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1795, an additional 6.9 million pesos still outstanding from the tobacco
loan (collected between 1795 and 1802), 10.5 million pesos from the Con-
solidation Fund (1805“1808), some 5 million pesos provided in loans to
the patriot government in Seville and C´ diz in the years 1808“1811 for
the struggle against Napoleon, and, ¬nally, 5.4 million pesos in forced and
voluntary loans to ¬nance the war against New Spain™s insurgents, between
1810 and 1813.
The members of the commission calculated that 1.2 million pesos were
needed annually to meet debt service costs, a sum that could have been
collected had it not been for the increase of military expenditures which
had doubled since the outbreak of insurgency.40 Owing to the reduction
in available revenues, it was necessary to resort to credit to ensure that the
royalist forces could advance in territory controlled by rebels and bandits
and, eventually, reopen roads blocked by insurgents, a situation that had
caused commercial and ¬scal crises in those areas.41
As a result of the increase in military expenditures, remittances to
Spain and to colonial garrisons in the Caribbean had been suspended from
mid-1811. The Commission added that “there would be no funds for the
Peninsula for many years.” In spite of the suspension of tax remittances,

38 The reference is to Memoria instructiva y documentada del estado comparativo de la Real Hacienda del
a˜ o de 1809 anterior a la revoluci´n, con el de 1812 en que estaban destruidas por ella el comercio, la
n o
agricultura, las artes y la miner´a, Biblioteca Nacional de M´xico, ms. 1282. This document was accom-
± e
panied by a proposal for the consolidation of the debt of the government of New Spain, prepared
by Antonio Medina. I wish to thank Guillermina del Valle for directing my attention to this
39 Ibid.: Estado aproximado de la deuda nacional hasta ¬n de junio de 1813. It is somewhat curious that the
term “national” was used while making reference to the debt of the colonial administration. This
showed the adoption of the same vocabulary used in the ¬nancial documents of the C´ diz Parliament
of 1810“1812.
40 According to the Commission, the military and administrative domestic budget in a year of peace was
around 5.5 million pesos, while during the war it was estimated to have increased to around 9 million
pesos. However, the Commission did not have detailed income and expenditure documentation for
each of the regional treasuries, 1810“1813. Memoria instructiva (1813), fs. 45“46.
41 See, in particular, the Memoria instructiva (1813), f. 31, which pointed out that “the general obstruction
of the roads” made collection of the sales (alcabalas) and tobacco taxes dif¬cult.
Rebellion of 1810, Colonial Debts, and Bankruptcy of New Spain 253

additional loans were needed by the royalist authorities in Mexico. Without
them there was the possibility that the insurgents would paralyze the econ-
omy, provoking the ¬nal breakdown of business activities in New Spain.42
In order to attract economic elites, the Commission advised that it would
be necessary to guarantee debt service payments and the amortization of
the original capital. They noted:
Most borrowed sums have not been returned and a great and considerable amount
of interest (in arrears) has not been paid. . . . Here is the origin of the public™s lack
of con¬dence and the reason that the government has exhausted its resources.43
Debt service payments had been maintained with a certain regularity
until the outbreak of the rebellion, 1810, but subsequently became less
punctual, to the point that it is possible to speak of a partial suspension
of debt payments by the government. Numerous proprietors and wealthy
taxpayers refused to continue supplying ¬nancial assistance to the admin-
istration. As historian Josefa Vega has argued in a study on the forced loan
of 1812:
Their arguments were almost always the same: the ruin of their estates and com-
merce by the insurrection and, above all, the failure to return their previous loans,
the many patriotic subscriptions and the continuous requests for donations.44
With the hope of resolving this dilemma, the royal treasury of¬cial,
Antonio Medina, proposed a plan in 1813 to consolidate the debt and
ensure its service.45 The idea was to imitate the British Treasury by estab-
lishing a sinking fund to which a series of ¬scal incomes would be assigned:
among them a portion of sales taxes (alcabalas), taxes on wax and cocoa,
and some tobacco monopoly income. Medina suggested, as well, that a
direct contribution on property would be helpful to stabilize the ¬nances
of New Spain. With these innovations, the treasury expert expected that
the government could renew service on loans advanced by the merchant
guilds and by the Mining Tribunal, and perhaps even have success in

