"while the flood of gold into Spain in the 16th century seemed like a big haul at the time, by modern standards it was a trivial amount. Total world gold production during the 1500s is estimated to have been around 36 tons;"
--------------
World silver production during the 16th century was around 23 thousand tons[1]. Silver was closer in value to gold back then too, at around one tenth the value per weight. The economic impact of new world gold was a rounding error compared to the impact of silver.
If you have a mental image of Spanish conquistadors sparking global inflation purely by looting Inca gold, erase it. The real culprit was silver extracted from Potosi and a few other New world mines.
Zacatecas (Mexico) is mostly a desert now but it used to be covered with forests. The wood was used as fuel for smelting silver during the colonial period.
>If you have a mental image of Spanish conquistadors sparking global inflation purely by looting Inca gold, erase it. The real culprit was silver extracted from Potosi and a few other New world mines.
That is when labors start to flood to Netherlands.
As I understand it, some of the silver was siphoned off in trade with China (via the trans-Pacific route to Manila). China needed continuing silver imports because silver was not used there in the form of standardized coinage, but rather in ingots that were weighed and subdivided, with inevitable continuing loss.
It was very surprising to see zero mention of the Manila galleon[0] trade route in the linked article, even if technically the question was about gold rather than silver. The simple answer to the question of what happened to the money was that Spain spent it! The impacts on SE Asia were profound and are still being felt today.
I've not heard the inevitable loss as a culprit for Chinese demand. IIRC it had to do with a failed paper money system triggering inflation followed by a reversion to silver for exchange plus a growing population and market forces from the new supply from the new world.
Spain’s colonies funneled huge amounts of gold and silver into the European economies without a complementary increase in productivity to absorb it, causing massive inflation.
A ship for transatlantic shipping might have first cost 100,000 maravedí to build and equip before the treasure fleet expeditions, but afterwards with so much gold flowing into the economy and lots of competition for a limited ship building industry, the costs would inflate to 1 million maravedí (number roughly from memory). Same with the canons and shot, animals and sailor salaries, and so on.
Meanwhile, shipbuilders with all their newfound money are competing for blacksmiths, the outfitters are competing for livestock and horses, and so on. This puts lots of pressure on the rest of society which might need the iron for farming tools and the livestock to survive the winter, which they can no longer afford since the conquistadors and their merchants can pay a lot more in gold. In the end the maravedí accounts look bigger but represent the same amount of physical goods or labor.
Repeat this process across the whole economy and it throws everything into chaos. Some people here and there get rich, but economy wide it’s a total wash. Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.
This entirely misses the fact that Spain became a European superpower during that period because war was then done by mercenaries…
> Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.
Wealth created for the state just went into paying for wars because that what mattered to the early modern aristocracy and that's what they wanted to pay with their additional money. From the point of view of the Spanish elite of the time, their “wealth” increased dramatically during that period, it's just that this don't fit your or my criteria for wealth.
Sounds an awful lot like the AI data center build out sucking up resources at the expense of the rest of the economy. E.g.: Sam Altman cornering the market for computer memory.
As a sibling comment said, gold was effectively money. Having more money, without having more products to buy, effectively triggered massive inflation. Prices went up, but the actual supply of goods and services didn't change much. The Spanish economy suffered massive inflation, as did Europe in general to a lessor extent.
It's interesting that mining gold and silver is similar to printing more money; we usually think of inflation as represented by debasing coinage but there's been a few circumstances where flooding the local economy with precious metals is the same effect.
It would be interesting to learn about the technological developments Spain failed to make compared to some of their European neighbours. Merchant banking is one of them.
But why couldn't they, e.g. buy other people's thing in exchange for their gold? IOW, why is the relevant fact that _Spain_ didn't have much more wealth despite having more gold? Other people in other countries valued (and still value) gold too.
That may be true, but a modern money system could get you pretty close to that ideal, where the main difference is the friction of transactions.
It's close to ideal for a loaf of bread, or a bag of nails. I can hop on my bike and turn my money into either of those things in a few minutes. Turning money into a house is further from that ideal of course.
They spent it on war. The Spaniards were fighting the Ottoman Empire and the Relgious Wars brought on by the Protestant Reformation. Funny enough their main enemy for the religious wars was France, who was also Catholic. The Spaniards also went bankrupt multiple times too.
Today - if you give everyone $10 million dollars there isn't enough production for everyone to buy what they want - you just get inflation. Its probably worse for the economy as people stop working.
