Fragmentation of an Empire: The Political Economy of Spain and Its Colonies in the Late Bourbon Period

Abstract

How an empire that seemed cohesive for hundreds of years could easily fragment in a decade? I present a simple computational model of Spain’s political economy and do some simulations that could help explain the rationale behind such system. I also provide an analytical narrative in which I stress the importance of the Spanish Empire’s fiscal sociology, one in which certain political enterprises (Miners, Merchants, Crown) played key roles. I maintain that the empire had an implicit political arrangement; one in which the Crown maximized tax revenue through its power in managing the transatlantic trade. It did so by coopting a small set of local American elites (In Lima and Mexico City), which gained rents from their privileged trade position. It was a stable setting while Spain had sea supremacy. The advent of the British Navy in the late 18th century disrupted everything. Thereafter, the Crown attempted to decentralize its oceanic trade through new routes, and by trying to coopt a larger set of regional elites within the empire. This tactic backfired: it only gave major power to new local elites and created incentives for political fragmentation.

Keywords: Spanish Empire, Latin American Independence, State Fragmentation

JEL Classification: N76, N46, P48, C63