42 The Commission noted that already before the war, the economic situation had worsened because
of the heavy taxes for the Consolidation, just as the 1809“1810 loans brought a deep scarcity
of precious metals “in the Kingdom because of the cash de¬cit needed by the political system”
Memoria instructiva (1813), f. 25; the reference is clearly to the traditional policies of sending ¬scal
contributions (situados) to the Caribbean and remittances to the metropolis.
43 Ibid., f. 32.
44 Josefa Vega, “Los primeros pr´ stamos de la guerra de independencia, 1809“1812,” Historia Mexicana,
xxxix, 4 [156] (1990), p. 930.
45 Antonio Medina was a ¬nance of¬cial of the royal treasury in Guadalajara and was well known
for his broad knowledge of ¬nance. Later he would serve as the ¬rst Finance Minister during the
government of Iturbide, 1821/1822, and as author of the ¬rst Ministry of Finance Report (Memoria
de Hacienda) of the independent regime.
254 Bankruptcy of Empire

having the public debt securities circulate as means of payment or as credit
But the intensi¬cation of guerilla warfare in many regions of Mexico
condemned to failure Medina™s projected consolidation. With the bene¬t of
hindsight, it can only be characterized as utopian. Nevertheless, it should
be noted that senior treasury of¬cials had long kept up their hope of mili-
tary improvements and an economic recovery, which might allow creditors
to renew their previously substantial contributions to the government. A
report on New Spain™s debt in 1817 af¬rmed that: “the sum of 8,897,082
pesos has been paid to the capitalists on loans worth 22 million pesos issued
since 1794, and now only 3.8 million pesos are owed in back interest.”47
Apparently the of¬cials did not consider the partial default as de¬nitive.
But in fact there was no longer a real possibility of regaining the con¬dence
of the propertied sectors that had long demonstrated their loyalty to the
colonial regime.
The royalist troops in Mexico continued to ¬ght the insurgents “ essen-
tially rural guerrillas “ for several years until September 1821 when in a
rather abrupt about-face, the of¬cers of the colonial army, led by General
Agust´n Iturbide, decided to conclude the war and declare independence
from Spain. It was clearly the war that ¬nally undermined the royal admin-
istration, but the weakening of the ¬scal and ¬nancial system was also a key
factor. Increases in military expenditure reduced the capacity of the govern-
ment to cover its debt service and “ as we have argued “ provoked a growing
crisis in colonial ¬nancial markets and the despair of the wealthiest sectors
of colonial society: they were soon engaged in capital ¬‚ight to save a part
of their fortunes. Perhaps the drama of the situation is best captured in the
succinct words of one of the most knowledgeable experts of the viceroyalty™s
public and private ¬nances, Manuel Abad y Queipo, who had foretold the
bankruptcy as early as 1810:
These facts and their consequences are demonstration enough that New Spain
contributed more than it could. They show that the funds were not inexhaustible,
as believed, but are actually exhausted.48
These circumstances would not be reversed. On the contrary, during
the ten years of war (1810“1820), the ¬scal and ¬nancial machinery of
the colonial treasuries would be progressively weakened until their ¬nal
collapse, sealing the fate of an imperial regime that had lasted for more
than 300 years.

