The Loss of the American Empire

Abstract

The loss of the Americas empire has been deemed one of the main causes of Spain’s economic backwardness in the nineteenth century. This chapter assesses its economic effects. The emancipation of the mainland American colonies impacted negatively on Spain’s economy, especially in the short run, with a contraction of international trade, domestic investment and the Monarchy’s revenues. However, the aggregate effects on the economy were narrower and less deep than conventionally assumed by historians and, in the long run, may have had contributed to the demise of the Ancien Régime that paved the way to the liberal society.

An earlier version appeared as L. Prados de la Escosura (1993), “La pérdida del imperio y sus consecuencias económicas”, in L. Prados de la Escosura and S. Amaral, eds., La independencia americana: consecuencias económicas, Madrid: Alianza, pp. 253–300. A full revision of the estimates and the main text has been carried out.

1 Introduction

The repercussions on the Spanish economy and society of the emancipation of the colonies on the American continent are a common reference for historians seeking to explain Spain’s backwardness in the European context during the nineteenth century, as well as for those addressing the political and institutional transition from the Ancien Régime to liberal society. Historians agree that the political and economic rupture between Spain and its American possessions was an influential element in Spain’s path towards modernisation. The wars with France and Great Britain, the Napoleonic invasion of the Peninsula, and the loss of most of the empire, are events that coincided in time and, consequently, it is extremely difficult to disentangle the impact that each of them had on Spanish society. However, in the context of Western Europe, the transition to the liberal regime appears longer and more costly in Spain than in other societies. Thus, in the early nineteenth century, historians have detected a discontinuity in the expansionary process that had begun in the final decades of the eighteenth century (Tedde de Lorca, 1988). The available evidence tends to support this view and suggests that, while at the end of the eighteenth century living standards were behind, but at a moderate distance from, countries such as France and even Great Britain, by the mid-nineteenth century the Spanish position had deteriorated sharply (Chap. 2, Fig. 2.14).

Attempts to explain Spain’s inability to develop along the lines of north-western European nations usually distinguish between endogenous and exogenous causal factors (Prados de la Escosura, 1988; Tortella, 1994). Most historians, however, have emphasised the role of external forces in Spain’s backwardness (Nadal, 1975). The loss of empire as a result of the Napoleonic Wars and the subsequent reorientation towards Europe, as well as the gradual integration into the Western European economy, have been judged detrimental to Spanish economic development. The emancipation of the colonies constituted a serious setback for Spanish economic modernisation, and those regions closely linked to colonial trade saw their modern development frustrated.¹ For decades, this line of argument has been reiterated by historians who, nonetheless, have failed to provide conclusive evidence in support of their interpretation.²

This chapter pursues this objective by providing new quantitative evidence on the annual evolution of the foreign sector between 1778 and 1820, and incorporating series of Treasury revenues (Merino, 1987). These data allow us to qualify previous results but do not by any means settle the debate. The effects of colonial emancipation on the accumulation and allocation of resources need to be investigated in detail, at both sectoral and regional level. Furthermore, the loss of the colonies needs to be placed in the context of the slow and complex emergence of liberal society, which defined new property rights and institutions.

Among the main findings, the following can be highlighted. The loss of the mainland colonies in the Americas impacted negatively upon the metropolis, especially in the short run, with a contraction of international trade, domestic investment and the Monarchy’s revenues. However, the aggregate effects on the economy were narrower and less deep than conventionally assumed by historians and may have contributed to the demise of the Ancien Régime that paved the way to the liberal society.

Several sections comprise the chapter. Sections 6.2 and 6.3 draw on new quantitative evidence to assess the effects of the loss of empire on public finances and the foreign sector, respectively. Section 6.4 offers an attempt to establish the direct impact of American independence on the Spanish economy by contrasting it with population and economic activity. Section 6.5 outlines some hypotheses regarding the indirect effects of colonial emancipation on the allocation of resources. Finally, by way of conclusion, some reflections on the regional and sectoral impact of American independence are offered.

