Why Nations Fail: The Origins of Power, Prosperity, and Poverty

A S
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ATTERED
Absolutism crumbled in England during the seventeenth century but
got stronger in Spain. The Spanish equivalent of the English
Parliament, the Cortes, existed in name only. Spain was forged in
1492 with the merger of the kingdoms of Castile and Aragon via the
marriage of Queen Isabella and King Ferdinand. That date coincided
with the end of the Reconquest, the long process of ousting the Arabs
who had occupied the south of Spain, and built the great cities of
Granada, Cordova, and Seville, since the eighth century. The last Arab
state on the Iberian Peninsula, Granada, fell to Spain at the same time
Christopher Columbus arrived in the Americas and started claiming
lands for Queen Isabella and King Ferdinand, who had funded his
voyage.
The merger of the crowns of Castile and Aragon and subsequent
dynastic marriages and inheritances created a European superstate.
Isabella died in 1504, and her daughter Joanna was crowned queen of
Castile. Joanna was married to Philip of the House of Habsburg, the
son of the emperor of the Holy Roman Empire, Maximilian I. In 1516
Charles, Joanna and Philip’s son, was crowned Charles I of Castile
and Aragon. When his father died, Charles inherited the Netherlands
and Franche-Comté, which he added to his territories in Iberia and
the Americas. In 1519, when Maximilian I died, Charles also inherited
the Habsburg territories in Germany and became Emperor Charles V
of the Holy Roman Empire. What had been a merger of two Spanish
kingdoms in 1492 became a multicontinental empire, and Charles
continued the project of strengthening the absolutist state that
Isabella and Ferdinand had begun.
The effort to build and consolidate absolutism in Spain was
massively aided by the discovery of precious metals in the Americas.
Silver had already been discovered in large quantities in Guanajuato,
in Mexico, by the 1520s, and soon thereafter in Zacatecas, Mexico.
The conquest of Peru after 1532 created even more wealth for the

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monarchy. This came in the form of a share, the “royal fifth,” in any
loot from conquest and also from mines. As we saw in 
chapter 1
, a
mountain of silver was discovered in Potosí by the 1540s, pouring
more wealth into the coffers of the Spanish king.
At the time of the merger of Castile and Aragon, Spain was among
the most economically successful parts of Europe. After its absolutist
political system solidified, it went into relative and then, after 1600,
absolute economic decline. Almost the first acts of Isabella and
Ferdinand after the Reconquest was the expropriation of the Jews.
The approximately two hundred thousand Jews in Spain were given
four months to leave. They had to sell off all their land and assets at
very low prices and were not allowed to take any gold or silver out of
the country. A similar human tragedy was played out just over one
hundred years later. Between 1609 and 1614, Philip III expelled the
Moriscos, the descendants of the citizens of the former Arab states in
the south of Spain. Just as with the Jews, the Moriscos had to leave
with only what they could carry and were not allowed to take with
them any gold, silver, or other precious metals.
Property rights were insecure in other dimensions under Habsburg
rule in Spain. Philip II, who succeeded his father, Charles V, in 1556,
defaulted on his debts in 1557 and again in 1560, ruining the Fugger
and Welser banking families. The role of the German banking families
was then assumed by Genoese banking families, who were in turn
ruined by subsequent Spanish defaults during the reign of the
Habsburgs in 1575, 1596, 1607, 1627, 1647, 1652, 1660, and 1662.
Just as crucial as the instability of property rights in absolutist
Spain was the impact of absolutism on the economic institutions of
trade and the development of the Spanish colonial empire. As we saw
in the previous chapter, the economic success of England was based
on rapid mercantile expansion. Though, compared with Spain and
Portugal, England was a latecomer to Atlantic trade, she allowed for
relatively broad-based participation in trading and colonial
opportunities. What filled the Crown’s coffers in Spain enriched the
newly emerging merchant class in England. It was this merchant class
that would form the basis of early England economic dynamism and

