Asientos and public finance in Castile under Philip II

All the works on this page are joint with Carlos Álvarez-Nogal (Universidad Carlos III, Madrid).

The full analysis of the text of a contract, asiento, between Philip II of Spain and a Genoese merchant–banker details how in this pre-modern composite state, merchant–bankers acted as agents of the Crown who gathered many scattered sources of income to the Crown and transformed them into large and regular cash flows, mesadas, for the army. Because of the uncertain availability of these sources, the contract provided flexibility to both parties and legal assistance to the banker who reported to accountants for audit and, if necessary, the charge of an interest at about 1 percent per month.

For an analysis of the same contract by Drelichman and Voth, see Cliometrica, with numbers and an interpretation of the contract that have virtually no relation with the text of the asiento. Anyone can compare with the evidence here:

All the work here is in collaboration with Carlos Álvarez-Nogal (Universidad Carlos III, Madrid). This ongoing research project analyzes some aspects of the debt and tax finances of Philip II of Spain who reigned over the the largest European empire in the second half of the XVIth century. 

Under Philip II, Castile was the first country with a large nation-wide domestic public debt, the juros that were perpetuals or life annuities (often on two hears) and that were redeemable and tradable. The juros were funded by ordinary taxes that were collected by the main cities in Castile that were represented in the Cortes. The decentralized system enhanced their credibility. They were the safest instruments for savings with returns between 5 and 7%.  The amount of the contributions by the cities was voted in the Cortes for a number of years and that amount acted as a kind of ceiling on the service of the juros, and given the steady interest rates, on the stock of the domestic debt. All the three financial crises of Philip II occurred when the service neared the contribution of the cities.

The Cortes were the first assembly in Europe where cities were represented (Cortes de León in 1188). Magna Carta (1215) was not granted to cities but to the barons of England. A chart of rights was given to the city of Jaca (fuero de Jaca) in 1077. The Cortes evolved from the 12th to 16th century such that by the time of Philip II, they were made solely by delegates from 19 cities and met only for fiscal affairs. 

The short-term debt was in contracts with merchant-bankers mainly but not only Genoese. The maturity of a contract was from about 6 months to a couple of years. These are the famous asientos. They never exceeded more than 15 % of the public debt (which reached 60% of Castile's GDP). Many of them--not all-- are neatly preserved in legajos in the archives of Simancas (while the juros are scattered in various places). This explains why most of the literature in the last 40 years has focused on asientos. Most of that literature, in economic history, for the last 40 years is wrong and has not followed elementary standard of scholarship. It an interesting outcome of the current modus operandi for the publishing articles in some professional journals. Articles have to pass referees and an editing board that is often not qualified except for the technical aspects. One panders to the current trend of ideas, "codes" the data, and voilà. The asientos have often been considered as sovereign debt. (See Rogoff and Reinhard who write about Spain as a "serial defaulter" in a celebrated book which from the point of view of a historian should qualify as "spreadsheet history"). The system of the asientos and the relations between the Genoese and Philip II do not fit the model of sovereign debt. To realize this, one has to read the contracts.

Our research method is to follow the texts. We make them available, as much as possible, as copies of the original, transcriptions and translations. For the reader who is not familiar with the finances of Philip II, it is recommended to start with the most spectacular part, the crisis of 1575-77 and our interpretation which is radically different from all previous interpretations. This reseach shows how the careful reading of financial contracts projects light on the political and financial relations between the Crown, the cities of Castile and the Genoese bankers. Our view on the asientos is evolving during this project but our initial results have been validated by the works that followed.

Political conflict on taxation between the Crown and the Cortes

Our main argument about the political and financial relations between Crown, cities, and bankers is presented in this article:

This argument was confirmed by new archival documents that were pleasantly surprising, even to us:

The paper discusses more evidence for the interpretation (2014 EHR article) of the three financial crisis under Philip II by the political economy inside of Castile between the Crown and the Cortes. Focusing on the main crisis (1575-77), additional archival evidence: the financial education of Philip II and his use of the financial weapon against the Pope at the beginning of his reign, the financial intermediation of the Genoese bankers inside of Castile, the stop of the commercial fairs in Medina del Campo in 1575-77, the legal protection of the bankers by the Crown against the claims of their creditors in Castile, the numerous petitions by the creditors of the asentistas to the Crown for the recovery of their deposits.

