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

• Published in: The Historical journal 1993-12, Vol.36 (4), p.761-783
• Main Author: Marino, John A.
• Format: Article
• Language: English
• Subjects: Accountancy; Bankruptcy; Censuses; Creativity; Debt; Deferred expenses; Direct taxes; History; Income taxes; Interest rates; Mathematical models; Mathematics; Philip II, King of Spain (1527-98); Politics; Royalty; Spanish; Tax payments
• ISSN: 0018-246X; 1469-5103
• DOI: 10.1017/S0018246X00014497

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.