Sources of Spanish Decline

With Philip II ended the greatness of the kingdom, which from that period declined with fearful rapidity, as little else remains to be recorded beyond the reign of worthless favorites, the profligacy of courts, and the deplorable weakness of government. The nobles held a power over the people, which, though not recognized by the new jurisprudence, was founded on the Visigothic code, and was consecrated by immemorial custom. If we may believe the histories of the period and the representations of the Cortes, it was often exercised with violence, with rapacity, with injustice. The wars which followed must have operated in a most baneful degree on the national prosperity,—and they were no less useless than baneful. They did not shake the power of the aristocracy, while they confirmed that of the crown.

The dissatisfaction of the third estate was still further increased by the fact that on them alone rested the burden of the public contribution. Both the nobles and the clergy, the former in virtue of their seignorial rights, the latter of their immunities, were exempted from direct taxes. Though this unjust distinction would operate with less severity in a season of general prosperity, it would be oppressive to many, and its odious partiality could not fail to be condemned by all who suffered by it.

Spain had few native capitalists. The nobles seemed to live by traffic: the laborers, artisans, mechanics, were too poor to purchase their native produce or manufactures and dispose of it to the foreign merchant; and there was no middle class to serve as a connecting link between the two. Yet such a link was indispensable, and it was supplied by foreign enterprise. English, French, Dutch, Germans, Italians, hastened to profit by the absurd pride of one class, and the poverty of another: they absorbed the chief gain; they amassed considerable, in some cases princely fortunes, which they afterwards expended, not in Spain, but in their own countries.

The ignorance of the government as to the true sources of national prosperity is another of the causes which led to its decline. That native manufactures were not encouraged is sufficiently notorious from the fact that while they were subject to many duties on their introduction into other countries of Europe,—duties which almost amounted to an exclusion,— those of foreigners were admitted into the Peninsula either without any or with very light ones: hence there was no such thing as reciprocity, and the advantages of traffic must inevitably remain with more cunning nations. Still, the New World opened a boundless market to Spanish productions of every species, so that the mischiefs of this deplorable policy were not much felt, however their tendency might be perceived, in the present reign. Though American money was freely diffused throughout the community, its abundance had the inevitable effect of impairing its value, and that to an extent unexampled in any other country. This fact is sufficiently proved by the rapid increase in the price of provisions and other necessaries, which from 1480 to 1530 had quintupled. Gold could not always be thus abundant.

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.