Social scientists use the history of Spain and her empire as a standard against which they establish the relatively superior efficiency of Anglo-Saxon institutions. This historical “experiment” underpins the core argument of new institutional economic history. This essay argues that such comparisons are based on a misleading characterization of Spanish rule in the metropolis and overseas. For some time, historians of Spain and colonial Spanish America have emphasized that the Spanish system of governance was highly negotiated rather than absolutist. This essay confirms this view by analyzing the workings of the peninsular and colonial fiscal systems. Revenues were not extracted to Madrid but instead were widely redistributed across regions. Contrary to received wisdom, there was a great degree of local autonomy in managing and allocating these intraregional transfers of revenues. The crown barely controlled the system; yet it acted as the ultimate arbiter of a very flexible arrangement that effected the distribution of the fiscal burden across colonial regions and economic sectors. This setup explains the lack of serious challenges from within during three hundred years of imperial rule. Napoleon’s invasion of Spain in 1808 and the abduction of the king caused a major shock to this system of redistribution. The implosion of Spanish rule led to conflict over revenues and resources among constituent parts of the empire. The ensuing search for a legitimate replacement ruler consumed the following century in postcolonial Spanish America. A comparable pattern of constitutional failure, political instability, and poor economic performance was replicated in Spain throughout the nineteenth century.

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