The period between the eleventh and fifteenth centuries was a phase of profound political and economic mutation for the Iberian Peninsula, in the context of which the confluence of expansionist processes dictated the emergence and reconfiguration of different political maps. This chapter seeks to trace the general evolution of the different political models that took shape in the Iberian Peninsula throughout this period, as well as to characterize the action of the institutions responsible for defining the foundations of an economic policy. To this end, the chapter is divided into two parts. The first one focuses on the evolution of the space controlled by the Muslims, looking at transversal aspects of economic policy and the implications deriving from the development of the territory. The second part focuses on the study of Christian institutions, on the construction of the Iberian kingdoms, and highlights the role of the monarchies and political institutions in the establishment of the economy and on the transition from a war-based economy to an economy where the market and trade assume a growing importance.

This chapter collects the historical threads about the economic growth of the two Iberian nations. From a disappointing nineteenth century, during which they fell behind the rest of Europe, and the conflicts of the first half of the twentieth century, the two nations quickly caught up from the 1950s. Growth was mostly extensive and pulled by physical capital accumulation, with small contributions from human capital or productivity. The Iberian divergence from its European peers has often been blamed on natural endowments, modest domestic markets and savings, as well as on second-nature geography (market access). However, this volume shows that all of these were endogenous to the growth itself, which requires looking for deeper explanations. Institutions and the political equilibria that underpin them loom large here. After a century of fragile liberal monarchies and radical republican regimes, the two nations stood out for their long authoritarian regimes. Inward-looking economic policies promoted by the dictators favoured domestic incumbents but harmed the growth potential of the two countries. Only their gradual reopening from the 1950s unleashed this potential. Nevertheless, the gains from growth have not been equally distributed and convergence stalled in the new millennium, with the adoption of the Euro.

Around 1500 Spain and Portugal were among the most affluent nations in the world, and had income levels that were similar to those of other Western European countries. Three hundred years later the Iberian economies had lost their economic supremacy and fell behind all the main European powers. When did the first two global empires in history lose their hegemony to become secondary actors? What were the foundations of the collapse that explains the divergence from north-western Europe? This chapter addresses these issues and describes what is now known about the long-term trends of Iberian economies between 1500 and 1800.

Economic historians have placed commercialization at the centre of Europe’s early modern capitalism, emphasizing the importance of domestic and international trade, shipbuilding and concomitant manufactures, the financial sector, and urbanization. As the Iberian polities extended geographically to Africa, Asia and the Americas during the early modern period, trade, whether domestic, international or colonial, had a critical effect upon economic development. However, the economic impact of colonial expansion was uneven across Iberia. Iberia commercial exchange associated with the overseas empires produced surprisingly few backward and forward linkages in the European national economies. The question this chapter seeks to address is thus to what extent and how Iberian trade, especially colonial trade, supported or hindered economic development in the early modern period.

This chapter covers the history of banking in the Iberian Peninsula from the early nineteenth century to the beginning of the twenty-first century. The narrative provides a complete, albeit brief, historical overview of how the financial structures of the two countries have evolved. It also offers a comparative perspective of the two financial systems, pointing out to their similarities and their differences. The first part of the chapter describes the formation of the Portuguese and the Spanish banking systems. Special attention is given to the main changes that took place since their early beginnings to the consolidation and modernization of the banking structure in both countries. The second part traces the history of the two Iberian central banks: the Bank of Portugal and the Bank of Spain. The last section compares the banking structure and development of the two Iberian nations, and brings out their similarities and differences. First the attention is focused on comparing the main features of the Portuguese and Spanish private commercial and investment institutions. The chapter finishes with a brief evaluation of the historical role played by the Bank of Portugal and the Bank of Spain.

In Chapter 7, I discuss the latest crisis of capitalism and Amartya Sen’s journey to rescue capitalism from the capitalists. I begin by discussing the increasing vulnerability of capitalist societies at the end of the twentieth century due to the deregulatory environment encouraged by the Chicago School. I use Karl Polanyi’s double-movement theory to explain the rise of the Chicago School and its assault on the “relationship capitalism” that had evolved in the postwar period. While the new “investor capitalism” was successful at unleashing the power of the market, it also increased the vulnerability of capitalist societies to opportunistic self-interest. This increased vulnerability was fully realized in the 2007–08 mortgage-backed security crisis that nearly collapsed the global financial system. After describing the near collapse of the global financial system, I discuss the implications of the collapse for the neoclassical theory out of Chicago. This leads to a discussion of Amartya Sen’s journey from India to the West to rescue capitalism from the capitalists. This discussion introduces the role of the East in the development of capitalism and its future promise. I conclude by discussing Sen’s critique of capitalism based on Adam Smith’s original moral foundation.

In Chapter 4, I address humanism as a moral foundation for capitalism by discussing the lives and writings of Karl Polanyi and John Maynard Keynes. The narrowing of political economy by nineteenth-century classical economists was challenged on two fronts. Some economists fought to maintain a broad social and moral perspective, but some economists turned the narrowing theory of classical economists into a stinging rebuke of capitalism itself. I begin by discussing the rising influence of humanism in the twentieth century. Next, I discuss the Hungarian-Austrian political economist Karl Polanyi and his critique of capitalism based on humanism. Although he was initially attracted to Marx’s moral critique, Polanyi eventually rejected Marxism on similar grounds as Tawney. In his search for a moral foundation for capitalism, Polanyi rediscovered the moral theory behind Adam Smith’s writings. I then discuss the British political economist John Maynard Keynes. Similar to Polanyi, Keynes rejected the narrow utilitarianism of both Marx and the classical economists in forming his moral foundation for capitalism based on responsibility and duty. This sets up a discussion of humanism as a moral foundation for capitalism based on Polanyi’s and Keynes’s seminal works.

In Chapter 1, I address the continuing demand for a moral foundation for capitalism from the perspective of business leaders, business educators, and policymakers. These parties have been heavily impacted by the neoclassical economic view of capitalism based on narrow self-interest. I begin by discussing the demand for a moral foundation from the perspective of business leaders attempting to return to the stakeholder view of corporate responsibility that existed before the influence of the Chicago School. Next, I discuss the demand from the perspective of business educators attempting to return to the moral foundation provided by the early founders of the university-based business school. Finally, I discuss the demand from the perspective of policymakers attempting to return to an enlightened public policy that meets the broader needs of capitalist society. I conclude by outlining the leading characters and themes contained in this book. The search for a moral foundation for capitalism is not new. It has a long history going back to Adam Smith and the Scottish Enlightenment. The purpose of this book is to tell the story of this search through the lives and writings of its leading characters.