1Distant Tyranny by Regina Grafe is a thought-provoking and polemical book which develops its account of early modern Spain over eight chapters. Her author faces a great challenge: to explain why economic development, market integration, and the creation of the modern state were so slow in Spain. Grafe refuses the dominant theories of political economy, that put the emphasis on the predatory state, and argues that the problem was largely because the state never was enough autonomous. There existed, in her opinion, a jurisdictional divide embodied in powerful towns and territories that affected the integration of the Spanish market through coordination failures. This imposed large transaction costs on economic activity and therefore considerable constraints on growth. The book makes use of several fruitful methods. For example, it integrates social and political history into the economic analysis and examines Spanish history with a comparative method. Grafe follows the works of Stephan R. Epstein, who believed that market imperfections, coordination failures and rent-seeking caused by jurisdictional fragmentation posed large constraints on pre-modern growth. In addition, Epstein analyzed the interactions between state formation and economic development, drawing on history and other disciplines, particularly economics and sociology.
2The outline of the book is presented in chapter 1. It is essentially devoted to showing that the prevalent theories of political economy are problematic as a way of giving a convincing explanation of the relationship between market integration and state formation in early modern Spain. A number of crucial aspects of the abovementioned theories are examined, i.e.: transaction costs, the predatory state, the relationship between political system and the ability of states to obtain tax revenue, the nature and extent of the fiscal regime, tax burden and government debt, the fiscal contribution of Spanish territories, the shared sovereignty, patrimonialism, etc. There are several outstanding discussions in chapter 1. One of them is the role of state in the expansion of markets and economic growth. According to Grafe, markets and economic growth needed states; subscribing to the view that one of the prerequisites of economic change was the emergence of a new state and the achievement of institutional reforms. It seems that these processes contributed to the creation of a social organization which promoted economic growth. Monopolies, internal tariff barriers and fiscal and other privileges enjoyed by the ruling classes were abolished, the landed property was reorganized to improve farming productivity, a relatively effective tax system and protected property rights were established, and the enforcement of contracts was ensured. Related to this issue is the examination of patrimonialism. The author neither believes that Spain was a patrimonial state, nor that the notion of patrimonialism resolves the problem of the different paths of state formation. But apparently patrimonialism affected state formation and the Spanish state was patrimonial in the sense that Max Weber defined it. Its officials were civil servants whose admission into the governmental institutions, professional careers and even salaries, depended above all on their family relationships, natural and artificial, that they maintained with the people charged to decide on policies of personnel. These people were part of patronage networks, generally headed by aristocrats, which dominated the state. Patronage networks assured political stability since they facilitated integration of the aristocracy into the institutions. But they generated a great deal of expense for the Royal Treasury and a poor functioning of the state. So, it is not far-fetched that patrimonialism could negatively influence the process that transformed the early modern state into the modern state. It is true, however, that in eighteenth-century Spain merit-based criteria begun to be taken into account in order to appoint governmental posts.
3There are other noteworthy and controversial issues in chapter 1 that need to be more thoroughly examined. For example, Grafe does not believe in the existence of a predatory state in the sixteenth and eighteenth centuries Spain, because the tax burden was relatively moderate. But her estimate of tax burden is only based on the taxes collected by central government; she has not taken into account the taxation of towns, manors and church. When we consider these taxations, the tax burden must be significantly higher. In addition, we must bear in mind that the nominal tax burden was increased by inefficiencies, abuses and fraud committed by those individuals, bodies and officials in charge of tax collection. Lastly, the estimation of GDP for the early modern period, and therefore of the share of GDP taken as taxes, is a very hazardous exercise. So, caution is advisable when we use and interpret these figures. Another topic of importance is the relationship between revenue, expenditure and the control which the Crown had over them. If the Crown exercised great control over expenditure but not over revenues, as the author rightly says, was the increase in income a consequence primarily of expenditure-driven forces? Recent research has found that expenditure patterns were determined more or less independently of tax revenue and thus the problem was one of obtaining enough money to finance them (Bonney, 1995). Nevertheless, according to Grafe the negotiation between the elites and the monarchy over taxation led to a lesser level of revenue and then to a larger deficit and debt. From this, a puzzle emerges which is necessary to solve. With regard to the relationship between institutional reforms and interest rates of government debt, the author writes, in the light of a recent article by Sussman and Yafeh (2006), that the former had only limited impact on the latter. However, there is not much discussion about this topic. These authors basically study Britain and the Netherlands in the short and medium run. Over the long term, probably due to the fact that the credibility of new institutions needed time to be established, institutional reforms gave rise to large differences between interest rates of Britain and that of other European countries, except the Netherlands, precisely because in this country institutional reforms were also introduced. Before 1688 short-term loans were issued in England at an average interest of 6-9%, but since 1750 Britain concentered the majority of its borrowing in the new 3% consols, a long-term debt the price of which on the stock market was a proxy for government borrowing costs. There was nothing like this in France, for instance. The yields of British and French securities from 1770 to 1821 show that the French government was forced to borrow at higher interest rates that the British could. It is probable that these differences were due to the institutional reforms that took place in Britain from 1688 onwards. It possibly enabled Britain to sustain a much larger debt/GDP ratio than France because it generated a solid base for public finance and credit, established the trustworthiness of British state, ensuring that the interest Britain paid on her debt was substantially lower that what France paid on hers (Dickson, 1967; Bordo and White, 1991; Velde and Weir, 1993; White, 2001; Ferguson, 2001). As regards Spain, Grafe affirms that during the eighteenth century interest rates of its government debt were within the range of rates paid by Britain. But her calculus is only based in the juros, a kind of debt which