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The Price Revolution, sometimes known as the Spanish Price Revolution, was a series of economic events that occurred between the second half of the 15th century and the first half of the 17th century, and most specifically linked to the high rate of
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reducti ...
that occurred during this period across
Western Europe Western Europe is the western region of Europe. The region's countries and territories vary depending on context. The concept of "the West" appeared in Europe in juxtaposition to "the East" and originally applied to the ancient Mediterranean ...
. Prices rose on average roughly sixfold over 150 years. This level of inflation amounts to 1.2% per year compounded, a relatively low inflation rate for modern-day standards, but rather high given the monetary policy in place in the 16th century. Generally it is thought that this high inflation was caused by the large influx of
gold Gold is a chemical element with the Symbol (chemistry), symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a Brightness, bright, slightly orange-yellow, dense, s ...
and
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
from the
Spanish treasure fleet The Spanish treasure fleet, or West Indies Fleet ( es, Flota de Indias, also called silver fleet or plate fleet; from the es, label=Spanish, plata meaning "silver"), was a convoy system of sea routes organized by the Spanish Empire from 1566 to ...
from the
New World The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. 3 ...
; including Mexico, Peru, Bolivia and the rest of the
Spanish Empire The Spanish Empire ( es, link=no, Imperio español), also known as the Hispanic Monarchy ( es, link=no, Monarquía Hispánica) or the Catholic Monarchy ( es, link=no, Monarquía Católica) was a colonial empire governed by Spain and its predece ...
.
Specie Specie may refer to: * Coins or other metal money in mass circulation * Bullion coins * Hard money (policy) * Commodity money * Specie Circular, 1836 executive order by US President Andrew Jackson regarding hard money * Specie Payment Resumption A ...
flowed through Spain increasing its prices and those of allied European countries (e.g., the imperial territories of Charles V). Wealth then spread to the rest of Western Europe as a result of the Spanish
balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a ...
deficit, or was directly introduced to countries like Great Britain and France, using piracy to attack the Spanish fleet. This enlarged the monetary supply and price levels of many European countries. Combined with this influx of gold and silver, population growth and urbanization perpetuated the price revolution. According to this theory, too many people with too much money chased too few goods.


Background

Most historians look at the end of the
Renaissance The Renaissance ( , ) , from , with the same meanings. is a period in European history marking the transition from the Middle Ages to modernity and covering the 15th and 16th centuries, characterized by an effort to revive and surpass ide ...
as the start of the Price Revolution. An era often considered a time of peace for the Western European population, the Renaissance was a period when Western Europe experienced equilibrium in the price of commodities and labor. It also was a period when there was a high concentration of wealth in the hands of a few (the
Black Death The Black Death (also known as the Pestilence, the Great Mortality or the Plague) was a bubonic plague pandemic occurring in Western Eurasia and North Africa from 1346 to 1353. It is the most fatal pandemic recorded in human history, cau ...
had wiped out nearly a third of the population a century before). Additionally, Europe experienced technological advancement in the mining industry, the stream of currency through
debasement A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nick ...
from royals, and the emergence of
Protestantism Protestantism is a Christian denomination, branch of Christianity that follows the theological tenets of the Reformation, Protestant Reformation, a movement that began seeking to reform the Catholic Church from within in the 16th century agai ...
. The severe shortage of
precious metal Precious metals are rare, naturally occurring metallic chemical elements of high economic value. Chemically, the precious metals tend to be less reactive than most elements (see noble metal). They are usually ductile and have a high lustre ...
s during the late 15th and early 16th centuries eased in the second half of the 16th century. The Spanish mined American gold and silver at minimal cost and flooded the European market with an abundance of specie. This influx caused a relative decrease in the value of these metals in comparison with agricultural and craft products. Furthermore, depopulation – specifically in southern Spain – resulted in a high rate of inflation. The failure of the Spanish to control the influx of gold and the price fluctuations of gold and silver from the American mines, combined with war expenditures, led to three bankruptcies of the Spanish monarchy by the end of the 16th century. In the 16th century, prices increased consistently throughout Western Europe, and by the end of the century prices reached levels three to four times higher than at the beginning. The annual inflation rate ranged from 1% to 1.5%. Since the monetary system of the 16th century was based on
specie Specie may refer to: * Coins or other metal money in mass circulation * Bullion coins * Hard money (policy) * Commodity money * Specie Circular, 1836 executive order by US President Andrew Jackson regarding hard money * Specie Payment Resumption A ...
(mostly silver) this inflation rate was significant. The specie-centered monetary organization had its own price-level stabilization property: rising commodity prices led to a fall in the purchasing power of the monetary metals, and therefore less incentive to mine them and more incentive to use them for non-monetary purposes. This stabilizing adjustment of the money supply led to long-run stability of price levels regardless of permanent shifts in money demand over time. Therefore, the long-run inflation can only be explained either by the devaluation of coins or by shifts in the supply of the specie. An increase in the productivity of mining in Peru led to a fall in the price of metals relative to rising prices for other commodities in Europe. This process is only remedied if the
purchasing power Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...
of the metal is equal to its production costs.


