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that it was the greatest and richest mint in the world, and added:
It is impossible to visit this building . . . without recalling that from it have come
more than two billion silver pesos in the space of less than three hundred years
and without re¬‚ecting on the powerful in¬‚uence these treasures have had on the
destiny of the peoples of Europe.1
The well-informed German scientist emphasized the fundamental con-
tribution of Mexican silver to the sustenance of the Spanish empire as a
whole, providing large annual tax subsidies in silver to the Spanish colonies

1 Humboldt actually used the expression “two thousand million pesos”: see Alexander von Humboldt,
´
Ensayo pol´tico sobre el reino de la Nueva Espa˜ a (Mexico: Ed. Porrua, 1991), p. 457. The work was
± n
originally published in Paris in 1809 and a more complete edition in 1811.


16
Resurgence of the Spanish Empire 17

throughout the Caribbean, to the Philippines, and to the metropolis itself.
He added, based on his detailed calculations, that the Madrid General Trea-
sury received in net tax receipts from Mexico more than double what Great
Britain received from India.2
But for how long would it be possible for colonial Mexico to continue
to export such a large amount of its tax revenues? Humboldt felt that the
viceroyalty could continue to make its huge annual contributions to the
empire without grave dif¬culties because of the great output of its silver
mines and the considerable productivity of its economy, as a whole. This
was an overly optimistic assessment, however, for as we now know, by the
end of the eighteenth century both the public and private economy of New
Spain were confronting severe strains.3
The inordinate ability of the Spanish monarchy to extract ¬scal revenues
from its colonies had long been the cause of envy by its rivals. In his
classic work on The Wealth of Nations (published in 1776), Adam Smith
underscored the extraction capacity of the Spanish empire as compared
to the pronounced failures of the British authorities to increase taxes in
the thirteen colonies.4 Other contemporaries coincided with the famous
Scottish economist. The ¬scal surplus produced by the Spanish American
colonies attracted the attention of the Spanish General Francisco Saavedra
during a prolonged military mission to the Caribbean in the midst of war
with Great Britain in the years 1780“1783. He wrote:

Among the European possessions in the New World only those of the Spanish and
Portuguese have contributed immediately to enlarge the public treasuries of their
respective metropolises, aiding them in peacetime with sums of money more than
suf¬cient to defray expenditures made on their behalf and maintaining in wartime
the great armaments needed for their defence. The other nations (France and Britain)
have required of their colonies only the necessary costs of sustaining their civil
government and the small military establishments calculated as indispensable for
their domestic tranquility.5


2 Humboldt af¬rmed that in the year 1804 British India produced a net tax transfer of 3.4 million
dollars to England, while in the years 1802“1804 Mexico transferred an annual average of 8 million
dollars in tax funds to Spain (1 silver peso = 1 dollar): A. Humboldt, Ensayo politico sobre el reino,
pp. 553“554. For recent estimates, see J. Cuenca, “The British Balance of Payments,” 58“86.
3 Considerable consensus now exists in the historical literature on this issue: see summaries in R.
Garner, Economic Change, Chapter 7 and Richard Salvucci, “Mexican National Income, 1800“1840,”
in S. Haber, ed., How Latin America Fell Behind, Essays on the Economic History of Brazil and Mexico,
1800“1914 (Stanford, Calif.: Stanford University Press, 1997), pp. 232“234.
4 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ¬fth edition (London:
Methuen and Co. Ltd., 1904) (First published, 1776), IV. 7. 9.9.
5 See Francisco Saavedra de Sangronis, Journal of Don Francisco Saavedra de Sangronis during the Commission
Which He Had in His Charge, 1780“1783 (Gainesville: University of Florida Press, 1989), pp. 90“91.
18 Bankruptcy of Empire

