Philip II’s Lessons For America

For the 244 years of the United States’ independent existence, few would have thought that the country had anything to learn from the ultimate Old World monarchical autocracy, Philip II’s Spain (he ruled 1556-98). Yet as politicians debate the merits of yet another public spending “stimulus” on top of a $3 trillion 2020 deficit, Philip II’s four debt defaults in 42 years of rule come uncomfortably into view. Philip II’s overspending wrecked the power and wealth of Spain, the greatest superpower of its day. No question, his unhappy rule has lessons for the United States today.

From about 1525, and certainly from 1545, when the gigantic Potosi silver mine in Bolivia was first worked, Spain’s was unquestionably the richest government in Europe, with only the Mughal empire in India surpassing it worldwide. Until 1556, Spain and the Holy Roman Empire were joined under Charles V, which raised expenses since the Holy Roman Empire had both domestic Protestant/Catholic strife and the need to defend itself against the aggressively expansionist Ottomans in Hungary. However, from Philip II’s accession in 1556, the Holy Roman Empire became a separate if friendly power under another branch of the Habsburg family. From that point, with Spain monolithically Catholic and the Ottomans only a distant naval threat in the Mediterranean, the country should have been magnificently solvent.

In the late 16th Century, the value of American gold and silver landed at Seville was around 11.6 million pesos annually, equivalent to 2.5 million 1600 pounds sterling, six times Queen Elizabeth’s revenues towards the end of her reign. Admittedly, the Spanish Crown did not have the right to all that revenue; the American mines were owned by Spanish nobles and other entrepreneurs who had been awarded concessions, and theoretically, the Crown received only a “silver import tax.”

However, the Spanish Crown also taxed other trades relating to the Americas, such as the slave trade, where it issued taxed licenses to deliver slaves to the Americas and, more important, the excise on sugar grown in the Spanish West Indies and the large Portuguese colony in Brazil (Spain controlled Portugal in an “Iberian Union” from 1580 to 1640). Overall, the income to Spain’s Treasury in the 1590s was around 8.5 million pesos, almost five times that to the English Crown at that time, from an Iberian Union population about double England’s. Unfortunately, Spain’s debts in 1600, even after four restructurings, totaled 85 million pesos, around 10 years’ revenue, and most of them bore interest at double-digit rates.

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