Causes


Influx of gold and silver

From an economic viewpoint the discovery of new
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
and
gold Gold is a chemical element with the Symbol (chemistry), symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a Brightness, bright, slightly orange-yellow, dense, s ...
deposits as well as the
productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production process ...
increase in the silver mining industry perpetuated the price revolution. When precious metals entered Spain, this influx drove up the Spanish price level and caused a balance of payments deficit. This deficit occurred on account of Spanish demand for foreign products exceeding exports to foreign markets. The deficit was financed by the metals that entered these foreign countries and in turn increased their money supply and drove up their price levels. The increased importation of
specie Specie may refer to: * Coins or other metal money in mass circulation * Bullion coins * Hard money (policy) * Commodity money * Specie Circular, 1836 executive order by US President Andrew Jackson regarding hard money * Specie Payment Resumption A ...
to Spain started in Central Europe around the beginning of the sixteenth century. According to Michael North (1994) central European silver output doubled between 1470 and 1520, and increased even more in the 1520s with the new mine of Joachimsthal. Also during this time the Spanish and Portuguese brought a large amount of gold from the New World to Europe. Starting in the 1540s a growing amount of silver was shipped to Europe from
Zacatecas , image_map = Zacatecas in Mexico (location map scheme).svg , map_caption = State of Zacatecas within Mexico , coordinates = , coor_pinpoint = , coordinates_footnotes = , subdivision_type ...
,
Guanajuato Guanajuato (), officially the Free and Sovereign State of Guanajuato ( es, Estado Libre y Soberano de Guanajuato), is one of the 32 states that make up the Federal Entities of Mexico. It is divided into 46 municipalities and its capital city i ...
and
Taxco Taxco de Alarcón (; usually referred to as simply Taxco) is a small city and administrative center of Taxco de Alarcón Municipality located in the Mexican state of Guerrero. Taxco is located in the north-central part of the state, from the cit ...
mines in Mexico and the Potosi mountain in Peru. The production of the Potosi mine increased greatly in the 1560s after mercury deposits had been discovered in the Andes, as mercury was necessary to process the silver. Based on the records of Earl J. Hamilton (1934), the total imports of specie from the Americas during the 16th century amounted to around 210 million pesos, with 160 million of these pesos being imported in the second half of the 16th century. The total amount of silver imported added up to about 3,915 metric tons of silver. However these numbers underestimate the total amount imported to Spain because Hamilton only counted imports recorded by the official Casa de Contratacion in Seville, not including the specie shipped directly to Cadiz by the
Dutch Dutch commonly refers to: * Something of, from, or related to the Netherlands * Dutch people () * Dutch language () Dutch may also refer to: Places * Dutch, West Virginia, a community in the United States * Pennsylvania Dutch Country People ...
and British East India Companies. The influx of these precious metals and the resulting money supply shocks help explain the price increase in Spain during the 16th century.


