State Finance in History 


On the left: the cradle of civilization. (One can still see today why-click on it for magnification).

On the right:  regime switches when agents with different preferences about a regime demonstrate if their expectation of a switch is sufficiently high compared to their individual cost of demonstration. All agents rationally infer other's preference from the mass of demonstrators in each period. "Demonstration" may be replaced by "investment" in a macro-economic model. Regime switches occur as surprises but seem "obvious" ex post. On the left, the density of costs from public information with the true value in red. (See how the probability distribution sharpens after a switch). On the right, the expected payoff of demonstration with a cost c when all agents  with a cost less than c demonstrate is pictured on the right. Red under perfect information, blue under imperfect information. (See "Coordinating Regime Switches").

For me, the value of a climb is the sum of three inseparable elements, all equally important: aesthetics, history, and ethics. Together they form the whole basis of my concept of alpinism (Walter Bonatti).

New paper: "Reexamining an asiento between Philip II of Spain and Tomás Fiesco" with Carlos Álvarez-Nogal (February 8, 2017). 

The asiento between Philip II of Spain and Tomás Fiesco (April 3, 1591) is a textbook contract for steady monthly disbursements (mesadas) towards the army of Flanders in foreign currency (escudos), and reimbursements by the Crown in domestic currency (ducats). There is in the contract (available on the internet) no contingent debt, excusable default or penalty, contrary to the claim by Drelichman and Voth (2015, “Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556-1598”). An option enables the king, presumably after good news upon the arrival of the fleet, to reduce, with no penalty whatsoever, the size of the contract (both receipts and payments by the Crown, pari passu). The interest charge was of 1 percent per month in domestic currency (ducats), as in other contracts. Special attention is devoted to the exchange rate that played a critical role in the contract’s profitability. It was set at the signature of the contract, and according to some market evidence, with a commission of 4.4 percent.

Changing the view on the asientos of Philip II

See the page "Castile".

  • Latest revision of a previous paper (resubmission to the Economic History Review)

Salient features:

  • A steady flow of 13 monthly payments to the Crown in Lisbon (mesadas) by the Maluenda brothers, from June 1595 on (first page of the contract).
  • Reimbursements by the Crown through a credit line with a claim on the previous metals coming from annual fleets of 1595 and 1596. An interest is charged at the rate of one per cent per month on the balance due. The rate is stated in the contract, repeatedly with illustrations. There is no agreed cash transfer date. The repayments are flexible and depend on the contractual rate and the timing of the transfers (as for a credit card).
  • An option enables the Maluenda to sell long-term funded juros for more than half of the loan part of the contract. For most of the contract, the cumulated cash receipts and sales of juros by the Maluendas exceed the cumulated amount of their payments in Lisbon.

On asientos and finances of Philip II

 At this stage, it seems that almost all the work on the finances of Philip II that has been published in the economic journals for the past thirty years has been deeply flawed for two reasons: Templates have been taken of the shelf from some theoretical economic models to be misplaced on historical events, leading to incorrect interpretations. Second, the data collection has been for the most part secretive and unverifiable. It did not meet the criteria that would be prerequisites in the fields of scientific inquiry. What could be verified has turned out to be contradicted by the archival documents. The role of asientos in the finances of Philip II, who led the superpower of his time, has to be reevaluated.