2 The Impact of Independence on the Treasury

Historians’ revisionist work on economic policies during the second half of the eighteenth century has cast doubt on the ‘developmentalist’ intentions of Charles III’s governments.³ The argument put forward is that financial policy was guided by the criteria of sustaining the absolute monarchy, which entailed strengthening military power, with unbalancing consequences for the budget, leading to progressive indebtedness. The origin of the resources of the Old Regime Treasury aggravated the situation: faced with the inflexibility of ordinary revenues from internal sources, the State’s external revenues constituted a solid support that could be increased, while at the same time allowing the tax burden on peninsular subjects to be reduced (Barbier and Klein, 1981; Fontana, 1991). The role of tax revenues of colonial origin—customs revenue, in part, and the so-called remittances from the Indies—became particularly important (Cuenca Esteban, 1981a; Merino, 1987). The Ancien Régime thus depended on this fiscal system, at the risk of endangering its institutional stability. Therefore, supporters of this interpretation argue that a priority objective of state expenditure was the maintenance of the colonial status quo, which entailed a considerable defensive effort with its consequent repercussions on the expenditure composition (Barbier, 1980, 1984; Barbier and Klein, 1985). A dissenting opinion is held by Tedde de Lorca (1987a, 1990), who distinguishes between the financial situation of the reign of Charles III and the early years of Charles IV, in which a balanced budget prevailed and economic policy favoured economic progress in a framework of openness to the international economy, and that which corresponds to the late eighteenth century, when the monarchy, faced with the distressing situation of the Treasury due to the wars, would have had to resort to the issue of royal vouchers (vales reales) and the confiscation of ecclesiastical property in order to finance growing defence expenditure. Tedde de Lorca (1990) also points out that the Spanish fiscal structure was not antagonistic to that of successful economic countries such as Great Britain (see also García-Cuenca, 1991). Thus, it is of great interest to contrast the composition of revenues and expenditures in both countries. The available evidence corroborates this hypothesis and suggests that, contrary to the revisionist interpretation, there is a certain similarity between the two treasuries: the structure of public expenditure in wartime (1776–1783) shows that, in both Spain and Britain, defence accounted for just over 60% of expenditure, while debt servicing amounted to 30% in the British case and barely half of this percentage in the Spanish case (O’Brien, 1988; Tedde de Lorca, 1990).⁴ In peacetime (1784–1792), however, the discrepancies were more marked: while in the British case, defence expenditure did not reach a third of the total, in Spain it remained close to wartime levels.⁵ This feature of the Spanish expenditure structure would, however, tend to support Barbier and Klein’s interpretation, although the lower weight of debt interest would have allowed Spain more room for manoeuvre in civil administration expenditure. The similarity between the spending structure of the Spanish and British states highlights the mercantilist conception that presided over the economic decisions of both monarchies and allows us to reconcile the developmentalist aspects with a strategy (inevitable in the international context) of military and political power: military spending could be considered as a prerequisite for economic progress (O’Brien, 1991). Foreign markets, essential for the achievement of economic progress, had to be conquered at the expense of enemy powers, and their protection required a heavy investment in naval power. Thus, the increasing military expenditure was intended to guarantee the exclusive right to trade with the Indies. At the same time, foreign trade provided the monarchy with a flexible source of taxation to sustain the empire.⁶

If, alternatively, revenues are considered, we detect the not inconsiderable role of those coming from abroad in Spain and Great Britain, whose structure, once again, was not so different. The idea of economic progress in a context of financial stability and high public spending, as shown by Tedde Lorca for the reign of Charles III, is fully consistent with the mercantilist context outlined. Therefore, the wars against England and, later, France, must have constituted an external shock on the basis of the information on the Spanish financial structure, a shock that did not seem to have been anticipated by the economic agents but which, nevertheless, would unbalance this structure due to the sharp fall in colonial revenues.

With the interruption of economic relations with the colonies, the absolutist state saw its revenues seriously affected (Fig. 6.1). Thus, while total revenue rose slightly (by 9% between 1794/1796 and 1815/1820), external revenue, which represented just over a quarter on the eve of the Napoleonic Wars, fell to a third of its volume (i.e. at a cumulative annual rate of −4% at constant prices) and, after the war, accounted for less than 10% of total revenue. Part of the decline can be attributed to the disappearance of the so-called Remesas de Indias, the silver surplus of the colonial treasuries which, after deducting administrative expenses, were sent to Spain (Canga-Argüelles, 1833–1834: ii; Artola, 1978: 204; Fontana, 1971. 57–67). Indies Remittances came to represent 20% of the state’s overall revenue in 1791.⁷ The rest of the fall in external revenues was due to the contraction of customs revenues to about half their volume (at −2% per annum), and they fell from 17% of total revenues in 1784/1792 to 9% in 1815/1820. Expenditure, on the other hand, increased during the wars and did not return to pre-war levels after the restoration of peace. The relative impact on the Spanish economy can be observed in Fig. 6.2. Comparison with the British case again shows analogies such as customs revenue, which in Britain amounted to between a fifth and a quarter of crown revenues on the eve of the Napoleonic wars, while the differentiating feature was the impossibility for Spain to maintain the same proportion in wartime.⁸

Fig. 6.1

Total revenues and its composition, 1778–1820 (1808 Reales). Sources: Table 6.2

Fig. 6.2

Total and external revenues, 1778–1820 (% GDP) (current prices). Sources: Table 6.3

3 The Impact of Independence on the External Sector

The contribution of foreign trade, and especially colonial trade, to economic growth during the eighteenth century has been a source of controversy in European historiography. The reason is the opposition between the Ricardian theory of comparative advantage, in which, under conditions of full employment, the role of trade depends on the differential remuneration between productive factors employed in production for the domestic or international market, and the Smithian doctrine, which establishes a long-term relationship between growth and trade in which exports provide a ‘vent for surplus’ for resources for which there is no demand at home.⁹

In his evaluation of financial and trade policies under Charles III, Tedde de Lorca (1990: 207) formulated a positive interpretation of the role played by foreign trade in the Spanish economy during the late eighteenth century: the boom in trade favoured a productivity increase of the Spanish economy between 1778 and 1790 through an increase in production—thanks to the use of idle or underemployed resources—and a rise in marginal efficiency in some sectors and regions as a consequence of greater specialisation.¹⁰ Fontana’s (1991: 305–309) assessment coincides in underlining the importance of colonial trade for the Spanish economy, derived, in part, from contemporaries’ perception of the vital nature of the colonies for the metropolis as a reserved market for its manufactures and a means of supplying raw materials and foodstuffs.¹¹