European silver production

Some accounts emphasize the role of increased silver production within Europe itself. According to Nef, the output of silver mines in Bohemia, Germany and Hungary increased rapidly from c.1460 to c.1510. Production peaked in the 1530s, thereafter slowly declining for the next thirty years. After 1560, the decline in European silver production was rapid. Flynn contends that imports of silver from Spanish America is behind this decline in European silver mining.


Quantity theory of money

The first scholar to make a quantity-theory link between the influx of American "treasure" and the Price Revolution was supposedly the French philosopher
Jean Bodin Jean Bodin (; c. 1530 – 1596) was a French jurist and political philosopher, member of the Parlement of Paris and professor of law in Toulouse. He is known for his theory of sovereignty. He was also an influential writer on demonology. Bodin ...
in his 1568 response to a 1566 treatise by the Royal Councilor
Jean de Malestroit Jean de Malestroit was a French pseudo-cardinal who served as Bishop of the Roman Catholic Diocese of Nantes from 17 July 1419 until 1443 AD when he resigned. Born in 1375 in Châteaugiron in the Duchy of Brittany, Jean de Malestroit was the ...
. Malestroit argued that lower-quality coins were the chief culprit of price influx—similar to the periodic inflations of the 14th and 15th centuries. Bodin dismissed this argument, contending that the growing influx of silver from the Spanish Americas was the primary cause of price inflation. Championed for the
quantity theory of money In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directl ...
, Bodin was able to demonstrate that the inflation of prices in France was due far more to Spanish-American influx than to any change in coin debasement. Earl Hamilton, a contemporary price revolution theorist, found that no Spanish writer of the 16th century had voiced opinions similar to those of
Jean Bodin Jean Bodin (; c. 1530 – 1596) was a French jurist and political philosopher, member of the Parlement of Paris and professor of law in Toulouse. He is known for his theory of sovereignty. He was also an influential writer on demonology. Bodin ...
despite having conducted meticulous research into Spanish treatises, letters, and other documents. This, however, was not true; less well known is an even earlier Spanish publication in a treatise from 1556 by the cleric
Martín de Azpilcueta Martín de Azpilcueta (Azpilkueta in Basque) (13 December 1491 – 1 June 1586), or Doctor Navarrus, was an important Spanish canonist and theologian in his time, and an early economist who independently formulated the quantity theory of mon ...
of the Salamanca School, which made virtually the same claim about the role of Spanish-American silver in the rise of prices. Martín de Azpilcueta,
Jean de Malestroit Jean de Malestroit was a French pseudo-cardinal who served as Bishop of the Roman Catholic Diocese of Nantes from 17 July 1419 until 1443 AD when he resigned. Born in 1375 in Châteaugiron in the Duchy of Brittany, Jean de Malestroit was the ...
,
Jean Bodin Jean Bodin (; c. 1530 – 1596) was a French jurist and political philosopher, member of the Parlement of Paris and professor of law in Toulouse. He is known for his theory of sovereignty. He was also an influential writer on demonology. Bodin ...
, and early debate about the history of the price revolution in many was the reason historians, philosophers, and economists tried to formulate their own explanations to the price revolution.


