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Each new fact in his private experience flashes a light on what great bodies of men have done, and the crises of his life refer to national crises. Every revolution was first a thought in one man's mind, and when the same thought occurs to another man, it is the key to that era. Every reform was once a private opinion, and when it shall be a private opinion again, it will solve the problem of the age. – History, R.W. Emerson
Chapters of history are in part composed of tales concerning the rise and fall of nations. All contain verses of nations reaching great heights, but then face serious challenges. Aspects of the culture, politics and economy, which brought a nation to its heights are no longer sufficient to sustain the position reached. Principles and practices once used for achieving success are abandoned or corrupted, new circumstances require genuinely new actions, ideas, and methods. In short, the nation faces an era of reform. A peoples' ability to meet this challenge defines their future, a future of either continued possibilities or decline.
Each nation's story like every individual person's life is different. However, all have similarities, some quite striking, offering us lessons from the past for the present. Such is the case with 17th century Spain and 21st century America. By the early 1600s, Spain faced an essential need for fundamental reform of their political economy, similar to what the US faces today. J.H. Elliott's, The Count-Duke of Olivares: The Statesman in an Age of Decline is an excellent history of the era, offering invaluable lessons on reform from a people who failed to meet the challenges set before them.
Spain's history is long and fascinating. One of the Roman republic's first conquests outside of Italy, with the defeat of Carthage and Hannibal, Spain fell under Rome's control in 200 BC. In the 8th century, Spain was conquered in the initial great wave of Muslim ascendancy, in various ways remaining under Muslim rule and influence for the next seven-hundred years. In the mid-15th century, the uniting of the Christian kingdoms of Castile and Aragon launched Spain into a high period of cultural, economic and political power lasting roughly a century and half.
In this period, Spain would discover the New World, conquering the great civilizations of the Aztecs in Mexico and the Inca in Peru, keeping the Spanish treasury flush with gold and silver. The Spanish monarchy's matrimonial alliance with the Holy Roman Empire's Austrian Hapsburgs would give Spain control of parts of Europe, including the Netherlands and Belgium. The 16th century Spanish empire was Europe's and one of the world's greatest powers.
Nonetheless, by the beginning of the 17th century, many of the things that had previously made Spain great were causing them problems. The empire was beginning to drain wealth instead of increasing it. The Netherlands was in open revolt, and maybe most importantly, the easy money from the Americas that had drastically changed the Spanish economy began drying up. Elliott describes these economic changes in a way that would be familiar to any contemporary American:
“Seventeenth-century Castile was a rentier society, with people at many social levels drawing a substantial portion of their annual income from rentas, in the form of annuities on state bonds(juros) and individual or corporate bonds(censos). Rates of return varied. ...But the underlying problems remained. The crown had a staggering burden of indebtedness; and in the opinion of the Council of Finance, one of the major reasons for the decline of industry and agriculture in Castile was the availability of juros and censos “at such advantageous rates that their yield is considered to be higher than the profits to be made in trade, agriculture, and stockraising.” The result was that people tried to live on annuities, instead of using their capital for more forms of investment.”
The great wealth of an extensive global network and the easy money policies provided by the massive influx of New World gold and silver produced both the hollowing and the financialization of the Spanish economy. Over time, real wealth was no longer created in Spain, just debt, which for a short time can be confused with wealth, at least until the debt comes due.
With such a change in political economy comes a necessary change in the power structure. Elliott describes,
“The late sixteenth century therefore saw the acceleration of a process that was to cast a long shadow over the future history of Castile—the consolidation of a rentier oligarchy of pederosos(powerful ones), who took advantage of the needs of the crown and distress of the peasantry to concentrate land, jurisdiction and revenues overwhelming into their own hands. The oligarchy was drawn from the ranks of the nobility and the urban patriciates, of the upper echelons of the bureaucracy, and of the wealthy peasant proprietors who knew how to play the market.”
If you replace pederosos with Wall Street and mega-corporations, the oligarchy with our political class, and the peasantry with working America, you get a pretty good description of power in our own political economy.
In 1621, the sixteen-year old Philip IV would ascend to the monarchy and appoint the Count-Duke of Olivares to be his chief minister, a position Olivares would hold for the next two decades. Olivares was part of the Spanish nobility who understood far from the great and enduring power Spain projected at the time, they had reached a necessary point of reform.
Olivares understood the tremendous challenges Spain faced. They were both systemic and a problem of personnel. In regards to the latter, one of the previous King's ministers, Santamaria, described the situation best,
“The corruption from which the monarchy was at present suffering was a result of the wickedness and inadequacy of the men who governed it... Philip must act at once to 'clean out the entire fishpond'. He must get rid of the men who had deceived his father and had packed the palace with their creatures and confidants—all of them men who were 'unworthy and ridiculous, in Spain and outside of it.'“
Olivares boiled the problem down to this simple understanding and solution,
“Reformation meant a vigorous drive against every kind of fraud; it meant educating the new generation to place the public interest ahead of its own.”