In Spain, the historical debate on the role of colonial trade in growth has focused on the controversy surrounding the economic effects of so-called ‘Free Trade’ between the ports of the metropolis and those of the colonies (and between the colonies themselves), which became particularly noticeable after the end of the American War of Independence. The ‘Free Trade Regulations’ were aimed at increasing colonial trade, with the consequent repercussions on customs revenues. The interpretation of the ‘free trade’ decrees is divided into two positions: those who see an increase in the volume of exports, both of national and foreign products, which was, however, exceeded by the increase in imports of colonial products; and those who see the Bourbon measures as a wasted opportunity to promote the export of domestic products—overestimated, as foreign goods were re-exported under their guise—by giving priority to tax revenue rather than economic development.¹² It is therefore appropriate to examine the level and structure of foreign trade at the end of the eighteenth century and to assess the changes this trade underwent as a result of colonial emancipation.

The lack of complete annual statistics, such as those available for Great Britain, France or the United States, is not an insurmountable obstacle to the study of the effects on the foreign sector of the independence of the colonies on the American continent. The statistical reconstruction of colonial trade, together with the reworking of the American, French and British series for Spain’s trade with these countries, permits an attempt to reconstruct an annual series of Spanish foreign trade between 1778 and 1820. Naturally, the use of the new series must be cautious, for while it seems adequate in order to trace the long-term evolution of trade, its reliability is more doubtful for short-term analysis. Appendix describes the sources and procedures used to derive the trade series.

The evolution of total exports of Spanish products shows a decline, in real terms, of almost 25% (i.e. a cumulative annual rate of −1%) between 1784/1796 and 1815/1820, mostly attributable to colonial trade (Fig. 6.3). The moderate decline in demand for Spanish products in Western Europe (less than 10% between 1784/1796 and 1815/1820) reduced the impact on the total volume exported of the sharp contraction in colonial markets—the level in 1815/1820 fell to 40% of that in 1784/1796, at an average annual rate of −3.2%—. The consequence was an appreciable alteration in the geographical composition of trade, which broke a secular balance between exports to Europe and the Indies (64% and 36%, respectively, by 1784/1796) in favour of exports abroad, which came to account for about four-fifths after the end of the Napoleonic Wars (Table 6.1). The new balance would persist throughout the nineteenth century.

Fig. 6.3

Real exports and its composition, 1778–1820 (1808 Reales). Sources: Table 6.6

Table 6.1 International trade composition, 1792–1827 (%) (1778 prices for 1792 and current prices for 1827)

The total volume of net imports (i.e. retained for domestic consumption) did not experience any decline, since, as the weight of colonial products was a minority (23% in 1786/1796), the fall in colonial imports destined for the Spanish market after the Napoleonic Wars—up to 53% of the 1784/1796 level—was offset by the rise in imports from the rest of the world (Fig. 6.4). After the Napoleonic wars, the share of products of colonial origin in net imports fell to around 15% in 1815/1820, a proportion that changed little until the independence of Cuba and Puerto Rico in 1898 (Prados de la Escosura, 1982b: 48).

Fig. 6.4

Real imports and its composition, 1778–1820 (1808 Reales). Sources: Table 6.6

The decline of Spanish trade with Latin America following independence also involved the collapse of the financial, transport and maritime insurance services that constituted a not inconsiderable part of the profits of the colonial system. Thus, the fall in total re-exports, at an annual rate of −3.4% in real terms, is indicative of the decline in services performed by Spaniards, which, in 1815/1820, accounted for 39% of the level reached in 1784/1796 (Fig. 6.5). The collapse of re-exports of European products to the colonies was even more pronounced, as after the Napoleonic wars they accounted for only 25% of the pre-war level. Moreover, as colonial legislation, which excluded traffic on non-Spanish flagged ships, ceased to apply, shipping and maritime insurance services were contracted out to foreign agents offering more advantageous conditions (Ashton, 1955: 134; Izard, 1974: 303).