Debasement

Regardless, Malestroit did put forth several valid claims about the price revolution that continue to hold up today, particularly his argument explaining the different price indexes and why the Spanish prices rose the least and the Brabantine the most. Spain, unlike most other European countries of this era, underwent no
debasement A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nick ...
s of the gold and silver coinages during most of the period, but that all changed in 1599, when the new Spanish king Philip III (1598–1621) introduced the purely
copper Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkish- ...
"vellon" coinage. Following
Henry VIII of England Henry VIII (28 June 149128 January 1547) was King of England from 22 April 1509 until his death in 1547. Henry is best known for his six marriages, and for his efforts to have his first marriage (to Catherine of Aragon) annulled. His disag ...
and his infamous "
Great Debasement The Great Debasement (1544–1551) was a currency debasement policy introduced in 1544 England under the order of Henry VIII which saw the amount of precious metal in gold and silver coins reduced and in some cases replaced entirely with cheaper b ...
" programme that began 1526, the Spanish King Philip III tried to cement his Spanish legacy through changes in coinage strategy. Previously, Spanish Kings (at least from 1471) issued a largely copper fractional coinage called blancas, with a nominal money-of-account value of 0.5
maravedí The ''maravedí'' () or ''maravedi'' (), (from ''Almoravid dinar''), was the name of various Iberian coins of gold and then silver between the 11th and 14th centuries and the name of different Iberian accounting units between the 11th and 19th ce ...
, but with a very small amount of silver to convince the public that it was indeed precious-metal "money". The blanca issued in 1471 had a silver
fineness The fineness of a precious metal object (coin, bar, jewelry, etc.) represents the weight of ''fine metal'' therein, in proportion to the total weight which includes alloying base metals and any impurities. Alloy metals are added to increase hardn ...
of 10 grains or 3.47% (weighing 1.107 g). In 1497, that fineness was reduced to 7 grains (2.43% fine); in 1552, to 5.5 grains (1.909% fine); in 1566, to 4 grains (1.39% fine). By the start of the 17th century, inflation took hold of Spain as the gap between nominal and silver-based prices dramatically shifted. The purely copper coinage had done its damage to Spain. The difference between the silver- and vellon-based price indexes in Spain showed that the purely copper coinage other European countries used made up a much smaller proportion of the total coined money supply (something the Spanish Kings had overlooked and Malestroit was able to pinpoint).


Black Death

Demographic factors also contributed to upward pressure on prices with the resurgence of European population growth after the century of depopulation following the Black Death (1347–1353). The price of food rose during the years of the plague, and then began to fall as the population of nations decreased. At the same time prices of manufactured goods rose because of a displacement of supply. As the nations began to recover and repopulate after the Black Death, the increase in population placed greater demands on agriculture. Later on, increased population placed greater demands on an agricultural area that had contracted significantly after the 1340s, or had been converted from arable to less intensive
livestock Livestock are the domesticated animals raised in an agricultural setting to provide labor and produce diversified products for consumption such as meat, eggs, milk, fur, leather, and wool. The term is sometimes used to refer solely to animals ...
production. However, population growth and recovery in countries such as England are not consistent with inflation during the early stages of the price revolution. In 1520 at the beginning of the price revolution England's population was roughly 2.5 million people. This is about half of the English population of 5 million in 1300. Critics of the population argument raise the question that if England at the beginning stages of the price revolution was very unpopulated, how could any renewed growth from such a low level immediately spark inflation? It can be argued that population growth led to a price increase in the agrarian sector because of an increase demand for food. Marginal lands that were not very fertile and far away from markets were unable to adopt the technological developments to offset the lower returns of farming. In turn this led to a higher marginal cost to farming and resulted in a price increase for grains and other agricultural goods that surpassed the price increase for non-agrarian commodities during the 16th and beginning of the 17th century. The resurgence of population after the plague is linked with the demand-pull explanation of the price revolution. This "demand-pull" theory states that an increase in the demand for money and the growth of economic activity produced the rise in prices and a pressure to increase the supply of money.


Urbanization

Some accounts emphasize the role of
urbanization Urbanization (or urbanisation) refers to the population shift from rural to urban areas, the corresponding decrease in the proportion of people living in rural areas, and the ways in which societies adapt to this change. It is predominantly th ...
. Urbanization contributed to increased trade between Europe's regions, which made prices more responsive to distant changes in demand, and provided a network for the flow of silver from Spain through western and central Europe. Urbanization is often connected with the increased
velocity of money image:M3 Velocity in the US.png, 300px, Similar chart showing the logged velocity (green) of a broader measure of money M3 that covers M2 plus large institutional deposits. The US no longer publishes official M3 measures, so the chart only runs thr ...
theory because the frequency of transactions increases as urban centers grow relative to rural areas. For example, in England, many lands held as common lands were enclosed so that only the landlord could graze his animals. This forced his former tenants either to pay an increased rent, or to leave their own farms. An increase in the number of people unable to afford their farms led to migration into the cities in search of employment. This in turn led to an increase in the velocity of monetary transactions, but was frustrated by the high demand and inelastic supply of food.