Saavedra noted that in all major interimperial con¬‚icts in the Americas
since midcentury, the British and French metropolitan governments had
been forced to expend huge sums on their overseas army and naval forces,
transferring monies from metropolis to colonies. Spain, on the other hand,
relied on American taxes to provide the bulk of monies for its military
garrisons and fortresses throughout its vast empire. During the second half
of the eighteenth century, for instance, the treasuries of colonial Mexico not
only paid for the buildup of a large army and militia force in the viceroyalty
but also transferred great amounts of tax monies to the Spanish colonial
garrisons throughout the greater Caribbean.6 The annual silver subsidies
sent from Mexico to Cuba, for example, paid for the construction of almost
100 warships at the shipyard of Havana between 1720 and 1790. Fur-
thermore, during numerous European wars, the richest Spanish American
colonies provided taxes and loans for defense of the metropolis, when the
monarchy so required.
The tax funds transferred out of colonial Mexico between 1760 and
1810 surpassed 250 million pesos, which made it the true, ¬scal jewel of
the Spanish crown in this period.7 For comparative purposes it may be
observed that the sum mentioned was huge, being equivalent to ten times
the average annual peacetime expenditures of the Spanish government at
Madrid in the second half of the eighteenth century; alternatively, this ¬gure
was equivalent to the total expenditures of the British government during
three and half years in the same time period.8 It should be noted that at the
time the silver peso was equivalent to one U.S. dollar as can be seen in the
dollar bills issued from the early 1780s, which stipulated that they were
payable in “Spanish milled dollars,” in other words, Mexican silver pesos.
(For additional details, see Appendix I.)
In short, New Spain distinguished itself as a viceroyalty that produced
an annual ¬scal surplus in what we could call the consolidated accounts of
the colonial royal treasury.9 This situation contrasted with other territories
of the Spanish empire such as Cuba, Puerto Rico, Santo Domingo, or the
Philippines, which “ during centuries “ were unable to produce suf¬cient
internal tax resources to meet the total civil and military costs of their own

6 For a detailed quantitative analysis, see Carlos Marichal and Matilde Souto, “Silver and Situados:
New Spain and the Financing of the Spanish Empire in the Caribbean in the Eighteenth Century,”
Hispanic American Historical Review, 74, 4 (1994), 587“613.
7 For data on tax remittances, see sources cited in Figures 1.1 and 1.2. This estimate does not include
loans and forced loans which are analyzed in subsequent chapters of the present book.
8 For comparative data on Spanish and British government expenditure between 1764 and 1799, see
Rafael Torres S´ nchez, Rafael “Possibilities and Limits: Testing the Fiscal Military State in the Anglo-
a
Spanish War of 1779“1783,” paper presented at Session 69, XIII International Economic History Congress,
Helsinki, August 2006; see our Appendix, 1.5.
9 In Chapter 2 we explain this concept. For data from the 1790s, see Table 2.1.
Resurgence of the Spanish Empire 19

administrations. To cover their considerable and regular de¬cits, the latter
were obliged to rely on remittances of silver from other parts of the empire,
and most particularly from New Spain. The transfers of tax silver from rich
to poor colonies were known as situados, a term which usually referred to
monies dispatched to cover the expenses of military or naval garrisons in
different parts of the empire. The complex network of these tax transfers
was one of the great ¬scal secrets of the longevity of the Spanish empire
in the Americas since the metropolis did not have to cover most overseas
defense expenses as they were ¬nanced by the silver-rich colonies.
The fact that colonial Mexico did count upon a plethora of ¬scal income
placed it in a special position within the global structure of Spanish imperial
¬nance “ as was also the case of the viceroyalty of Peru.10 From the mid-
sixteenth century, the chief of¬cers of the royal treasuries of New Spain and
Peru had been instructed by the Crown to send surplus funds abroad, in
part to the metropolis and in part to military and naval garrisons in the
rest of the hemisphere that were of strategic importance to the Crown but
had insuf¬cient funds for all their defense expenses. Both viceroyalties thus
ful¬lled the role of ¬scal submetropolis. As Herbert Klein has demonstrated in
a magni¬cent study, Peru was the leader in exporting silver revenues during
the late sixteenth and early seventeenth centuries, while Mexico came to
exercise a dominant role during the eighteenth century.11
During the years 1720“1800 there was a notable increase in current
values of the remittances by the royal treasuries of colonial Mexico to both
Spain and military garrisons in the greater Caribbean. The funds were
collected in numerous tax districts throughout the viceroyalty and sent to
Mexico City, whence the bags of silver pesos were transported by mule to
Veracruz, to be shipped abroad. Until 1740 these situados did not usually
exceed two million pesos per annum, but subsequently they increased as a
result of the outbreak of wars, which impelled a surge of ¬nancial demands
for the defense of the Spanish empire. The preeminence of New Spain as ¬scal
bulwark of the empire was reinforced after the Seven Years™ War (1756“
1763), as can be observed in Figure 1.1 and in the Appendix, Table I.I

10 The extraordinary ¬scal series collected by Klein and Tepaske for the viceroyalties of New Spain,
Peru, and Buenos Aires can be consulted in Excell format at the database “Estad´sticas Hist´ ricas
± o
de M´ xico” in the general Web site of El Colegio de Mexico, www.colmex.mx, where a link will be
e
found in “Biblioteca” under “Bases de datos” from July, 2007.
´
11 The classic study is Herbert Klein, “El gran viraje: ascenso de M´ xico y decadencia de Peru en
e
el imperio colonial de la Am´ rica colonial, 1609“1808” in Herbert Klein, Las ¬nanzas americanas
e
del imperio espa˜ ol (Mexico: Instituto de Investigaciones “Dr. Jos´ Mar´a Luis Mora,”/Universidad
n e ±
Aut´ noma Metropolitana, 1995), pp. 133“162. Also see Hebert S. Klein, “Origin and Volume of
o
Remission of Royal Tax Revenues from the Viceroyalties of Peru and New Spain,” in Antonio Miguel
Bernal, ed., Dinero, moneda y cr´dito en la monarqu´a hisp´ nica (Madrid: Fundaci´ n ICO/Marcial Pons,
e ± a o
2000), pp. 269“292.
20 Bankruptcy of Empire

