Asientos and public finance in Castile under Philip II

All the work here is in collaboration with Carlos Álvarez-Nogal (Universidad Carlos III, Madrid).


 Under Philip II, Castile was the first country with a large nation-wide domestic public debt.  The credibility of the debt, mostly in perpetual redeemable annuities, was enhanced by decentralized funding through taxes administered by the main cities in the Realm of Castile that were represented in the Cortes.

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 accumulation of short-term debt depended on the refinancing through long-term debt. Financial crises in the short-term debt occurred when the service of the long-term debt reached the revenues of its servicing taxes. They were not caused by liquidity crises and were resolved after protracted negotiations in the Cortes by tax increases and interest rate reductions.

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. So far, the archival basis for the analysis is the documentation on and in relation to the asientos which were financial short- to medium-term contracts between Philip II and men of finances, most of them from Genoa.

Asiento never exceed 15 percent of the total debt (which reached 60% of Castile's GDP), which was for the most part in redeemable annuities, juros, but they played a critical role in the financing of wars and they provide important insights on the financial and political structure of a distributed pre-modern state. The three temporary payment suspensions by Philip II on asientos provide important evidence.

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.

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.

It reflects on the state of some research in economic history that Carlos and I had to write this:

  •  "Answer to 'Duplications by Drelichman and Voth' (with Carlos Álvarez-Nogal), Economic History Review69, 3 (2016), pp. 1007–1013.

In this response, we demonstrate that Mauricio Drelichman and Hans-Joachim Voth, in their 2015 Economic History Review note ‘Duplicationwithoutconstraints:A Ģlvarez- Nogal and Chamley’s analysis of debt policy under Philip II’, provide a misconceived and inaccurate account of our argument about the finances of Philip II in ‘Debt policy under constraints: Philip II, the Cortes, and Genoese bankers’ (Economic History Review, 2014). Here, we summarize our position in the context of the current literature and provide a few comments on data gathering.

For a presentation in spanish:

On the financial contracts (asientos) between Philip II and his bankers (and their rate of return)

The first task is the complete analysis of a "textbook" asiento.

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.  

The next paper analyzes an asiento that was issued at about the same time as the Maluenda contract and with the same purpose of converting scattered tax revenues into a constant flow for the army, this time in Flanders. The contract therefore combines two currencies. Disbursements are in escudos and payments by the Crown are made in ducats. One also finds degrees of flexibility and options for the conversion in long-term funded debt. 

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

The contract (copy of the original in the archives of Simancas)

Contrary to the title of a paper by Drelichman and Voth that is based on the same contract, there is no evidence of "Risk sharing with the monarch : contingent debt and excusable defaults".