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become the bulwark of the anti-absolutist political coalition.
In Spain these processes that led to economic progress and
institutional change did not take place. After the Americas had been
discovered, Isabella and Ferdinand organized trade between their new
colonies and Spain via a guild of merchants in Seville. These
merchants controlled all trade and made sure that the monarchy got
its share of the wealth of the Americas. There was no free trade with
any of the colonies, and each year a large flotilla of ships would
return from the Americas bringing precious metals and valuable
goods to Seville. The narrow, monopolized base of this trade meant
that no broad class of merchants could emerge via trading
opportunities with the colonies. Even trade within the Americas was
heavily regulated. For example, a merchant in a colony such as New
Spain, roughly modern Mexico, could not trade directly with anyone
in New Granada, modern Colombia. These restrictions on trade within
the Spanish Empire reduced its economic prosperity and also,
indirectly, the potential benefits that Spain could have gained by
trading with another, more prosperous empire. Nevertheless, they
were attractive because they guaranteed that the silver and gold
would keep flowing to Spain.
The extractive economic institutions of Spain were a direct result of
the construction of absolutism and the different path, compared with
England, taken by political institutions. Both the Kingdom of Castile
and the Kingdom of Aragon had their Cortes, a parliament
representing the different groups, or “estates,” of the kingdom. As
with the English Parliament, the Castilian Cortes needed to be
summoned to assent to new taxes. Nevertheless, the Cortes in Castile
and Aragon primarily represented the major cities, rather than both
the urban and rural areas, as the English Parliament did. By the
fifteenth century, it represented only eighteen cities, each of whom
sent two deputies. In consequence, the Cortes did not represent as
broad a set of groups as the English Parliament did, and it never
developed as a nexus of diverse interests vying to place constraints on
absolutism. It could not legislate, and even the scope of its powers
with respect to taxation was limited. This all made it easier for the

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Spanish monarchy to sideline the Cortes in the process of
consolidating its own absolutism. Even with silver coming from the
Americas, Charles V and Philip II required ever-increasing tax
revenues to finance a series of expensive wars. In 1520 Charles V
decided to present the Cortes with demands for increased taxation.
Urban elites used the moment to call for much wider change in the
Cortes and its powers. This opposition turned violent and quickly
became known as the Comunero Rebellion. Charles was able to crush
the rebellion with loyal troops. Throughout the rest of the sixteenth
century, though, there was a continuous battle as the Crown tried to
wrest away from the Cortes what rights to levy new taxes and
increase old ones that it had. Though this battle ebbed and flowed, it
was ultimately won by the monarchy. After 1664 the Cortes did not
meet again until it would be reconstructed during the Napoleonic
invasions almost 150 years later.
In England the defeat of absolutism in 1688 led not only to
pluralistic political institutions but also to the further development of
a much more effective centralized state. In Spain the opposite
happened as absolutism triumphed. Though the monarchy
emasculated the Cortes and removed any potential constraints on its
behavior, it became increasingly difficult to raise taxes, even when
attempted by direct negotiations with individual cities. While the
English state was creating a modern, efficient tax bureaucracy, the
Spanish state was again moving in the opposite direction. The
monarchy was not only failing to create secure property rights for
entrepreneurs and monopolizing trade, but it was also selling offices,
often making them hereditary, indulging in tax farming, and even
selling immunity from justice.
The consequences of these extractive political and economic
institutions in Spain were predictable. During the seventeenth
century, while England was moving toward commercial growth and
then rapid industrialization, Spain was tailspinning toward
widespread economic decline. At the start of the century, one in five
people in Spain was living in urban areas. By the end, this figure had
halved to one in ten, in a process that corresponded to increasing

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impoverishment of the Spanish population. Spanish incomes fell,
while England grew rich.
The persistence and the strengthening of absolutism in Spain, while
it was being uprooted in England, is another example of small
differences mattering during critical junctures. The small differences
were in the strengths and nature of representative institutions; the
critical juncture was the discovery of the Americas. The interaction of
these sent Spain off on a very different institutional path from
England. The relatively inclusive economic institutions that resulted
in England created unprecedented economic dynamism, culminating
in the Industrial Revolution, while industrialization did not stand a
chance in Spain. By the time industrial technology was spreading in
many parts of the world, the Spanish economy had declined so much
that there was not even a need for the Crown or the land-owning
elites in Spain to block industrialization.