Fig. 6.5

Real re-exports and its composition, 1778–1820 (1808 Reales). Sources: Table 6.6

The balance of trade was also affected by the independence of the colonies (Fig. 6.6). The loss of overseas markets led to a drastic contraction of the colonial merchandise surplus and a consequent deepening of the Spanish trade deficit. Private remittances from the Indies, i.e. private shipments of gold and silver to Spain, provide valuable additional information about the balance of payments of the metropolis with the colonies.¹³ In addition to the difference between total imports and exports (i.e. including re-exports of European and colonial products), private shipments of gold and silver would include freight and insurance carried out by Spaniards, as well as the profits derived from the commercialisation of exported and re-exported products in the colonial markets (Cuenca, 1981b: 423–424).¹⁴ After the Napoleonic invasion of the peninsula and the beginning of the emancipation process, private remittances of precious metals probably also included repatriation of capital. Private remittances from the Indies contributed decisively to financing the current account deficit of the Spanish balance of payments (generated by trade with foreign countries). Indeed, despite the precariousness of the quantitative information available on Spain’s balance of services and unilateral transfers abroad, it is possible to carry out some arithmetic exercises to verify the plausibility of this hypothesis. Thus, for example, in the period 1784/1796, American silver outgoing from Spain to foreign countries, including smuggling, amounted to 321.5 million Reales (Tedde de Lorca, 1990: 210–214).¹⁵ In the same period, private shipments of precious metals from the colonies averaged 355.1 million Reales a year. Thus, both items tended to balance out with a slight surplus for Spain (33.6 million).¹⁶ On the other hand, if one notes that the balance of the Spanish balance of goods in these years was −125.8 million, and compares this figure with the 321.5 million silver sent abroad, one could conjecture that there was also a negative balance in terms of services and unilateral transfers. In the years 1815/1820, private silver remittances amounted to 134.4 million for the period 1815/1820, while the deficit of the Spanish balance of merchandise amounted to 179.4 million, which shows that, after the Napoleonic wars, the mechanism of financing the current account deficits of the Spanish balance of payments that had prevailed in the colonial period was broken, with foreseeable deflationary consequences (Cuenca, 1981b: 424; Fontana, 1970).

Fig. 6.6

Trade balance and its composition, 1778–1820 (% GDP) (current prices). Sources: Table 6.5

The favourable trend in the terms of trade, i.e. the relative prices of exports in terms of imports, prevented a further deterioration in the international position of the Spanish economy (Fig. 6.7). This was because the deterioration in the terms of trade between Spain and the Indies (which fell by 15% between 1784/1796 and 1815/1820) was offset by the improvement with foreign countries (by 61% in these years), resulting in a 20% increase in purchasing power per unit exported.

Fig. 6.7

Terms of trade, 1778–1820 (1808=100). Sources: Table 6.7

After emancipation, trade between Spain and the new republics virtually disappeared. The image is somewhat exaggerated, as the Spanish Antilles maintained their role as a distribution centre in Spanish America for goods from the Spanish mainland.¹⁷ However, trade links with the new republics would take a long time to be resumed, unlike the immediate re-establishment of economic relations that took place between Britain and its thirteen former colonies in North America (Shepherd and Walton, 1976). From the outbreak of war with Britain in October 1796, regular contacts were virtually interrupted for two decades. The war conflict was to be compounded by the refusal of successive Spanish governments to accept the sovereignty of the new nations, which included plans for reconquest (Parry, 1966: 362; Cuenca Esteban, 1982: 447–448).

4 The Direct Impact on the Economy

So far, we have examined the repercussions on those sectors most immediately and directly affected by the emancipation of the colonies. It would be of interest to find out what the impact was on the level of economic activity and the material well-being of the Spanish population.

The decline in economic activity in Spain as a result of the independence of the American colonies could be calculated as the decline in trade with the Indies, weighted by the relative importance of colonial trade in the economy. Thus, the decline in the volume of Spanish exports between 1784/1796 and 1815/1820, multiplied by the ratio of exports to gross domestic product in 1784/1796, would give a measure of the direct impact of the loss of empire. However, the contribution of a given sector to the growth of the economy is measured by the difference its contribution makes at the margin (O’Brien, 1982: 17). In this case, the importance of colonial trade for the Spanish economy should be measured as the difference between the remuneration received for the factors of production embodied in the exported goods and services, and the hypothetical remuneration that would be derived if the same resources had been allocated to other productive activities.¹⁸ Consequently, only when there was no alternative use for the factors devoted to the production of exportables, i.e. when exports allowed for the employment of resources that would otherwise remain idle, could it be deduced that the loss to the economy would be equal to the amount of the fall suffered by colonial trade (Myint, 1958, 1977).

In Spain at the end of the Ancien Régime, the opportunity cost of allocating factors of production to the foreign sector must have been low, especially in the case of labour, which was probably underemployed.¹⁹ In the short term, the transfer of productive resources to the rest of the economy from the sectors that produced for the colonial markets would be slow and painful, and not without political costs for the Ancien Régime, while the remuneration per unit of factors of production (capital, labour, natural resources) would decrease. The alternative assumption would imply accepting that, without colonial trade, full employment and productivity levels would have been maintained. It is difficult to accept, however, that the investment opportunities and incentives for technical and organisational innovation generated by colonial trade in the eighteenth century would have remained unchanged in its absence (Myint, 1977; O’Brien and Engerman, 1991).²⁰ Consequently, without colonial trade, national income would predictably be lower. In the long run, however, there would tend to be an adjustment in the distribution of productive resources, and the factors of production previously allocated to the export sector would have been re-employed in production to supply domestic or foreign demand.²¹

It is impossible to measure precisely the cost to Spain of the loss of the empire. However, a tentative calculation can be made by systematically biasing estimates in favour of the generally accepted hypothesis that the independence of the colonies constituted a serious setback for the Spanish economy (Coelho, 1972–1973: 254). Thus, if the per capita cost of Spanish-American emancipation were small, it could be argued that, in reality, the true cost was even lower.

First, I will assume that the productive resources embodied in the Spanish goods exported to the colonies would not have found alternative employment outside the foreign sector. In other words, the fall in exports of Spanish products, as a result of American independence, could only be compensated for by increasing trade with other regions of the world. Exports of national goods to the colonies contracted by 59.7%, or 124.9 million Reales, at 1784/1796 prices, between these years and 1815/1820.

