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Creative accounting in the age of Philip II? Determining the ‘just’ rate of interest

Published online by Cambridge University Press:  11 February 2009

John A. Marino
John A. Marino
Affiliation:
University of California, San Diego
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Abstract

Deficit financing, revenue projections and interest rates in Spanish Naples provide the context to reflect upon the exigencies of debt resolution, the illusions of mathematical certainty and the perils of temporizing in political decision-making. ‘Creative accounting’ explores the micro-history of an equation, which provided the mathematical rationale to lower Spanish interest rates to 3·3 per cent and to resolve the controversy over the ‘just’ rate of interest. In an attempt to generate revenues during the Spanish financial crisis of the 1570s that surrounded Philip II's second bankruptcy in Castile, Philip's Castilian accountants devised a proposal to suspend the hearth census in the Kingdom of Naples for fifteen years in exchange for a prepayment at discount. An analysis of the mathematics of the discount schedule raises questions about early modern economic realities. Changes in the significance of figures and quantitative relationships, like changes in the meaning of words, reveal the mental processes used to represent economic fact and to construct solutions to economic difficulties even in the midst of crises.

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Articles
Information
The Historical Journal , Volume 36 , Issue 4 , December 1993 , pp. 761 - 783
Copyright
Copyright © Cambridge University Press 1993

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References

* Earlier versions of this paper were delivered in 1986 at the Newberry Library and the American Historical Association meeting. My thanks to James Sandos for brainstorming through an early formulation of the problem. The advice and criticism of colleagues in economics and mathematics - Richard Carson, Carlo M. Cipolla, Alfred Manaster and David Weir – have saved me from making the same errors as the Castilian accountants. Suggestions from Michael Bernstein, Jack Greenstein, David Luft and Robert Westman have helped refine my arguments.

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30 AGS, Estado, Nápoles, leg. 1066, f. 98 (8 xi 1575).

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67 Elliott, J. H., Spain and its world, 1500–1700: selected essays (New Haven, 1989)Google Scholar.