History - Spain - Charles I, 1516-56: Finance In Depth

. Pendrill argues that the emergence of Spain as a great power had only limited impact on how it was governed but financially and economically it was a disaster due to the burden of war - e.g vs France, Turks, German Lutherans

. That burden fell on Castile - Shortage of money was always the main reason for calling a Cortes

. Pendrill and Kilsby note that the finances were already at a low ebb when Charles took over

. Ferdinand and Isabella hgad mortgaged future income paying for Granada and Naples campaigns, but things got worse under Charles

. Charles's spending on foreign policy was greater even than Ferdinand's had been and his easy access to German bankers made his inherited problems more acute

. In the 1520s and 1530s the situation in Crown finances was serious, by the 1540s it was near catastrophic

. Charles's constant movement was expensive, ships and a military escort could cost as much as a small campaign

. The cost of the ceremonial of the court had increased considerably compared to Ferdinand and Isabella as Charles had made it more like the Burgundian court that he was used to

. Money had to be found to meet the new positions at court such as gentlemen of the household and the buying of jewels and works of art - Spending on these items amounted to about 10% of the Crown's ordinary income

. This had cost 850,000 ducats alone and the costs of this had been one of the sparks causing the Comuneros revolt from 1520 when the Santiago Cortes was summoned

. There were also considerable costs for Charles's Imperial coronation in Rome in 1530

. These were enormously expensive

. If Ferdinand's costs were high then Charles were astronomical

. Although Charles did have a variety of areas in his territories from which he gained income, it was Castile which increasingly bore the burden of these debts

. Castile increasingly became the primary source of funding Charles's debts

. As earluy as 1523, Charles was told that all his next year's revenue had already been spent, CHarles said that 'amounts to far more than I receive'

. Paying for loans was the sharpest increase in royal expenditure - These loans were 'juros' interest payments and interest payments to foreign financiers

. 'Alcabala' (sales tax) - From 1534 this was consolidated to the 'Encabezamiento'

. The Church

. Income from Military Orders

. Customs duties

. Tax on the movement of sheep ('montazgo')

. Tax on silk production - especially in Granada

. 'Subsidies' ('servizios') passed by the Cortes - both Castile and Aragon

. 'Quinto Reale' (the 'Royal fifth' - one-fifth of all revenues from the New World)

. Bullion from royal mines in the New World

. 7.5% duty on all goods traded with the New World - the 'almojarifazgo' duty

. Short-term measures (e.g sale of offices; sale of hidalgo status)

. A sales tax at 10%

. Castilian taxes increased by 50% in Charles's reign, a rate far lower than the Crown's expenditures that increased by 100%

. In theory, the rising population should have lowered the tax burden per head; in reality the increasing frequency with which the 'servicio' was elvied and the rising amounts meant that the tax burden increased

. Misuse of by the Cortes members ('procuradores') also meant that they shifted the burden away from the towns that they represented onto rural areas over which they exercised administrative control

. Without this taxation, their 'juros' payments of the nobility (who controlled regions and, to some extent, the towns during Charles's reign) would not be paid

. Although officially exempty from some taxation, the Church was more heavily taxed than many laymen and gave a geat deal - through:

. The tercias reales (2/9 of tithes to the Crown)

. Subsidio (a proportion of chruch income throughout Spain granted by the Pope at irregular intervals), first granted in 1519 - 370,000 ducats in 1532 and 500,000 by 1551

. Cruzada tax - An indulgence payable by the laity and clergy - Kamen states that in brought in 121,000 ducats/year between 1523 and 1554

. Extraordinary grants were also expected to be paid by the Chruch to the Crown; these were one-off payments

. Income from vacant sees were also milked bu the Crown

. In 1523, the Pope Adrian VI confirmed that the property and revenue of the three Csastilain Military Orders belonged to the Crown permanently, but the income now had to go straight to the Fuggers (German bankers) who had loaned him money for his Imperial costs

. Thus, Church taxation showed continuity with Ferdinand and Isabella

. Charles used the Cortes of Castile and Aragon, but especially Castile which was nto usually in a position to refuse to raise servicios - After the defeat of the Comuneros Revolt there was very little opposition to taxation in Spain

. The 1523 Cortes of Valladolid voted a servicio of 400,000 ducats over 3 years

. In the 1520s they averaged 130,000 ducats/year - by the 1550s this was around 4000,000 ducats/year; thus, the servicio trebled

. In effect this became a regular tax under Charles and augmented ordinary income by about one-third

. This also produced a shift to direct taxaton in Castile instead of indirect, as the yield from the 'alcabala' was declining