46 Ibid., fs. 33“35.
47 “Sobre la deuda de la Real hacienda y medio de reestablecer su cr´dito,” M´ xico, 21 de febrero de 1817,
e e
Biblioteca Nacional de Madrid, ms. 19.702/23.
48 Abad y Queipo in J. M. L. Mora, Cr´dito P´ blico, p. 96.
e u
Conclusions: The Financial Collapse
of Viceroyalty and Monarchy

The ¬scal and ¬nancial crisis of New Spain™s colonial administration after
1810 was not a singular event. It was part of a much broader debacle.
The ¬nances of other Spanish American viceroyalties were also crumbling,
slowly but surely. As a result of the wars of independence (1810“1825), the
Spanish empire progressively disintegrated into a multitude of fragments,
eventually to reconstitute in an extraordinary mosaic of new and distinct
nations. At the same time, the heart of the old monarchy, Spain itself,
suffered military defeat and confronted the deepest bankruptcy.1 There was
thus a striking symbiosis in the prolonged collapse of colonial regime and
metropolis. This would appear to be a frequent lesson of the downfall of
imperial states through much of history, ancient and modern.
This study has called attention to the interlocking relationship between
imperial wars and the incessant ¬scal and ¬nancial exactions of the
metropolitan state from its richest Spanish American colony during the
half century spanning the decades 1760“1810. Even though these con-
tributions to the Crown were sustained and large, they only could delay
the ¬nal debacle. In the end, all ¬nancial expedients were vain. The silver
obtained from New Spain through taxes, donativos, numerous loans, and the
Consolidation Fund was absorbed by military expenditures and by the ser-
vice on domestic and foreign debts taken by the Spanish government to pay
for the international wars in which the Crown engaged almost incessantly.
By 1810, the governments of both viceroyalty and monarchy were bankrupt.
This would seem to be a straightforward empirical conclusion. But are
there any larger lessons to learn from our study of the ¬scal and debt dynam-
ics of the viceroyalty and of the Spanish empire in its ¬nal decades? More
speci¬cally, how does it contribute to a deeper understanding of the logic of
imperial ¬nance? Most important, our analysis illustrates the inextricable
nature of many of the links between the different component parts of the
imperial state. The Spanish empire was the most integrated of all European
imperial states of the era. Metropolis and colonies were bound together by

1 The classic study is J. Fontana, La quiebra de la monarqu´a absoluta.

256 Bankruptcy of Empire

a web of administrative, military, ¬scal, and ¬nancial relations that were
inherent to survival. These bonds were reinforced by the demands of each
successive Atlantic war, although military con¬‚ict certainly placed increas-
ingly severe strains upon the colonies and, in particular, on the viceroyalty of
New Spain because of the enormous volume of ¬scal and ¬nancial resources
transferred abroad.

The Fiscal and Financial Burden of Colonialism in New Spain
The demands of war ¬nance gradually outstripped the tax base of the
viceroyalty despite the extraordinary silver boom of the late colonial era. But
prior to the wars of independence, there were few possibilities of modifying
imperial tax or ¬nancial policies. The viceroy and other of¬cials responsible
for the colonial administration obeyed the orders of metropolitan govern-
ment to their ultimate consequences. And since there were no elective
legislatures in the viceroyalty, colonial taxpayers were simply obliged to
contribute. Nonetheless, it is important to evaluate the overall economic
and ¬scal consequences of such policies. Our interpretation tends to under-
score the negative effects of royal ¬scal and ¬nancial practice on New Spain™s
economy and society.
During the last decades of the eighteenth century and the ¬rst of the nine-
teenth, increasing amounts of the colony™s revenues and capital resources
(collected from all of the inhabitants of the viceroyalty) were being exported
to Spain. These transfers illustrate the remorseless ¬scal logic of the Span-
ish imperial state. The policy stood in contrast to other European states
that had never been able to obtain signi¬cant ¬scal remittances from their
colonies in the Americas but rather had been obliged to ¬nance the greater
part of the costs of their empires, with funds sent from the metropolis.
However successful the Bourbon tax reforms may be considered from an
imperial perspective, they certainly proved to be a signi¬cant burden for
New Spain. Indeed, some historians have argued that the aggressive tax and
loan policies of the late Bourbon regime and those of the wars of indepen-
dence not only drove the colonial administration into bankruptcy but also
affected the future economic evolution of Mexico. Hebert Klein argues:
The massive exploitation by the crown of the accounts of the colonial treasuries after
1780 “ both for the increase for the colonial situados and the considerable increase
of capital transfers to Spain through forced and voluntary loans “ indicates that
¬scal policies . . . were one of the most important factors in the economic decline of
Mexico during the wars of independence.2