The reduction of Spanish maritime transport services used in commercial traffic between the metropolis and its colonies represents the second cost to be considered. In contrast to trade with the rest of the world, which was almost entirely carried out by non-Spanish ships, trade with the Indies, under colonial legislation, was reserved for national ships. The decline of trade with Spanish America, following its independence, meant a contraction of the transport services provided by Spaniards. I will assume, therefore, that the financial and transport services (freight and insurance) provided by Spaniards in the colonial trade would decline in parallel with the contraction of the colonial merchandise trade. This decline would not be compensated to any extent by the hypothetical increase in trade with the rest of the world, which would be carried out by ships and companies from other countries. Thus, the productive resources allocated to the provision of maritime transport services would not find alternative employment in the Spanish economy. In order to estimate this cost, the procedure followed consists of calculating the percentage of the value of trade that freight, insurance and mercantile commissions may constitute, and applying it to the contraction experienced by colonial trade. Between 1784/1796 and 1815/1820, the fall in trade with the Indies can be estimated at 56.8%, i.e. 417.4 million Reales in 1784/1796, and 30% of this sum, 125.2 million Reales, corresponds to transport services.²²

Finally, it would be necessary to consider the profits obtained in the commercialisation of products exported and re-exported to America, and subsequently repatriated to the metropolis, which would disappear with the reduction of trade after American independence. Exports, both of Spanish and foreign products, contracted by 65.8% between 1784/1796 and 1815/1820, that is, by 291.5 million at 1784/1796 prices; if we accept a trade margin in their distribution and sale of 80%, the total sum that Spanish merchants ceased to receive would amount to 233.2 million Reales, at 1784/1796 prices.²³ If 50% of this amount, 116.6 million Reales, represented profits remitted to the peninsula, this would give an upper limit to the amount that would cease to be sent to Spain as a result of the loss of the empire.²⁴

If we add up the three previous items, corresponding to the trade in goods and services and their commercialisation, we reach a figure of 366.7 million, which corresponds approximately to that of private remittances from the Indies or shipments of gold and silver made by individuals, 355.1 million.²⁵

The losses to the Treasury caused by the disappearance of the remittances of precious metals received from the colonial administrations (caudales de Indias) and by the reduction in general and customs revenues as a result of colonial independence, represent a cost to the Spanish economy that must also be evaluated. The caudales de Indias amounted to an annual average of 114.1 million Reales in the period 1784/1796, and became insignificant in the wake of the Napoleonic Wars, before finally disappearing with the final emancipation of the colonies. This decline could be identified as the loss resulting from the end of silver shipments to the Royal Treasury, assuming they were all retained in Spain.²⁶

Finally, the decline in revenue from customs duties levied on exports and re-exports to the Indies and products of colonial origin that Spain re-exported abroad must be assessed. It should be stressed that, from the point of view of Spanish welfare, only taxes levied on exports and re-exports with price-inelastic demand should be taken into account, since otherwise, the volume of exports and re-exports would tend to be reduced. On the other hand, customs duties on imports destined for the Spanish market should not be included in the computation of the costs of the loss of the colonies, as they burdened domestic consumers and reduced their purchasing power (to a lesser extent if the demand was price-elastic). In estimating the cost of the fall in customs revenue, I have accepted the assumption that both colonial demand for imports and European demand for colonial products were perfectly price inelastic. This is, therefore, an upward estimate of the impact of the loss of empire on the Spanish economy.

In this estimate, as in the estimate of remittances from the Indies, I have assumed that the Treasury’s use of its colonial revenues was fully productive and entirely carried out on the mainland. Thus, the decline in the revenues of the Treasury would have had a negative effect on welfare in Spain. Since it is doubtful that all the state revenue of the Ancien Régime was used productively, the estimates given here represent an upper limit.

To obtain the customs revenues derived from colonial trade in the periods 1784/1796 and 1815/1820, I calculated the percentage of Spain’s foreign trade represented by total re-exports and exports to the colonies (35%), and applied it to the total value of general and customs revenues. Between 1784/1796 and 1815/1820, the drop in customs revenue caused by American independence would have been 60.6%, or 35.2 million Reales (1784/1796 prices).

The total direct costs of independence under restrictions that bias them upwards would therefore amount to some 516 million Reales, expressed at average prices for the period 1784/1796.

In order to make economic sense of this figure, it is necessary to relate it to some indicator of Spanish productive activity. It could also be compared with the taxes levied on the population: for example, the impact of American independence would be equivalent to five times the volume of provincial revenues or consumption taxes (Merino, 1987).²⁷

An alternative way would be to relate the per capita burden of colonial emancipation to wages. Thus, the per capita impact of American independence would represent an amount comparable to that of 10 days’ wages for a rural labourer, or 7 days’ wages for a bricklayer.²⁸ If we assume that a bracero worked 170 days a year, this would represent a 6% income drop.²⁹

If we compare the total direct costs of colonial independence to population, this gives a figure of 46.5 Reales per head (at 1784/1796 prices).³⁰ This represents a 5.3% loss in terms of per capita GDP (881 Reales at 1784/1796 prices).

