued in a recent and detailed study, the late
colonial emergency loans meant that:
The merchant body changed from being a collector of capital from individuals
and corporations that invested in order to receive a safe return, to operating as an
instrument of the royal treasury to extract and withdraw from circulation money
that Mexico City proprietors had put aside for periods of scarcity.10

9 The issue is analyzed in detail by G. Valle Pav´ n, “Consulado de Comerciantes,” Chapter 7.


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( 64 .)