Population and agricultural growth

If the influx of Spanish silver was not the initial cause of the European Price Revolution then the best explanation for the Price Revolution is population growth. This theory developed under Earl Hamilton argues that prices were not driven by specie (which, at most, sets a floor to prices) but by the actions of monopolists (or governments) whose positions in this period were enhanced by the steady population growth in Western Europe (The resurgence of population after the plague is linked to the "demand-pull" explanation of the price revolution, which states that an increase in the demand for money and the growth of economic activity produced the rise in prices and a pressure to increase the supply of money. The significant increase of European population in the period 1460–1620 meant that there were now more people to be fed, clothed, and housed raising the demand for goods of all kinds. Agricultural products then became crucial to the European market. Producers were unable to respond to the rising demand as new and less fertile land were cultivated. Essentially, marginal costs were increasing and per-capita yields were shrinking, while demand continued to rise. The price of agricultural commodities, especially grain, rose sooner and faster than those of other goods, and the inflation of agricultural prices eventually caused a general increase in price level in all industries. Until the mid-17th century, the number of mouths to feed outran the capacity of agriculture to supply basic foodstuffs, causing the vast majority of people to live in a constant state of hunger. Until food production could catch up with the increasing population, prices, especially those of the staple food, bread, continued to rise. Hamilton's theory pointed to evidence of agricultural price growth, slow nonagricultural price growth and poor timing (of the specie outflow to the East) as tangible evidence of the failure to fix prices and feed the growing populace. Hamilton also pointed to monopolistic and other non-competitive techniques as the typical pricing behavior for European products and factor markets of the period.