  • Data available upon request.
  • Soft version (VoxEU: October 21, 2013)

The recent showdown over the US debt ceiling can be thought of as a game of chicken over the repayment of sovereign debt, with potentially severe consequences. This column describes an analogous historical episode in 16th century Spain, in which city delegates in the Cortes resisted tax increases, and Phillip II responded by suspending payments on a portion of the sovereign debt. By the time the cities caved to a doubling of their tax contribution two years later, the resulting bank failures and credit freeze had caused lasting economic damage.

For a presentation in spanish:

Asientos in the 1590s 

The fragmented "empire" of Philip II had been obtained by inheritance and not by military conquest. It had inherited a fiscal and administrative structure that was not up to the job of financing the military efforts to keep it together. Many asientos in the 1590s present a fascinating structure. They drain the revenues of the Crown that originate in widely scattered sources in Castile (and from the fleet) into the steady stream of disbursements that were needed for the military expenditures outside of Castile. Here we analyze two such middle-size asientos.

  • The Maluenda contract (1595) delivers constant monthly disbursements (mesadas) in Lisbon for a year. The currency of delivery is the same as the currency for repayment, the Castian ducat. The main part of the repayment are from the fleet but an option enables the Maluenda brother to be repaid through the selling of juros. The option was fully exercised.
  • The Fiesco contract (1591) delivers mesadas, as the Maluenda contract, but this time in Flanders and in a different currency. There is a foreign exchange operation. The contract shows that an asiento is much more than a loan.

"Refinancing short-term debt with a fixed monthly interest rate into funded juros under Philip II: an asiento with the Maluenda brothers," The Economic History Review, 71, 4 (2018), 1100-1117.

This asiento has an incredible documentation in the archives of Simancas, including the monitoring of the implementation of the contract. The purpose of the contract is to convert various sources of income of the Crown into a constant flow of income for the army in Lisbon for about a year. (Regular disbursements are important for an army). The contract leaves some flexibility for the payments of the Crown and applies a constant interest rate of one percent on the current balance that is written specifically in the contract. (The contract therefore refutes the analysis of Drelichman and Voth who compute such a rate through imputed payment flows). All ex post computations are reported in the archives. As a most important feature, the contract includes an option, for about half the total amount, to convert the debt into funded long-term juros. Such an option illustrates the interactions between asientos and juros.  

All the payments in the contract are in one currency, the ducat. For an informal presentation, see:

  • Blog post (June 19, 1975) in positive check, blog of the European Historical Economics Society

The main documents are available here.

  • The sources in the archives of Simancas, AGS, CCGG, leg. 92-1, asiento 07/13/1595. The help and the authorization to post are gratefully acknowledged. (España. Ministerio de Educación, Cultura y Deporte. Archivo General de Simancas). The contract  (14 pages). Transcription.  
  • Attachments (47 pages), next to the contract: they have been written by the royal accountants who monitored the implementation of the contract. See Table 3 in "Analysis" for a list of the attachments.
  •  Previous version: "Equity short-term finance under Philip II, with an option to long-term funded debt," (2015), with Carlos Álvarez Nogal, IED working paper 265.  

An asiento with foreign exchange: Tomás Fiesco on April 3, 1591

"Asientos as consolidation instruments in the public finances of a pre-modern state: from disparage revenues in Castlie to steady streams in Flanders," with Carlos Álvarez-Nogal (December 30, 2019).

Philip II, striving to preserve an inherited empire of dispersed territories and under the constraints of pre-modern public finances, relied on Genoese merchant-bankers to channel disparate sources of revenues in Castile and from the Americas into steady streams of cash deliveries for military operations, especially in Flanders. The multiple services, exchange rate conversion, collection of fiscal debt to the king, steady cash deliveries, refinancing of short-term into long-term debt were formalized in contracts, asientos, that, contrary to previous studies, do not fit the sovereign debt model. We analyze these activities in a representative contract. Other examples are provided.