Some of all this gold is still on display in Spain. Earlier this year my wife and I visited Granada in southern Spain. Vast amounts, truely impressive, of gold are exposed in its Cathedral and in the burial place of Emperor Karl (Charles/Carlos) and his wife, Isabella. Alhambra is still the #1 sight there but if you can spare the time, do visit these two places. They are co-located in central Granada.
> For the latter part of the 1500s and on into the 1600s Spain was a debtor nation, spending more abroad than it took in. The result was a net outflow of gold and silver. Attempts were made to restrict the export of precious metals, but without much success. In the end it all simply dribbled away. The problem was that the conquest of the New World left Spain with a lot more money, but not that much more wealth, if you follow me. They didn’t realize that until too late, and suffered centuries of poverty as a consequence.
Sounds like America since the second half of the 20th century.
Spain was different. There were no 'proper' colonies, but everyething was deal as if they were an inner province in Iberia. That's the way you could get fancy universities for its time.
But backwards people like Ferdinand the 7th cut down the modernisation of Spain
which could boost us up to the level of France if not more. I'm no kidding. Just look at
the Cádiz constitution from 1812.
Nope. By any objective measure the USA has continued to organically generate enormous amounts of real wealth during that period. We have some issues with inequality and letting foreign countries take advantage of our trade policies but the new wealth is quite real.
With all this gold, Spain went on a buying spree, weapons, art, churches etc - and the sellers(rest of Europe) industrialized as the gold trickled down into THEIR economies.
When the gold no longer arrived, Spain went into a steady decline as their rich upper crust of RC Churche, Kings, Queens, Lords, Ladies etc. and eventually became democratic after Franco.
A solid 50% of this entire thread is people arguing about inflation and bikeshedding the concept of money. Amazing. (COVID gets an honorable mention. Six years on now, but hey. Stay mad.)
Readit News
--------------
World silver production during the 16th century was around 23 thousand tons[1]. Silver was closer in value to gold back then too, at around one tenth the value per weight. The economic impact of new world gold was a rounding error compared to the impact of silver.
If you have a mental image of Spanish conquistadors sparking global inflation purely by looting Inca gold, erase it. The real culprit was silver extracted from Potosi and a few other New world mines.
[1]https://digital.library.unt.edu/ark:/67531/metadc40312/m2/1/...
Deleted Comment
That is when labors start to flood to Netherlands.
[0] https://en.wikipedia.org/wiki/Manila_galleon
https://en.wikipedia.org/wiki/Global_silver_trade_from_the_1...
ELI5, please!
A ship for transatlantic shipping might have first cost 100,000 maravedí to build and equip before the treasure fleet expeditions, but afterwards with so much gold flowing into the economy and lots of competition for a limited ship building industry, the costs would inflate to 1 million maravedí (number roughly from memory). Same with the canons and shot, animals and sailor salaries, and so on.
Meanwhile, shipbuilders with all their newfound money are competing for blacksmiths, the outfitters are competing for livestock and horses, and so on. This puts lots of pressure on the rest of society which might need the iron for farming tools and the livestock to survive the winter, which they can no longer afford since the conquistadors and their merchants can pay a lot more in gold. In the end the maravedí accounts look bigger but represent the same amount of physical goods or labor.
Repeat this process across the whole economy and it throws everything into chaos. Some people here and there get rich, but economy wide it’s a total wash. Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.
> Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.
Wealth created for the state just went into paying for wars because that what mattered to the early modern aristocracy and that's what they wanted to pay with their additional money. From the point of view of the Spanish elite of the time, their “wealth” increased dramatically during that period, it's just that this don't fit your or my criteria for wealth.
It would be interesting to learn about the technological developments Spain failed to make compared to some of their European neighbours. Merchant banking is one of them.
It's close to ideal for a loaf of bread, or a bag of nails. I can hop on my bike and turn my money into either of those things in a few minutes. Turning money into a house is further from that ideal of course.
Dead Comment
Consider what that means for sustainability and the future.
Dead Comment
Dead Comment
Sounds like America since the second half of the 20th century.
But backwards people like Ferdinand the 7th cut down the modernisation of Spain which could boost us up to the level of France if not more. I'm no kidding. Just look at the Cádiz constitution from 1812.
https://en.wikipedia.org/wiki/Ferdinand_VII
https://en.wikipedia.org/wiki/Spanish_Constitution_of_1812
Not bad for its time at all.
Nace en las Indias honrado, // donde el mundo le acompaña; // viene a morir en España // y es en Génova enterrado.
(Mr. Money) is born in the Indies an honest man, with the world on his side; he comes to Spain to die, and is buried in Genoa.