An examination of Bourbon intervention in the Peruvian tobacco industry from mid-18th century to the beginning of the 19th century helps reveal a little more about the nature of the Bourbon administration and its relationship to monopoly policies. Although it is widely accepted that Bourbon officials were effective in the extraction of rents, these conclusions are largely based analysis of fiscal results without a direct connection drawn between monopoly policies and the outcomes of those policies. The overall evolution of monopoly policies suggests that the Bourbons were, in fact, quite aware of organizational problems that plague hierarchies, and that they had a solid understanding of the importance of transaction costs for the sustenance of bureaucracy. This is evidenced in the design of the factory system, which helped vertically integrate much of the market and also helped reduce costs associated with controlling illegal markets. The closing of tobacco factories and similarly perceived ‘failures’ at the end of the 18th century should be read with an understanding of the limitations of the political economy of colonialism and in light of policy changes in Madrid that happened in the context of a tumultuous Europe. Monopoly policies were relaxed in areas where the most conflict arose in response to such policies.