. Nolbility (around 10% of the population who had claimed or been granted 'hidalgo status' were exempt from this

. So there was an increase in tax burden on the less wealthy and also an icnrease in those desiring to purchase hidalgo status so as to be exempt from tax

. Therefore, servicios did increase under Charles but this was still dwarfed by expenditure

. Charles did not manage to obtain any new taxes but he did establish the Crown's right to obtain the servicios from the Castilian Cortes on a regular basis

. This was the result partly of the victory over the Comuneros and partly because of the increase of royal power in towns so they could influence town council selection

. Charles categorically failed in his attempts to increase the tax burden on the rich so increasingly he had to resort to borrowing

. Failures to get the nobility to contribute to ordinary taxation:

. Failed attempt to obtain servicio to include clergy andn obility in 1527 when he needed money to fight the Turks

. Failed attempt to introduce 'Sisa' tax in 1538 - this would have taxed food and thus applied tax on all social classes

. Aragon was not as economically strong by Charles's reign and hard to raise tax form because of the maintenance of the 'fueros'

. Although Aragon voted money when asked, it was Castile which provided the largest share of the taxation through the Cortes - On average the Aragonese Cortes only supplied 100,000 ducats a year

. Inculded money raised from tax, sale of trade and producaiton monopolies, Indian tributes and most importantly the royal fifth (1/5 of all revenues from bullion in the New world went to the Crown

. Across Charles's reign they brought in around 270,000 ducats/year (11.9 million ducats in total from 1516-60) - about 20% of ordianry revenue from Spanish sources

. New World income increased, especially from 1530s onwards - Up to about 1530 the amount of bullion was small

. An additional 3.5 million ducats were gained from the seizure of contraband and private bullion

. Thus, New World money came to be of significant help to Charles

. American income made a vital contribution but was not the solution to all financial problems

. The total amount of silver in europe tebled between 1503-1660 and in the same period, 16 million kilograms of silver arrived in Castile

. The huge influx began in the 1550/60s after the Potosi mines in Bolivia became workable from 1545 and Zacatecas in Mexico opened in 1548

. As much as 40% of the bullion was the king's due to output of royal owned mines, the Quinto Real and the 'almojarifazgo' duty of 7.5% on all goods from America

. Measures had been put in place by Isabella in 1501 to control this trade to Castilians only and in 1503 all trade via Seville through the 'Casa de Contratacion'

. In 1524, foreign traders were allowed to participate as Charles was under pressure from his foreign bankers

. 1525-26 agreements were made permitting any of the emperor's subjects to trade - Spanish monopoly was restored in 1538, although many found loop-holes such as securing Castilian naturalisation

. Of all the bullion leaving America, at least 40% did not land in Spain, being directed straight to foreign bankers to pay for Charles's loans

. Therefore, it could be argued that New World resources slipped through the fingers of the Crown, to an extent, by going directly into the hands of those outside Spain

. Nobles titles sold - sale of cerificates of nobility ('hidalgo status) that further reduced the taxed population and therefore intensified the burden on the poor

. American silver seized from private individuals

. From 1545, public offices were sold - sales of public offices prevented advancement on ability

. Land of the Military Orders sold off - 1.7 million ducats worth from 1537-51 (los Cobos was one of the biggest purchasers at 192,000 ducats)

. Costs for repayment of juros escalated during the reign - by 1522 they amounted to 36% of ordinary revenue and 68% by 1556

. A side benefit was that the nobles remained loyal as they were dependent on the income from juros

. The policy was an extension of that increasingly used by Isabella and Ferdinand, but Charles took it on to a new level

. When ordianry income failed to meet spending, Charles had to borrow from foreign financiers

. In 1552, Charles borrowed 4 million ducats to finance war agaisnt France, where the unsuccessful campaign to save Metz alone cost 2.5 million

. Foreign bankers charged increasingly high interest rates for loans

. 'Asientos' had to be used to persuade bankers to make loans and thus by 1554, all revenure had bveen earmarked for debt repayment by 1560

. German bankers were keen to lend as it seemed that untold wealth was pouring into Spain from the New World - they were quite happy to take gold and silver bullion

. Genoese bankers had interest charges of 67.4% after 1552

. Maltby states that 'Neither Charles nor any of his contemporaries recoiled at the idea of stripping assets or mortgaging future revenues...they were far more concerned with the demands of war and the need to maintain a reputation than with careful fiscal management

. The needs of the moment outweighed consideration to balance finances

. Kilsby suggests that the only way for Charles to improve his finances would have been to stop war, but he was not prepared to do that

. Charles's ordinary income in Spain was about 1 million ducats/year, but it was impossible for the government to manage on this amount - One major reason it was not enough was the European wide inflation