The various estimates offered of the direct impact of the loss of empire on the Spanish economy are subject to very restrictive assumptions that bias them upwards, such as accepting that the productive resources allocated to the production of goods and services for the colonial market would be unemployed in the absence of the colonies. This means that the magnitude of the fall in per capita income is only an upper limit to what actually took place. If the estimates obtained in this tentative arithmetical exercise are compared with the dominant view among historians, a marked discrepancy becomes apparent. Can American independence still be described as a ‘brutal event, a ‘disaster’, or a ‘serious economic and financial disruption’?

5 The Impact on Resource Allocation

The use of average measures such as those employed so far could be objected to. Expressing the value of any economic activity as a percentage of national income tends to create a false impression of insignificance (O’Brien and Engerman, 1991: 178). It may conceal its impact on the structural transformations accompanying economic growth. Moreover, the disparate regional effects of the contraction of colonial trade would challenge the conclusions drawn from national aggregates (Fontana, 1991: 313–316).³¹ The task of pinpointing the externalities of colonial trade on the Spanish economy is beyond the scope of this chapter. Nevertheless, in the following paragraphs, I have attempted to sketch the most immediate implications of the loss of empire for the modernisation of the Spanish economy.

It is therefore worth examining the gains from specialisation induced by colonial trade. The composition of colonial imports, primary products, mostly foodstuffs (sugar and cocoa amounted to 61.4% of imports retained for domestic consumption in 1792) shows that the possibility of increasing Spanish production through a reallocation of resources towards industry would have been small, and that most of the gains must have come from improved consumption patterns. It can be argued, however, that the tasks of refining and processing these raw materials would increase industrial value added.³² However, colonial products could be purchased on the international market and, consequently, the gains from trade with the Indies would only occur if, under the colonial system, Spain obtained the same goods at lower prices.³³ In the case of sugar, moreover, there were no alterations in the colonial relationship, as it came from Cuba. The recovery of cocoa imports, on the other hand, was already a fact in the 1830s (Prados de la Escosura, 1982a: 238, 246).

On the other hand, the colonies’ dependence on the Spanish industry for supplies was small (cotton, indigo and dye sticks together accounted for 4.1% of imports retained in 1792). In the case of Catalan cotton manufactures, one of the most dynamic industries at the end of the eighteenth century, the imports of yarns, of European origin, had a much greater weight than those of raw cotton of colonial origin (2.9% and 0.2% of total retained imports in 1792, respectively), which, in turn, reveals the weakness of spinning in Catalonia (Prados de la Escosura, 1982a: 86, 238; Vilar, 1968, ii: 131, 138; Nadal, 1975: 189–190).

Manufactured exports to the colonies must have stimulated industrial development in Spain, as they were concentrated in a few sectors: two-thirds were textiles (36.8%), iron and steel (3.2%), paper (4.4%) and foodstuffs (22.3%).³⁴ Some of these industries represented advanced manufacturing sectors, with important external economies and frequent regional development effects, such as the cotton and silk textile industry. On the other hand, colonial legislation made Spanish manufactures artificially competitive in the Spanish-American market.³⁵ Even so, the lack of competitiveness of Spanish manufactures at the end of the eighteenth century is highlighted by the volume of manufactures re-exported to the colonies, despite the high taxes levied on them when they entered Spain and when they were re-shipped to the colonies.³⁶ One consequence of this lack of competitiveness was reflected in the export of manufactured products in which the Spanish contribution to their added value was only in the finishing stage, as in the case of Catalan prints.³⁷ The loss of Latin American markets for the Spanish industry seems, however, to date back to earlier times. Thus, for example, after the establishment of free ports in the British West Indies in 1766, traffic between Britain and the Spanish colonies expanded without the mediation of the metropolis.³⁸ On the other hand, it has been argued that the increasing fiscal pressure on colonial trade between 1792 and 1820, in order to counteract the rising budget deficit, constituted an additional obstacle to the competitiveness of Spanish manufactures (Cuenca Esteban, 1982: 393).

It is therefore appropriate, in view of the evidence presented, to try to compare the contraction of manufacturing exports with indicators of industrial activity. However, one question that remains after this examination is whether or not the externalities derived for the economy from industrial exports are underestimated by their share in the value added of the manufacturing sector or their contribution to employment. In the years 1784/1796, 144.1 million Spanish manufactured goods were exported to the colonies.³⁹ It is not easy to calculate the share of manufactured goods in exports to America in 1815/1820 unless one accepts a percentage analogous to that of 1827. In this case, the contraction of manufactured exports would amount to 119.7 million, at 1784/1796 prices.⁴⁰ If we subtract from this figure the amount of raw material inputs used in manufacturing production, we obtain a crude estimate of the fall in the value added exported, 47.9 million Reales (40% of the value of the final product), which is equivalent to the impact of the loss of the empire on the industry.⁴¹ Its relative importance depends on the employment that this sum could generate or the proportion it represents of the industrial product.