importance decreased over time. It only accounted for 17% of total debt at the end of the eighteenth century and 7% of debt servicing in 1714-1800 (Jurado-Sánchez, 2006). In addition, the state of the finances of the Spanish monarchy during the second half of the eighteenth century was worse than what the author asserts. According to my preliminary estimates of government revenue from research in progress, between 1763 and 1796, annual deficit averaged 70 millions of reales of vellón, more than 11 per cent of total annual expenditure. Another interesting issue studied in the book (33) is that the fiscal privileges both of nobility and clerics “were worthless” “and likely ended up paying more taxes than their peers elsewhere in Europe”. It would have been a good idea for Grafe to have considered a couple of facts. First, that the high and medium nobility did not pay excise taxes, at least a large part of them, because they did not buy in the market a sizeable part of their provisions, but obtained them from their states. And second, that the town councils reserved an item called refacciones in their budget to refund the taxes paid by the clerics when they purchased in the market. Chapter 2 presents an excellent discussion about both the different ways and empirical procedures used to test market integration and the advantages and disadvantages of cod and grain as commodities to study it in early modern Spain. The author also explains the construction of the data set on cod prices, making ample use of the wealth of primary source material kept in several Spanish archives and of secondary sources. Nevertheless, the reader will doubt whether the sample is representative of Spain as a whole and of several historic territories and cities for the entire period chosen (1650-1800). For example, for Malaga there are only figures of prices for 9 years and for Sahagun for 39 years. Chapter 3 chronicles the emergence and quick expansion of the cod trade from the 1630s onwards due to combination of two exchanges, the export of cod from North America to Bilbao and the import of Spanish wool for the New Draperies of the English West Country. Grafe concludes that economic reasons played a more important role than religious motives in the increasing consumption of cod. In chapter 4, the actual state of market integration and the role played by transport costs are studied. First, the author analyzes the transatlantic market integration and then the Spanish domestic market, asking whether transport costs had subjected markets to an insuperable long-distance tyranny. She finds that between 1650 and 1800, prices between North America and Spanish ports were quite strongly integrated. As for the Spanish domestic market, overall price movements suggest that the level of market integration was considerable by the standards of the period. However, in some cases, most notably Seville and Pamplona, something was driving a very large wedge between the price levels in the various towns. This led to contradictory results for price convergence, as opposed to price volatility or correlations, but distance, Grafe concludes, was but one factor in Spain’s problems with market integration.
4There existed other problems with market integration which were more important for the author. These problems are studied in chapters 5 and 6, where the reasons for, and ways by which jurisdictional fragmentation affected the efficiency of Spanish markets are examined. First, Grafe considers where power was located, how it was exercised, and how it was legitimized, studying the historic territories (chapter 5) and towns (chapter 6). Second, she revises the attempts at unification and centralization undertaken in the later seventeenth and eighteenth centuries. And she concludes that even the most radical attempt at change, the Bourbon reforms of the eighteenth century, could not set the trends in market integration on a different trajectory or erase the impediments, nor could the nature of governance solve the coordination problems that hindered market integration. Between these failed reforms Grafe includes that of internal and external customs because its receipts accounted for only 15% of total Peninsular Spanish Crown income in 1770 (compared to about 30% in Britain). Nevertheless, according to my estimate, in the period 1763-1800, customs (rentas generales) accounted for almost 22% of total ordinary revenue of the Spanish Treasury (total revenue less revenue from America and borrowing). This percentage drops to 19% of the revenue of the Spanish Treasury when one includes revenues from borrowing. On the other hand, the trends in tax burden in Castile and Aragon, discussed in pages 153-154, and the conclusion on page 20 based on it—that the “the Crown still found it quite impossible to tax” the Kingdom of Aragon throughout the eighteenth “beyond a short-lived initial tax hike”—, should be re-examined. The author affirms that the receipts of the equivalentes, a set of new direct taxes established from 1714 onwards which were levied on production factors in Crown of Aragon in order to bring them into line with Castilian rentas provinciales, remained unchanged in 1729-83, while Castilian trade and consumption taxes grew. According to my estimates, it is true that the receipts of rentas provinciales increased more than that of the equivalentes, but the yields of these increased by 20% between the 1760s and the 1790s. And more importantly, if we consider only the equivalentes and the rentas provinciales, there were not large differences between the tax burdens per capita in both territories. Between 1763 and 1800, each Castilian paid 13.62 reales at current prices for the rentas provinciales and each inhabitant of Crown of Aragon paid 12.46 reales for the equivalentes.
5Chapter 7 shows that Spain was afflicted by the paradoxical twin problems of backward societies (shortages and slack) more than most western European societies. This was due, above all, says Grafe, to a fragmented state authority. She provides an interesting point of view when affirming (200) that, within Spanish governance structure, local and regional concerns were prioritized – territories and corporate bodies defending, for instance, “the moral economy of the right of a population to affordable food with an armoury of legal challenges”. This helps to explain the relatively low incidence of food riots in Spain, a fact that still remains largely unexplained by historians. Chapter 8 offers a very interesting reinterpretation of the origins of the center–periphery divide and challenges a traditional view that juxtaposes a “conservative core” and “progressive peripheries”. The author makes several outstanding points for discussion. One of them is the shift in demographic trends in the interior and the periphery, the population density being larger in the latter than in the former by the eighteenth century. But this change had occurred during the two hundred previous years. In 1591, 61% of inhabitants lived in the Castilian heartland and 39% in the peripheral regions. Two centuries later, 42.5% of the Spanish population lived in the interior regions and 57.5% in the coastal regions. Another interesting discussion concerns Madrid as a capital that extracted resources from the rest of Spain without adding anything to its hinterland, this view being rejected by Grafe.
6This is a clearly presented and well-organised text that frequently challenges several accepted interpretations of the economic development of early modern Spain. Anyone interested in these issues should certainly read this interesting and polemical work.