. Whereas total crown income increased by 50%, prices doubled

. Charles borrowed 39 million ducats during his reign - This mortgaged the future of Spain

. In February 1544, Charles was told that his budget needs for the next year came to 2.3 million ducats, but availble cash was only 750,000 ducats

. In 1546, Charles wrote to Cobos asking for funds to fight the German Lutheran princes - Cobos advised him to make peace but Charles refused and the debt spiralled

. Charles's last years were marked by 'an unprecedented orgy of borrowing' - Maltby

. 1522-56 saw 9.6 million ducats borrowed through 121 'asientos' at an interest rate of 48%

. By the end of his reign Charles was virtually bankrupt - In 1557, Phillip II suspended payments from the Castilian treasury, in effect declaring bankruptcy - All outstanding debts were consolidated into juros at 5% interest

. The Spanish monarchy would never throw off the legacy of debt left by Charles - hence Maltby's argument about fiscal policies being the "virus of decline" in the long-term

. Total borrowing of Charles was nearly 40 million ducats and interest payments on the loans at 10 million ducats when ordinary revenue from Spain was only 1 million ducats/year

. The Comuneros Revolt had lead to servicios (subsidy taxes) not being collected

. At the Cortes of Madrid in 1534, the 'alcabala' was consolidated into a fixed tax from the towns - the 'encabezamiento'

. The encabezamiento reduced the overall income from this source during a time of hefty inflation - Once set, the Cortes was able to oppose increasing it; this acted to limit the increase in ordinary revenue

. From 1536-48 the yield of the encabazamiento rose by only 2.5%, other taxes rose by 27% - By 1550 this brough in about &0% of ordianry income in Castile, as opposed to 90% earlier in the reign of Isabella

. Failure to extend some forms of taxation to the clergy and nobility

. Lost opportunities to bring all the wealth of the New World to Spain

. Income may have been tapped from greater prosperity in domestic industries, but economic policies worked against this

. Castile came to play an increasing role in the support of Charles's empire

. This was due to the ease from which money could be raised once the Cortes had been humbled after 1523 - In Spain, Castile clearly gave more than other areas as there was little resistance from the Cortes to higher taxes (although they did petition about the burden of demands)

. Also, the income from the New World, although not hugely significant until towards the endf of the reign was channelled through Castile and Lotherington argues that for this reason above all, Castile became the centre of the Empire and was tapped for wealth

. The results for Castile were less than favourable - It seemed to many that Castile was being exploited

. The Imperial election and coronation expenses were mainly paid for by Castile - It was only the money raised by Castile that was regularly used for general expenses of the Empire

. Initially Charles relied on the Netherlands and Italy for money as the wealthiest areas of his Empire, but the scale of the tax demands led to revolt in Ghent (Netherlands) in 1539 and to the viceroy of Naples complaining that further demands would 'squeeze him like a stone' - the kingdom of Naples had given Charles 1.75 million ducats for his armies in 1525-29

. Aragon was in economic decline and very hard to raise money because of its fueros

. Charles tried to even out the burden in 1538 when he attempted to introduce the new 'Sisa' tax that would be payable by all

. The nobles refused to the Sisa tax and thus were never summoned to the Cortes again, the nobles' financial privilege had been brought at the expense of their political influence

. Instead of the Sisa, Charles relied on non-noble taxes, servicios and more dubious expedients such as the sale of juros that mortgaged future revenues for shrt term gain

. On top of this, most significantly for the long-term future of the Crown, was the policy of raising increasingly costly loans from foreign financiers which were serviced by Castilian financial resources

. Kamen concludes that the impact of Charles' dependency on loans had two very important long term effects on Spain:

. Castile had to bear the cost of the empire

. Foreign financiers now dominated the Spanish economy for the next 100 years - German bankers were permitted to buy offices, lands and juros and granted administration over the 3 Military Orders and the mercury mines at Almaden, Spain

. This was created in 1523 to supervise and control income/expenditure and to raise money

. In reality, due to Charles' huge spending the Council's role was reduced to trying to prevent bankruptcy with a series of desperate measures, such as selling offices and seizing private bullion shipments

. Constant wars against France/Turkey which were costly, and by the end of the reign the German territories, were dependent on subsidies from other areas, most notably Castile

. The Council of Finance, as a response, did little more than paper over the gpas in royal finances by consistently underestimating royal debt

. Kamen noted that keeping track of the money Charles had was difficult as much income was paid direct to bankers without ever appearing in official records - this made the work of the Council of Castile ultimately impossible; it was overtaken by events and by Charles's ever increasing financial demands