The industrial sector employed nearly half a million men in 1797, 15.2% of the male labour force (Pérez Moreda, 1982).⁴² To these should be added, in addition to the female population employed full-time in industry, an undetermined but not negligible proportion of the working population whose main occupation was agriculture but who supplemented their income with occasional work in industry.⁴³ The impact of the loss of the American continental market on industrial employment could be approximated by calculating the number of full-time male workers who could have been recruited from a sum analogous to the fall in exported industrial value added under the generous and unrealistic assumption that all this value added accrued to labour and none to capital. Thus, with a wage equivalent to that of a bricklayer and a working year of 250 days, the volume of employment destroyed would amount to 27,000 workers, representing a maximum of 7% of the industrial workforce.⁴⁴ If, more realistically, we adjust this figure by attributing one-quarter of the value added reduction to capital returns, the contraction in industrial employment would be about 5%.

It is more difficult to estimate the contribution of the secondary sector to gross domestic product. However, a lower limit could be inferred from the information collected by the Ensenada Cadastre for the Crown of Castile around 1752 (12.3%).⁴⁵ The industrial share of gross value added could be about 13%.⁴⁶ If we compare the loss in industrial value added, 47.9 million Reales (at 1784/1796) resulting from the contraction in industrial exports, with the industry share in gross value added (13% times GDP at constant 1784/1796 prices), we obtain a crude approximation to the impact of the loss of colonial markets on industry, about 4%, of its industrial value added.⁴⁷ It can be concluded, therefore, that, taken as a whole, the stimulus of the colonies to reallocate factors of production towards industry was weak, as can be seen from the impact of American emancipation on both industrial production and employment.

The loss of the colonies would be felt most severely in some branches of industry such as textiles and iron and steel, and in regions such as Andalusia and Catalonia (Fontana, 1982).⁴⁸ It is difficult to quantify the regional or sectoral impact of independence, although it is possible to point out that of the industrial sectors most closely linked to the colonies, cotton and silk, in the textile sector, and paper and distillates, suffered the greatest impact. However, the evolution of the different industries from 1820 onwards shows that the medium and long-term consequences of the loss of the colonies depended on the flexibility and dynamism of supply. Thus, for example, the Basque iron and steel industry would have experienced a loss of competitiveness from 1770 onwards and Spanish-American demand had to compensate, in part, for the decline in European demand, absorbing more than a third of production towards the end of the eighteenth century (Bilbao and Fernández de Pinedo, 1982; Uriarte, 1988). A similar situation appears in the case of the Valencian silk industry, as revealed by the fact that, between the 1790s and the 1820s, exports of raw silk increased at the same time that net imports of fabrics rose (Martínez-Santos, 1981). The experience of the Catalan shipping industry is that of another sector that expanded under the protection of the reserved market of the colonies (Delgado Ribas, 1979, 1983).

Despite the role that colonial demand played in its origins, the cotton industry expanded in Catalonia on the basis of the domestic market, which absorbed four-fifths of its production (Martínez Shaw, 1974; García Baquero, 1974; Fontana, 1974, 1982; Nadal, 1975: 190–191). In contrast to the previous examples, the rise and maturity of the cotton industry took place after Spanish-American independence (Maluquer de Motes, 1987; Nadal, 1975: 194–209). Catalan textile production, on the other hand, did not develop on the exclusive basis of import substitution, as its period of expansion coincided with the irruption into the Spanish market of British cotton manufactures, illegally introduced from Gibraltar and Portugal (Prados de la Escosura, 1978, 1984). The rise in demand for cotton fabrics, partly due to the substitution of traditional fibres (wool and, above all, linen), as well as the lack of integration of the Spanish market, are plausible hypotheses to explain the simultaneous expansion of national production and smuggling (Prados de la Escosura, 1983).

The profits from colonial trade also helped to finance investment in the Spanish economy. It could be argued that they did so to a considerable extent and that the loss of the empire meant the disappearance of a decisive flow of capital in the process of accumulation necessary to cope with the modernisation of the Spanish economy. Private remittances (shipments of gold and silver made by individuals) from the colonies to the metropolis can be estimated at 355.1 million Reales. Although the composition of private remittances from the Indies is not entirely clear, it seems that in the years prior to the Napoleonic Wars, they represented profits from colonial trade, both in merchandise and in financial and mercantile services, and after independence, they may have incorporated repatriated capital (Cuenca Esteban, 1981b: 424).

If the proportion of profits of colonial origin reinvested in the Spanish economy were known, and an overall estimate of domestic investment in Spain was available, it would be possible to guess the colonial contribution to capital accumulation in Spain. In the absence of the necessary information, one has to resort to indirect procedures and introduce systematic upward biases in the calculations to obtain, at least, an upper limit to it. O’Brien (1982: 7) has suggested that in Britain in the 1780s, the upper limit for reinvestment of profits from the colonies would be 30%. This extreme frugality does not seem to have been common in the Spanish case, and it would therefore be appropriate to accept a somewhat lower percentage (20%) for colonial profits reinvested productively in Spain, which would still constitute an upper limit (71 million Reales at 1784/1796 prices).⁴⁹ The level of investment is also unknown. The closer estimates for the investment rate start in 1850 (Prados de la Escosura, 2017). If we accept the average for 1850/1854 (5.8%), the value of domestic investment would reach 567 million Reales in 1784/1796 (i.e. the investment rate times GDP), so the fall in profits resulting from colonial emancipation would represent as much as 13% of Spain’s capital accumulation. After independence, capital remitted to the metropolis, and invested in Spain, would partly compensate for the fall in investment caused by the disappearance of private colonial remittances.⁵⁰

6 Concluding Remarks

Colonial emancipation certainly had a negative impact on the Spanish economy, particularly in the short term. International trade in goods and services and investment declined significantly. The domestic industry lost a reserved market. The Monarchy’s financial difficulties worsened as a result of falling external revenues and an ossified tax system. Nevertheless, it is in the inherent difficulties of the manufacturing industry and the inadequacies of a treasury with a weak fiscal base that the key to the delicate situation of the post-imperial Spanish economy must be sought.

