Spanish Economy in the 19th Century: Banking and Foreign Trade
Banking Sector in 19th Century Spain
The objectives of the financial system were to recover savings and make them available to employers to invest, provide means of payment, and finance industrial and service companies by buying shares.
Types of Banks in the Nineteenth Century:
- Savings banks
- Merchant banks
- Traditional banking houses (used their profits to finance)
- Joint-stock banks (meeting the finance function par excellence)
Legislative Developments
Before 1848, the law was relatively free, with no limitations. Between 1847-1848, there was an economic crisis, and the Law of Corporations (1849) and the Banking Companies Act (1848) were enacted, which put obstacles to the formation of corporations and banks.
In 1856, progressives came into government and enacted the Law of Issuing Banks and Credit Societies Act, which dismantled the restrictive device and produced an increase in the number of banks.
In 1874, the Bank of Spain was granted the monopoly to issue currency.
Economic Context
Before 1848, there was an embryonic development of banks: there were only two banks, San Fernando and Isabel II. The government merged the banks and established the Bank of San Fernando, which would later be called the Bank of Spain in 1843.
In 1848, the expansion stopped.
In 1856, the “Big Bang” of the financial world occurred, with an increase in the number of entities and the creation of credit banks, corporations, etc.
These banks financed the railroads, and companies signed the debt.
In 1866, the railway companies did not distribute profits due to their poor performance, and shares were realized. Investors sold off investments in railroads, and banks were asked to return their money. This led to a crisis in the financial system, and many banks went bankrupt.
The recovery was slow, and the public debt was excessive. In 1874, the Bank of Spain (a private entity) became the monopoly to finance the public debt of the State. As compensation, it was granted a monopoly. There were significant benefits in bringing the unified market.
The monopoly of the financial system hurt industry, which was an obstacle to the modernization of banking.
External Sector in 19th Century Spain
The Liberals released the Spanish economy and opened it up to other countries.
Trade Policy Periods
- 1820: The government imposed an ultra-protectionist policy to prevent the entry of imports (especially of commodities that were necessary for survival).
- 1820-1849: This was modified slightly but remained an ultra-protectionist trade policy, similar to that practiced by other continental European countries. The difference was the degree to which trade policy was imposed in Europe, which was not like the Spanish one. What was taking place in the Spanish economy was an autocratic political project in which neither exported nor imported; only Spanish products were in circulation. The Spanish economy did not have sufficient resources to hold that policy, which was adopted in the international economy, specializing in profitable products.
- 1849-1890: Free trade, pioneered by Britain, prevailed. Shorter products were not importable, and Catalan textiles and cereals were protected. This period, in which the economy was released, lasted until 1890. From 1868, a revolution, “La Gloriosa,” occurred, and ultra-liberals imposed an ultra-liberal policy and lowered tariffs.
The result of this process was that between 1850-1895, there was a progressive increase in trade liberalization that reached a ceiling of 25%. From there, it decreased until 1944 and then recovered, but it did not return to the level of 1895.
In 1850, with free trade, the deficit was too large and of the same magnitude as that of the Old Regime crisis. Export performance was strong to hold the economy. From 1890, the trade balance started to be positive because imported manufactured products had less added value than those exported.
Spain mainly bought manufactured goods and exported raw materials and foodstuffs.
However, exports began to diversify, and there was less dependence on primary products.
In 1827, Spain exported oil, lead, wine, wool, etc. By 1855, wine exports remained significant, but minerals such as iron and lead increased, while copper and oil fell.
Imports also diversified.
In 1827, manufactured goods were imported, and Spain had no interior secondary sector.
Spain had a foreign trade of a developed economy. Over this period, it became more flexible, allowing it to adapt to foreign trade. It stopped being a mono-exporting economy and diversified, leading to some modernization.