Effects


Spain


External debt

Rising costs to sustain Habsburg war efforts eventually led to a severe rise of the Spanish
public debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit o ...
, of which German and Italian bankers were the creditors. The Habsburg
Charles V, Holy Roman Emperor Charles V, french: Charles Quint, it, Carlo V, nl, Karel V, ca, Carles V, la, Carolus V (24 February 1500 – 21 September 1558) was Holy Roman Emperor and Archduke of Austria from 1519 to 1556, King of Spain ( Castile and Aragon) fr ...
was also
King of Spain , coatofarms = File:Coat_of_Arms_of_Spanish_Monarch.svg , coatofarms_article = Coat of arms of the King of Spain , image = Felipe_VI_in_2020_(cropped).jpg , incumbent = Felipe VI , incumbentsince = 19 Ju ...
and borrowed enormous amounts of money from the
Fugger The House of Fugger () is a German upper bourgeois family that was historically a prominent group of European bankers, members of the fifteenth- and sixteenth-century mercantile patriciate of Augsburg, international mercantile bankers, and vent ...
s, the
Welser Welser was a German banking and merchant family, originally a patrician family based in Augsburg and Nuremberg, that rose to great prominence in international high finance in the 16th century as bankers to the Habsburgs and financiers of C ...
s, and Genoese banking families, in order to be elected Emperor and sustain, for over 35 years, the Imperial foreign policy. To repay such loans, he relied primarily on the vast stream of bullion provided by Spanish America. In the 1520s and 1530s, ships full of
Aztec The Aztecs () were a Mesoamerican culture that flourished in central Mexico in the post-classic period from 1300 to 1521. The Aztec people included different ethnic groups of central Mexico, particularly those groups who spoke the Nahuatl ...
and Inca treasures arrived from
Mexico Mexico ( Spanish: México), officially the United Mexican States, is a country in the southern portion of North America. It is bordered to the north by the United States; to the south and west by the Pacific Ocean; to the southeast by Gua ...
and
Peru , image_flag = Flag of Peru.svg , image_coat = Escudo nacional del Perú.svg , other_symbol = Great Seal of the State , other_symbol_type = National seal , national_motto = "Firm and Happy f ...
to the courts of Charles V as homage of
Hernán Cortés Hernán Cortés de Monroy y Pizarro Altamirano, 1st Marquess of the Valley of Oaxaca (; ; 1485 – December 2, 1547) was a Spanish ''conquistador'' who led an expedition that caused the fall of the Aztec Empire and brought large portions of w ...
and
Francisco Pizarro Francisco Pizarro González, Marquess of the Atabillos (; ;  – 26 June 1541) was a Spanish conquistador, best known for his expeditions that led to the Spanish conquest of Peru. Born in Trujillo, Spain to a poor family, Pizarro chose ...
. Those treasures were usually minted into coins in
Seville Seville (; es, Sevilla, ) is the capital and largest city of the Spanish autonomous community of Andalusia and the province of Seville. It is situated on the lower reaches of the River Guadalquivir, in the southwest of the Iberian Peninsula ...
and transferred to German bankers in
Antwerp Antwerp (; nl, Antwerpen ; french: Anvers ; es, Amberes) is the largest city in Belgium by area at and the capital of Antwerp Province in the Flemish Region. With a population of 520,504,
, a port city of the
Burgundian Low Countries The Burgundian inheritance in the Low Countries consisted of numerous fiefs held by the Dukes of Burgundy in modern-day Belgium, Netherlands, Luxembourg, and in parts of France and Germany. The Duke of Burgundy was originally a member of the Ho ...
where major agencies of the Fugger and Welser were located. This allowed Antwerp to become the center of the international economy and accelerated the
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private p ...
transition of the Low Countries. Certain golden objects have survived in descriptions: for example, some were displayed in Brussels to the German artist
Albrecht Dürer Albrecht Dürer (; ; hu, Ajtósi Adalbert; 21 May 1471 – 6 April 1528),Müller, Peter O. (1993) ''Substantiv-Derivation in Den Schriften Albrecht Dürers'', Walter de Gruyter. . sometimes spelled in English as Durer (without an umlaut) or Due ...
who wrote: "In all my life, I have seen nothing that rejoiced my heart so much as these things". French corsaires were constantly disrupting this trade: notably, the treasure of the Aztec emperor Cuauhtémoc was captured by the French corsair Jean Fleury. Silver arrived in large amounts, whereas gold was rarer to be found. In 1528, Charles V carved out a colony in
Venezuela Venezuela (; ), officially the Bolivarian Republic of Venezuela ( es, link=no, República Bolivariana de Venezuela), is a country on the northern coast of South America, consisting of a continental landmass and many islands and islets in th ...
for his German bankers, hoping to discover the legendary golden city of El Dorado. In 1546, the project came to an end and the German colony was disbanded. In the 1540s and 1550s, the discovery of silver mines in the Americas (such as
Potosí Potosí, known as Villa Imperial de Potosí in the colonial period, is the capital city and a municipality of the Department of Potosí in Bolivia. It is one of the highest cities in the world at a nominal . For centuries, it was the location o ...
,
Zacatecas , image_map = Zacatecas in Mexico (location map scheme).svg , map_caption = State of Zacatecas within Mexico , coordinates = , coor_pinpoint = , coordinates_footnotes = , subdivision_type ...
,
Taxco Taxco de Alarcón (; usually referred to as simply Taxco) is a small city and administrative center of Taxco de Alarcón Municipality located in the Mexican state of Guerrero. Taxco is located in the north-central part of the state, from the cit ...
,
Guanajuato Guanajuato (), officially the Free and Sovereign State of Guanajuato ( es, Estado Libre y Soberano de Guanajuato), is one of the 32 states that make up the Federal Entities of Mexico. It is divided into 46 municipalities and its capital city i ...
,
Sombrerete Sombrerete () is a town and municipality located in the northwest of the Mexican state of Zacatecas, bordering the state of Durango. It was founded in 1555 by Spanish conquistador Juan de Tolosa as a mining center, due to the wealth that the mi ...
) increased the flows of precious metals. Overall, 15 million ducats' worth of bullion reached the Imperial treasury during Charles's reign. This contributed to the higher inflation known as the Spanish price revolution: prices doubled in the first half of the 16th century. The rising costs of war had dramatic consequences on Habsburg finances: one campaign in the 1550s costed as much as one war in the 1520s. Charles V was forced to borrow even more and at higher interest rates, which grew from 17% to 48%. Despite opposition from the
Cortes Generales The Cortes Generales (; en, Spanish Parliament, lit=General Courts) are the bicameral legislative chambers of Spain, consisting of the Congress of Deputies (the lower house), and the Senate (the upper house). The Congress of Deputies meets i ...
, Charles V managed to impose this
vicious circle A vicious circle (or cycle) is a complex chain of events that reinforces itself through a feedback loop, with detrimental results. It is a system with no tendency toward equilibrium (social, economic, ecological, etc.), at least in the shor ...
that progressively weakened the Spanish finances. Furthermore, in the last years of his reign, Charles V could not be economically supported by his non-Spanish possessions: he exempted the Low Countries from taxation after the Revolt of Ghent in 1540, Germany was in the middle of the
Schmalkaldic War The Schmalkaldic War (german: link=no, Schmalkaldischer Krieg) was the short period of violence from 1546 until 1547 between the forces of Emperor Charles V of the Holy Roman Empire (simultaneously King Charles I of Spain), commanded by the Duk ...
s, and the budget surplus of Italian states was wiped out by the
Italian Wars The Italian Wars, also known as the Habsburg–Valois Wars, were a series of conflicts covering the period 1494 to 1559, fought mostly in the Italian peninsula, but later expanding into Flanders, the Rhineland and the Mediterranean Sea. The pr ...
. This ultimately put the financial burden of the
Holy Roman Empire The Holy Roman Empire was a political entity in Western, Central, and Southern Europe that developed during the Early Middle Ages and continued until its dissolution in 1806 during the Napoleonic Wars. From the accession of Otto I in 962 ...
on the Spanish kingdoms and led to the bankruptcy of Spain. Unable to sustain his projects financially, Charles V abdicated in 1556 and retired to a monastery in 1558.
Sovereign default A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments (or receivables) may either be accompanied by that government's formal declaration that it wi ...
was declared in 1557.