In Olivares' twenty-year rule, he would struggle continuously and ineffectively with this problem. While he somewhat successfully carried out a swapping-out of personnel, the greater problems were systemic. The Spanish monarchy was still a conglomeration of semi-independent sovereigns with centuries old powers, traditions, and methods. Olivares attempted to reform government power, usually trying to end-run established ways. For example, with his creation of a Junta De Reformacion, Olivares sought to maneuver around the entrenched power of the royal court. At other times, he created new power for local authorities, such as new banks, in order to get around a corrupted and effete nobility. Yet, these reforms turned out to be halfhearted and insufficient to meet the structural challenges facing the political economy.
By the beginning of the 17th century the empire was draining wealth. Increasingly, the crown could not meet their bills. The hollowing of the domestic economy limited tax revenues and increased reliance on imports. While the cheap money provided by the supplies of New World gold and silver, to which the economy was ever more dependent due to increased financialization, shrank in abundance each year. There's an amusing story how in 1631 a great financial crisis was instigated by the Dutch seizing the annual gold and silver flotilla sailing from Mexico.
Spain's military entanglements, particularly the costs of trying to keep the Dutch subjugated, grew to be an ever greater burden on the royal treasury. These war burdens would vex Olivares his entire time in office. Tragically, he only added to the problem by getting into fights with the French and a particularly ill-advised campaign in Italy. More than any other single factor, these unsustainable military costs proved the greatest burden confronting any true reform.
The decline of the economy coupled with growing military expenditures created an increasingly heavy tax burden, falling most heavily on the lowest rungs of the economic ladder. Unable to enact real reforms fast or sufficient enough, Olivares turned to manipulating the money supply, unaware or ignoring the fact money's deterioration was a direct result of the problems in the real physical economy.
The Spanish money supply was divided into two media, silver and copper. Silver was held mostly by the aristocracy and used for trade and funding the military. While in the form of the vellon coin, copper was the main currency of the domestic economy. Overnight in 1628, Olivares reduced the value of the vellon by half, creating a little short-term relief, and followed in the future by further ineffective money manipulations. Eight years later, Elliott writes of another change in monetary policy,
“Accompanied as it were by harvest failure, the monetary confusion of 1636 had a drastic impact on the wage-earners, and the next two or three years wiped out half the gain in real wages that they had made in the preceding seven. But, as the war made the poor poorer, so it created spectacular opportunities for others to grow rich. The crown's bankers, the military entrepreneurs, strategically placed ministers and royal officials, tax-collectors, the administrators of royal rents and the poderosos of the towns and villages—all saw an opportunity in the crown's embarrassments to feather already well-feathered nests.”
Thus, the Spanish economy remained firmly in the claws of the financial and political classes. In an attempt to loose the wealth of the nobility for the good of the greater economy, Olivares would unsuccessfully initiate various banking reforms, even, to almost universal domestic consternation, bringing in the hated international financiers, the Genoese. Nothing proved successful. The financial class and political classes pushed ever greater burdens on those below, leading in the 1630s to revolts around Spain. Elliott, writing of one such revolt in the Basque region, states,
“The Bilbao riots can be seen at one level as an uprising in defence of traditional Basque liberties. But at another they constituted a movement of popular protest against the domination of the region's life by an entrenched oligarchy—by town councilors, and rich merchants and the local nobility, who formed and intricate network of power and patronage.”
In the early 1640s, with Spain now at war with France, and the crown facing ever greater economic uncertainty, Olivares was run from office. His reforms had failed and though many things he attempted were tried again in the coming decades, the Spanish empire was set on the road to a long slow decline. Elliott concludes,
“To reverse the trajectory of a nation through revolution from above demands a high degree of discontinuity, with all the consequent strains on the fabric of society. In the circumstances of the seventeenth century the kind of social engineering required to produce such discontinuity was neither intellectually conceivable nor within the realms of administrative possibility. The ordering of society was God-given and its vision of the future was bounded by the veneration of the past. At best, the would-be reformer could do little more than seek to purge excesses, remove abuses, and introduce more or less piecemeal certain administrative, economic and institutional changes which might with the passage of time to help to modify or alter the attitudes of the society at large.”
Clearly 17th century Spain faced many similar challenges the United States faces at the beginning of the 21st. We have an economy increasingly financialized and centralized, unsustainable military burdens, and a dysfunctional and corrupt political system. We can learn from the failures of Olivares, most importantly that all movements for reform must be both resolute and significant. Other lessons we can take from Olivares' experiences:
When there are systemic political economy problems, simply swapping-out personnel is insufficient.
Power is zero-sum. You have to fight and take from established power in order to implement reform. You cannot make them happy, they will be angry. In another era of reform Franklin Roosevelt replied to the wails of entrenched power, “I welcome their hatred.”
When you have problems with the physical economy, no amount of manipulation of the monetary system is going to change things, unless you simultaneously fix the problems of the physical economy. If a system is centralized, dysfunctional, and corrupt, the essential and primary action of reform is to break-up and distribute power.
This last point, optimistically separates us from 17th century Spain. Combining this point with Elliott's insight of Spanish reform being hampered by veneration of the past, an inability to imagine distributing power from established hierarchy, we fully see our advantage. Our republic was born in rebellion against entrenched hierarchy. Whether it is too much corrupt and dysfunctional power in DC, on Wall Street, or in our mega-corporations, the most essential element of reform, breaking up and distributing power is part of the blood coursing the veins of this republic's body politic. It flows in each of us or once did anyway.
Originally published in 2010
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