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Further Reading

Sources of Spanish Decline

The seventeenth century was a period of unremitting political, military, economic, and social decline. For this decline various causes have been assigned by philosophical historians, as, the numerous colonies that drained the population of the mother-country ; the disgust which men, who saw immense fortunes easily and rapidly accumulated, in the plunder or the mines of the New World, conceived for the toils and the slow profits of trade and husbandry; the enormous waste of men and money occasioned by the various and simultaneous wars into which Philip was hurried, by either an extravagant ambition or an uncalculating bigotry. The mighty lords themselves became mere intriguing courtiers, rapacious for money, in order to rival each other in splendor. The mal-administration arising from the evil system of pledging and farming future resources was never reformed, the squalid lavishness of the court expenditure was never reduced, a conciliatory policy in order to avoid the cost of war was never adopted.

Silver receipts from the New World expanded enormously. They began most effectively about 1530, and remained at a relatively modest, though steadily rising, level until 1550. From then the galleons began to import silver in vast quantities, which became vaster still from 1580 and caused a profound revolution in prices. They reached their peak in the period 1580 to 1630, the great age of Spanish imperialism. The interest of the state in precious metals derived not merely from mercantilist prejudices but from their ability to buy what it most needed - the means of power. Spain was already a protectionist country, barricaded with customs, and a government which theoretically controlled everything entering and leaving its frontiers was unlikely to allow the new-found treasure to escape its grasp.

Sixteenth-century Spain was ultimately the victim of its own wealth. Military expenditure did not stimulate domestic production. Bullion from American mines passed through Spain like water through a sieve to pay for troops in the Netherlands and Italy, to maintain the emperor's forces in Germany and ships at sea, and to satisfy conspicuous consumption at home. The glut of precious metal brought from America and spent on Spain's military establishment quickened inflation throughout Europe, left Spaniards without sufficient specie to pay debts, and caused Spanish goods to become too overpriced to compete in international markets.

Spain was primarily an exporter of raw materials and an importer of manufactured goods; with an unfavorable trade balance, she had to settle her payments with ready cash. The precious metals were the crutches which enabled the Spanish economy to move. Instead of investing their money in productive enterprises at home, as the Fuggers did at Augsburg with the money from their mines at Schwaz, the Spanish Habsburgs lavished more and more on foreign enterprises, the price not merely of ambition but of the very existence of the Spanish empire and its defence.

Interest rates in 1570-1620 decreased under the influence of greater money supply, and this encouraged trade and manufacturing across Europe. Prices rose from the mid-sixteenth to the early seventeenth century, undergoing a three-fold increase in Spain and in France and England more than two-fold.

In Spain itself American silver became a hazard for the economy [and a problem for later historians]. The extremely close correlation between the volume oftreasure imports and the advance of commodity prices throughout the sixteenth century, particular from 1535, has been so well established that the products of the American mines must be regarded as the principal cause of the price revolution in Spain.

The money pumped into Spain from America was not used to increase domestic productivity, and higher prices were the inevitable result. After an increase in industrial production in the first half of the sixteenth century, though one which did not keep pace with the increase of money, Spanish output then fell off and money sought products abroad. According to the classical explanation, the economic backwardness of Spain was related directly to the results of inflation there.

To at least the end of the sixteenth century there was still money to be made in Spain. On the other hand, the price revolution brought impoverishment to those who lived on fixed incomes and small rents, for these did not keep pace with prices. Small landowners of the hidalgo class, the lower clergy, government officials and many others all found their standard of living reduced as the price of commodities rose beyond their means. Throughout most of the sixteenth century life was difficult for the Spanish poor; indeed, for the mass of Spanish wage-earners the price revolution was a grievous blow which reduced their already low standard of living still further.

American bullion alone could not satisfy the demands of military expenditure. Domestic production was heavily taxed, driving up prices for Spanish-made goods. The sale of titles to entrepreneurs who bought their way up the social ladder, removing themselves from the productive sector of the economy and padding an increasingly parasitic aristocracy, provided additional funds. Potential profit from the sale of property served as an incentive for further confiscations from Conversos and Moriscos.

Spain's apparent prosperity in the sixteenth century was not based on actual economic growth. As its bullion supply decreased in the seventeenth century, Spain was neither able to meet the cost of its military commitments nor to pay for imports of manufactured goods that could not be produced efficiently at home. The overall effect of plague and emigration reduced Spain's population from 8 million in the early sixteenth century to 7 million by the mid-seventeenth century. Land was taken out of production for lack of labor and the incentive to develop it, and Spain, although predominantly agrarian, depended on imports of foodstuffs.