INTRODUCTION

Approach to the Currency Experience

War – and its implications for the expenditure side of the government budget – has always been associated with taxes. During most of the Portuguese monarchy, taxes included gold and other domain revenues coming from monopolies established on domestic and international trade. Together with silver and copper, gold was used as money, making its interaction with war and taxes central to the long-term pattern of economic growth and development.

The overview of Portuguese fiscal and monetary institutions from the seventeenth to the nineteenth centuries presented in this chapter is subtitled “The Inheritance of the Real” (plural réis), after the name of the national currency from 1435 until 1911. To the extent that currency experience is embedded in the overall evolution of fiscal and monetary systems, the legacy becomes a case study in institutional persistence and adjustment. In fact, the interaction of war, taxes, and gold implies a mix of fiscal, monetary, and exchange rate policies.

Beginning in the sixteenth century, increasingly expensive warfare became a source of pressure for fiscal change. Times of war were also an auspicious context for the social legitimization of direct and indirect taxation capable of supplementing or replacing domain revenues. This legitimization linked taxation to private property rights in an almost “contractual” manner via the traditional representation of nobility, clergy, and towns in the Cortes. The custom that any new tax should be discussed there reinforced the financial freedom derived from the availability of a stable and convertible currency.