We came to our narrative until the primacy of the banking market began to gain Spain.
Where did Spain gain in this matter? The main reason was the inflow to Europe (but initially mainly to this country) of precious metals from America. In addition, the reason was the ambitions of the ruler himself – Charles V. His imperial policy cost. To obtain funds for it, he decided to use commercial banks for this purpose.
What is yours is mine!
The subject of banking for Charles V was thoroughly examined by the historian Ramon Carande. It turned out that the Spanish ruler – to put it mildly – did not check with the bankers. The problem was that the state’s interests did not follow it. The Spanish treasury began to shine at some point. This prompted Charles V to seek money from the Seville bankers. According to the “whoever forbids the king” rule, he began to confiscate funds belonging to banks. This, in turn, prompted bankers to even more intensively borrow deposits from borrowers. After all, if an entrepreneur is not sure whether the authorities will not confiscate his property at some point, it will be better to quickly liquefy and circulate. That’s what the bankers did, who decided to make money on loans and act only on the basis of partial reserve.
Already in the second half of the 16th century, the money supply was mostly based on “banking money”, i.e. created from nothing and no coverage in the funds banks. The result was short-term economic development, which, however, began to collapse as soon as depositors began to have economic problems, and banks themselves fall.
Banks and politicians
Karol V’s relationship with bankers in terms of his political career remains another interesting issue. He drew, for example, large loans from the Fugger family and other German and Italian bankers. These funds quickly spent on … bribing the electorate, which allowed him to become the Holy Roman Emperor – means, as we would say today, the ideological president of Europe. The interest on this debt was so great that at some point the merchant families that invested in it as their favorite to the throne, they even began to have shares in tax revenues or silver loads imported from America. In 1544, two-thirds of the state’s income was a guarantee of debt repayment, and in 1552 the authorities suspended the payment of interest. Five years later, the government announced bankruptcy … In practice, this meant that loans became long-term liabilities, and interest was reduced. In 1557-1680, the Spanish Habsburgs declared their bankruptcy eight times. Each time, the result was panic in the markets, the collapse of many banks and investors.
To be continued.