Landowners

Conditions in 16th century Europe support the view that the separation of constantly rising prices and fixed rents destroyed landowners. But this did not apply to Spain, where rent was not fixed and the power of landowners allowed them to raise rent and replace their tenants based on the tenants' ability to meet payments. On the other hand, the price revolution brought impoverishment to those who lived on fixed income and small rents, as their earning could not keep pace with Spanish prices. Small landowners of the hidalgo class, the lower clergy, government officials, and many others all found their standard of living reduced as commodity prices rose beyond their means. The situation of the peasants is less clear, for it is difficult to reconcile agricultural prosperity and the great rural emigration to the towns, which in turn makes it difficult to explain the alleged extension of cultivation in Spain. But one thing is certain—wages lagged behind prices.


Sellers and Traders

But landowners and the rich were not the only ones gaining from the price revolution. Anyone with something to sell or trade could reap the benefits of inflation, particularly manufacturers and merchants. However in the second half of the century, when the conditions of the Price Revolution got worse and relentless inflation began to make Spanish enterprise less competitive in the international and colonial market, not all merchants and manufactures found life enjoyable. Only the more powerful merchants were able to survive foreign competition and in doing so prospered boundlessly. Enormous fortunes were made in the Indies trade (whose expansion was related directly to the rise of prices) and this encouraged more investment and profitable returns. Profitable returns were distributed beyond the merchant houses of Seville to entrepreneurs in other parts of Spain, as the American market took the oil and wine of
Andalusia Andalusia (, ; es, Andalucía ) is the southernmost autonomous community in Peninsular Spain. It is the most populous and the second-largest autonomous community in the country. It is officially recognised as a "historical nationality". The ...
, the wool of Castile, the metallurgical products and ships of the Basque country. To at least the end of the 16th century there was still money to be made in Spain for selected merchants and manufactures.