Table 1.1. Wars in which the Spanish Monarchy was
engaged in 1762“1814

War of Spain against Years
Great Britaina 1762“1763
Great Britaina 1779“1783
France 1793“1795
Great Britaina 1796“1802
Great Britaina 1805“1807
Franceb 1808“1814
a In the wars against Great Britain, Spain invariably was allied
with France
b In the war against Napoleonic France, Spain was allied with
Great Britain.


The statistics speak of certain peaks in the royal remittances from New
Spain which correspond with periods of military con¬‚icts: the Seven Years™
War (1756“1763), the war against Great Britain (1779“1783), and the war
against the French Convention (1793“1795). It was in these times that the
military and ¬nancial demands of the metropolis and of the empire, as a
whole, intensi¬ed. (See Table 1.1 and Figure 1.1.) Nonetheless, it should also
be kept in mind that after the conclusion of hostilities, remittances to the
metropolis did not necessarily diminish but could actually expand because
of greater safety at sea. Hence, the years following armistices, generally,
were witness to the shipment of large quantities of transfers of royal silver
to other colonies as well as to the metropolis.
The contributions of the treasuries of New Spain to the rest of the empire
increased most markedly in the ¬nal decades of the eighteenth century.
Never in the history of New Spain, or for that matter of Spanish America,
had so great a volume of monetary resources had been extracted to assist
in the defense and survival of the empire as a whole. By that time, the
remittances exported by the royal treasury from Veracruz were equivalent
to approximately 40 percent of the total annual silver production of the
viceroyalty “ a clear indication of the enormous weight of the state within
the economy.12
In this chapter we explore the complex strategy of the administrators of
the Spanish empire in exporting such voluminous tax resources from New
Spain that, according to contemporaries, they constituted “a river of silver”

12 The decennial totals of government ¬scal silver exports are impressive from any point of view: in
1771“1780, forty-eight million pesos were exported by the royal treasury; in 1781“1790 the ¬gure
increased to seventy-¬ve million pesos; and in the decade of 1791“1800 reached the extraordinary
level of almost ninety million pesos. See our Appendix 1.3.
Millions of silver pesos
50

45

40

35

30

25

20

15

10

5

0
1720-1724 1725-1729 1730-1734 1735-1739 1740-1744 1745-1749 1750-1754 1755-1759 1760-1764 1765-1769 1770-1774 1775-1779 1780-1784 1785-1789 1790-1794 1795-1799




Total transfers To Caribbean Situados To Spain

Figure 1.1. Fiscal Transfers from New Spain to the Caribbean and Spain, 1720“1799.
Source: Carlos Marichal and Matilde Souto, “Silver and Situados: New Spain and the Financing of the Spanish Empire in the Carribbean in the Eighteenth Century,”
Hispanic American Historical Review, 74, 4 (1994), 587“613.
22 Bankruptcy of Empire

¬‚owing from Veracruz to Havana and thence to C´ diz.13 By focusing on
a
the richest Spanish American colony, we propose several explanations as to
how the Spanish empire operated in military and ¬scal terms during an age
of Atlantic wars and revolutions. We begin with a summary of the impact
of the defeats suffered by the Spanish empire in 1762 at the hands of the
British, which led the Bourbon state to design and adopt a vast set of new
strategies of overseas defense. How these were ¬nanced is the second major
theme of this chapter, focusing on the ¬scal logic of imperial expenditures
and, in particular, on the key role of the situados of colonial Mexico, which
came to operate ¬nancially as a kind of submetropolis of the Spanish empire
in the last third of the eighteenth century.


The Military and Financial Consequences of 1762 for the Spanish
Imperial State
The occupation in 1762 of the port cities of Havana and Manila by British
military forces was an event that shook the Spanish monarchy to its foun-
dations. For over two and a half centuries, no foreign power had seriously
attempted to take control of Cuba, fundamental locus of Spanish power in
the Caribbean and the point from which all the great armadas had arrived
and departed. The bulk of transatlantic Spanish American trade depended
on Havana as entrepˆ t, the key port where the ¬‚otillas of both warships
o
and private merchant vessels concentrated for the voyages in and out from

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( 64 .)



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