Bankruptcy of Empire, an amplified version of a 1999 book, is a compelling contribution to the expanding body of research on the economy of New Spain in the eighteenth century and a stimulating addition to the fiscal historiography of the Spanish empire, in particular the monarchy's inability to generate resources in line with the requirements of its foreign policy. The book traces the development of financial relations between New Spain and the monarchy from the consequences of the war of 1762 to the bankruptcy of the New Spain Treasury in 1813 through the drama of Spain's war of independence. It is hardly surprising to find here an account of the methods and costs of squeezing out Mexican silver, and delivering it during fifty years of warfare for the requirements of a policy that was a chess piece in the competition between Britain and France.

Organised chronologically into chapters reflecting the main historical events, Bankruptcy begins with an analysis of the working of the colonial fiscal system, revolving around levies from mining exploitation, consumer taxes, monopolies and church transfers mostly in favour of the Royal Treasury, the service of state debt, military expenditures and, after 1762, strengthening the imperial nexus to Cuba and building a cobweb of fortresses over the empire. The main cost fell upon Mexico, from where most of the resources were drawn. Marichal carefully follows the situados, the mandatory flow of pesos from Mexico towards the less endowed centres of power. Up to 1760-4, New Spain transferred nearly 100 million pesos in fiscal dues, half in situados, half to the Real Hacienda. Between 1720-4 and 1790-9 total remittances in silver amounted to more than 331 million pesos, a third of the value of silver minted and 30 per cent of the Vice Royalty revenues. From 1780 to 1810 New Spain contributed more than 60 per cent of the kingdom's revenue from the Indies.

Chapters 3 and 4 provide a masterful account of the descent into disaster of the Home and Colonial Treasuries. Marichal suggests that the cost of the Franco-Spanish alliance after 1779 was mostly financed by Mexico's silver pesos. Successive wars in 1793 against France and 1798 against Britain led to a combination of fiscal pressure and recourse to professional guilds such as the Consulado de Mexico and the Tribunal de Minas, intervention of the church establishment ensuring compulsory donations (donativos universales) and the marketing of a series of large interest-free or interest-bearing (5 per cent) loans.

Marichal emphasises the tapping of the considerable resources of the church. From 1780 to 1800 the Catholic church was perhaps the most important supplier of funds to the monarchy for its war efforts; including, after the de-amortisation of 1804, the revenues of the temporalidades: Jesuit properties, and 25 per cent of the tithes. Some worthy observations relate to the consequences of the confiscation of the Indian communities’ resources, thus impoverishing the poor, and the depleting of the church monetary reserves, which formed the main capital pool (with the Tribunal de Minas) on which the whole system of economic investment and exploitation was established. This led to a progressive disruption of the credit system, and contraction of economic relations and hardship; an irreversible evolution given the situation of Spain.

The years 1785–1804 were a foretaste of what New Spain was to endure after the unnatural alliance between Napoleon's imperialism and the hapless Bourbons. Chapter 6 marks a change of perspective. From the subsidy treaty of 1803 until Napoleon's invasion of Spain in 1808, the British navy cut Spain's lifeline with its empire. The blockade was particularly effective between Europe, Vera Cruz and Havana. Given Madrid's unbearable obligations, it was urgent that a way be found of delivering the 10 million pesos/year remesas from Mexico to Napoleon's bottomless coffers and service Spain's external debt. This could only be done by associating with British financial interests. Marichal describes the system developed by the French merchant Ouvrard and the Dutch banker Hope, in relation with the Barings of London. But this is only cursory, since he bypassed important sources, such as the French and British diplomatic and consular archives and Wolff's study of Ouvrard.

Nonetheless, the interweaving of contradictory financial interests and the system of international movement of funds are well expounded, the astutely conceived diagrams very useful, and the connections with actors like Gordon and Murphy or the American merchant Olivier are a precise illustration of the limits of statesmen's willpower.

After 1808, the situation was reversed with Napoleon's aggression. If transfers to France ceased, it was only a redirection of flows since the regency and the Cortes of Cadix were totally dependent on support from New Spain, Mexico sending 25 million pesos by 1811, largely provided by Patriotic loans subscribed by the merchant-guilds and tapping the bottom of the Indian cajas de comunidades. The extreme pressure exerted in order to realise this patriotic end and the popular distress during the crisis of 1810 in Mexico are put forward by Marichal in counterpoint to Fontana's assertions about who bore the brunt of the war of independence. He suggests that, without New Spain's pesos, Cadix could never have resisted the French.

The last chapter focuses upon the implication of this enormous transfer of wealth: more than 250 million pesos, over 40 per cent of the taxes disregarding the loans. Linking the perpetual haemorrhage of pesos to the crisis of 1810 and 1813 leading to uprisings and the fall of the Vice-Royalty, Marichal comes upon the roots of early Mexican underdevelopment by destruction of a nascent credit and investment system.

Marichal has made a sterling job of synthesising a great deal of statistical and qualitative data in numerous tables, three appendices and providing a useful index.

Some of the conclusions are not surprising. Bankruptcy reflects themes long associated with the author. One is the idea that Spain as a world power was only possible so long as it was sustained by the overexploitation of New Spain, which, in the end, led to the breakdown of the colonial consensus with the wealthy classes. This book asks big questions. It is a valuable addition to modern economic history, and will be rewarding for more than its intended audience.