2 H. Klein, Las ¬nanzas americanas, p. 174.
Conclusions 257

While it is not our purpose here to evaluate the postcolonial impact
of these ¬scal and ¬nancial policies, the present book certainly provides a
general panorama of the long-term tax trends and estimates of the debt
burden in the richest colony of the Spanish empire that can be useful for
future debates on the costs of colonialism. Between 1760 and 1810, the tax
records show that the treasuries of colonial Mexico transferred abroad the
enormous sum of more than 250 million pesos, somewhat over 40 percent
of total taxes collected in the viceroyalty. This was the effective ¬scal cost of
being a colony. Of this amount, approximately 100 million pesos were sent
to other Spanish American colonies and the Philippines to help pay local
costs of royal administrations there (as situados); the balance, 150 million
pesos, was sent to the metropolis as a net ¬scal transfer.3 It can be calculated
that New Spain™s treasuries exported, on average, 8 million pesos of tax funds
per annum during the three ¬nal decades (1780“1810) of colonial rule “ a
¬gure that bespeaks signi¬cant costs to the local economy and society since
none of these monies were ever returned.
In a previous chapter, it was estimated that each inhabitant in New
Spain paid in taxes approximately 3.6 silver pesos per year during this
period. If the external transfers (tax transfers to the metropolis and to other
Spanish American colonies) had not been realized, New Spain™s annual tax
burden would have been reduced by approximately 1.5 silver pesos per
capita, on average, for the period 1780“1810.4 If multiplied by 5, this
would have implied that each Mexican family would have retained as their
own income almost 8 silver pesos more per year. This income, in the hands
of the taxpayers, would certainly have generated greater consumption, but
might also have increased savings. According to Richard Salvucci, per capita
subsistence income in 1800 was close to 34 pesos a year.5 An increase of 4“5
percent in available income would have inevitably stimulated the expansion
of the production of the most important commodities consumed by the

3 Calculations based on the series are found in C. Marichal and M. Souto, “Silver and Situados,” 587“
613, for the eighteenth century, plus the nine million peso estimate for transfers to the Caribbean
from 1801 to 1809 by J. von Grafenstein, Nueva Espa˜ a en el Circuncaribe, pp. 315“317, plus the ¬ve
million pesos sent to Philippines as situados between 1780 and 1804, plus the direct remittances to
Spain and its of¬cial creditors in Europe between 1800 and 1810, which sum seventy million pesos,
as seen in the information in Chapters 5“7.
4 The total population is estimated to be ¬ve million inhabitants in 1780 and close to six million
in 1810. There were a small percentage of Bourbon Mexico™s inhabitants who were not taxed
because of exemptions or geographic isolation, including clergy, slaves, and isolated indigenous com-
5 R. Salvucci, “Mexican National Income in the Era of Independence,” p. 225, calculates an annual per
capita subsistence income of 34 pesos: in this case an increase of 1.5 pesos in per capita consumption
would have implied an increase of almost 3“4% per annum of total consumption.
258 Bankruptcy of Empire

colonial Mexican population: food and textiles.6 With regard to savings, it
may be presumed that wealthier groups would have increased their silver
holdings or invested them in trade or enterprise.
Some authors, particularly John Coatsworth and David Brading, have
claimed that an increase in silver available would have implied an expan-
sion of the viceroyalty™s monetary base and generated higher in¬‚ation than


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( 64 .)