State Finance in History


On the left: the cradle of civilization. (One can still see today why).

On the right:  regime switches when agents have different preferences about a regime, demonstrate if their expectation of a switch is sufficiently high compared to their individual cost of demonstration and rationally infer other's preference from the mass of demonstrators in each period. "Demonstration" may be replaced by "investment" in a mcro-economic model. Regime switches occur as surprises but seem "obvious" ex post. (See how the probability distribution sharpens after a switch). 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").

“history does not repeat itself, but it does rhyme"history does not repeat itself, but it does rhyme."

Political conflict on taxation between the Crown and the Cortes

More details on the page on "Castile".

All my work on Castile is done with Carlos Álvarez-Nogal, professor at the university Carlos III. All our work is based on a reading of archival document that is as accurate as possible. We provide all our data and post, to the extent that is possible, the archival documents that we use. In the current state of economic history, it is unfortunate that these elementary principles have to be stated.

Availability of data

The journals Economic History Review, Explorations in Economic History and Journal of Economic History, like a number of other journals in economics, now request from authors to make their data available if needed. I support that policy, which I requested before its implementation, and it is implemented on this web site. For the data on Castile, see the page "Castile".


In the second half of the sixteenth century, under Philip II in Spain,  the public debt reached, for the first time in history , the "modern" level about 60 % of domestic production. Most of the long-term debt, perpetual bonds called juros, was guaranteed by the fixed contribution of cities to the central government. Each city paid its contribution (encabezamiento) to the central government after deducting interests juros issued on itself. The bondholders had a direct control over the service of their bonds through their local government. This control reinforced the credibility of the public debt and reduced its cost to the central government. The contributions of 18 major cities were determined by a simple majority vote in the Cortes. Their total imposed de facto a ceiling on the service of the debt and therefore on its amount.

In September 1575 Philip II decreed the suspension of payments on the medium-term debt (asientos) underwritten by Genoese bankers. The usual interpretation of this decree is a bankruptcy due to lack of resources or cash. Based on archives in Simancas, Valladolid and Madrid, the authors show that this interpretation is incorrect. The payment stop was the result of a conflict between Philip II and cities. The King wanted to triple the encabezamiento and thus get rid of the ceiling on the domestic debt, something that was opposed by the Cortes. This showdown is similar to the conflict in the United States where in 2011 and 2013, a fraction of the Congress tried to prevent an increase of the legal ceiling of the public debt. In Castile, the economic crisis that was caused by the payment stop forced the Cortes, after more than two years of protracted negotiations, to accept a doubling of the encabezamiento. The main commercial fairs which had been interrupted by the credit market freeze, would never regain their pre-crisis activity.