The most flexible and competitive sectors, however, managed to adapt to the new circumstances (cf. Fradera, 1987, on the Catalan case). This is the case of commercialised agriculture, which reoriented its supply towards the expanding markets of Western Europe (Prados de la Escosura, 1988). The quantitative evidence and controlled conjectures offered in this chapter also allow us to suggest that, for the Spanish economy, the loss of the colonies had, in global terms, a less broad and profound impact than historians have suggested.

The institutional implications of the emancipation of the colonies should be investigated. Fontana (1991: 316) pointed to the existence of a direct link between Spanish-American independence and the fall of the Ancien Régime and the Liberal Revolution in Spain. If this hypothesis is correct, the loss of the empire would have made a significant contribution to Spain’s economic and social modernisation. Exploring these connections requires further and more detailed research.

Appendix

1.1 A.1 An Annual Series of Spanish International Trade, 1778–1820

The sources used for the reconstruction of an annual series of Spanish foreign trade between 1778 and 1820 have consisted of the series available for Spanish trade with Spanish America, France, Great Britain and the United States and the trade balances of 1792 and 1827. These provide the geographical composition of Spanish foreign trade and, consequently, allow us to assign weights to the different regional series of Spanish trade. These include, firstly, the annual series at 1778 prices of trade between Spain and the American colonies constructed by John Fisher for 1778–1796 and by Javier Cuenca based on the tax of the avería for 1792–1820. In a later study, Cuenca applies the prices of products traded in Cadiz to the quantities exported during the period 1782–1820 both for exports of Spanish products and for re-exports of European products to the colonies. In the case of imports, for the period 1782–1791, as well as for the year 1778, I have resorted to the import data collected by Fisher (1981). I have had to exclude precious metals and tobacco sent directly to the Treasury in order to make the series homogeneous with that of Cuenca. Since it only offers detailed information that allows this adjustment to be made for the cases of trade through the ports of Barcelona and Cadiz, I have assumed that the proportion of imports through Cadiz and Barcelona within total imports was identical with and without precious metals and tobacco. The series obtained is calculated at constant prices between 1778 and 1790, so I have refracted it using an index constructed by Cuenca from the prices provided by Hamilton.

For Spanish trade with foreign countries, I have been able to use the series corresponding to the USA (from 1791 to 1820), France (1787–1789, 1797–1820, to which I have added 1792, 1795–1796) and Great Britain (1778–1812, 1814–1820). I have reworked the series so that exports are f.o.b. and imports are c.i.f. In the case of the USA, I have been able to use the freight and insurance series constructed by Cuenca. In the case of France, I have adopted the same series that I used in the British case (Prados de la Escosura, 1984). I have converted the values of trade with foreign countries into Reales with the exchange rates provided by Cuenca (1987) for the years 1787–1821, which I have supplemented with my own estimates from the same sources as Cuenca (Castaign) for the preceding years.

The lack of coverage of the period considered by the statistics of the four regions and countries has made it necessary to carry out estimates with smaller coverage which has subsequently been reconciled with the estimates for the full sample. This has been done by means of regressions between the full sample and the partial samples. In all cases, both the R² and the t-statistics were significant. In order to obtain the percentage share of the countries in the sample in total trade, we have used the official Spanish trade statistics available for 1792 and 1827. The proportions for 1792 have been used for the period 1778–1807, while those for 1827 have been used for the years 1808–1820.

The statistics used distinguish between exports of Spanish and foreign products, on the one hand, and total imports, on the other. I have made the assumption that re-exports abroad were always of colonial products so that I have been able to obtain net imports from abroad by subtracting re-exports from Spain to Latin America from total imports from abroad. In the case of net imports from the colonies, I have assumed that the difference between total re-exports and those destined for America were those destined abroad and, therefore, are those that had to be subtracted from total imports from America.

The series obtained at current prices have been deflated and expressed in Reales of 1808. The procedure has been analogous to the calculation of the values at current prices of exports and imports, as well as the sources used.

See Tables 6.2, 6.3, 6.4, 6.5, 6.6 and 6.7.

Table 6.2 Public revenues at current and 1808 prices, 1778–1820 (million Reales)

Table 6.3 Public revenues (% Trade and GDP), 1778–1820 (current prices)

Table 6.4 Spain’s international trade, 1778–1820 (million current Reales)

Table 6.5 Spain’s openness (% Trade/GDP), 1778–1820 (current prices)

Table 6.6 Spain’s international trade, 1778–1820 (million 1808 Reales)

Table 6.7 Spain’s terms of trade, 1778–1820 (1808=100)