The Crown

The Crown, like its ally the aristocracy, was less crippled by the price revolution than the majority of its subjects. Certainly the cost of administration, and of paying, feeding, and equipping its armed forces, rose for the Crown just as the cost of goods did for the private consumer; unlike other countries, Spain was willing to spend at a higher level to maintain their status as a world power. However, the aristocracy in contrast lost less of its savings than the Crown. The aristocracy could raise rents to increase revenue and not face the full consequences of the Price Revolution. The aristocracy allowed prices to remain high, while inflation alleviated the burden of loans, which became a substantial part of their income.


Republic of Genoa

Unlike many other states of the period, the
Republic of Genoa The Republic of Genoa ( lij, Repúbrica de Zêna ; it, Repubblica di Genova; la, Res Publica Ianuensis) was a medieval and early modern maritime republic from the 11th century to 1797 in Liguria on the northwestern Italian coast. During the La ...
gambled the majority of its economic interest on the Spanish monarchy—bankers invested their money in the crown and farmers of Spanish revenue, while Genoa's merchants and nobles settled in Spain (Madrid, Seville,
Kingdom of Naples The Kingdom of Naples ( la, Regnum Neapolitanum; it, Regno di Napoli; nap, Regno 'e Napule), also known as the Kingdom of Sicily, was a state that ruled the part of the Italian Peninsula south of the Papal States between 1282 and 1816. It was ...
and
Sicily Sicily ( it, Sicilia , ) is the list of islands in the Mediterranean, largest island in the Mediterranean Sea and one of the 20 regions of Italy, regions of Italy. The Strait of Messina divides it from the region of Calabria in Southern Italy. I ...
) marrying local nobility and monopolizing majority of the trade. As long as New Spain was sending silver and gold to the
consulado de mercaderes The ''Consulado de mercaderes'' was the merchant guild of Seville founded in 1543; the Consulado enjoyed virtual monopoly rights over goods shipped to America, in a regular and closely controlled West Indies Fleet, and handled much of the silve ...
in Seville, Genoa could flourish. Genoa became a large credit market as the capital of Italian cities was all drained towards Genoa. A multitude of small investors, Genoese and others, obtained from the Crown long-term securities (''juros de resguardo'') as collateral for their loans. Also short-term loans known as Asientos could be converted into long-term juros.Debt policy under constraints: Philip II, the Cortes, and Genoese bankers by CARLOS ÁLVAREZ-NOGAL and CHRISTOPHE CHAMLEY, p. 2
/ref> The contracts specified that these securities would be sold if the Crown did not repay the loans. In essence, the Genoese bankers had worked out an
interest rate swap In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with ...
. Furthermore, the Crown sold silver spot in Spain to the Genoese in exchange for future delivery of gold in
Antwerp Antwerp (; nl, Antwerpen ; french: Anvers ; es, Amberes) is the largest city in Belgium by area at and the capital of Antwerp Province in the Flemish Region. With a population of 520,504,
, where the gold was used to pay Spanish troops fighting in the Low Countries. Genoa benefited from the price revolution as they enjoyed the advantage of "increasing returns to scale in international financial services". Genoa during the price revolution was a snapshot of global finance at its best. Unfortunately, the decline of Spain in the 17th century brought also the decline of Genoa (due to the Spanish crown's frequent bankruptcies); Genoa's merchant houses particularly suffered. In 1684, Genoa was bombed by a French fleet as punishment for its long alliance with Spain. As a result the Genoese bankers and traders made new economic and financial links with Louis XIV.


Long term decline of inflation

The inflation of eventually petered out with the end of the initial rush of
New World The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. 3 ...
bullion, though prices remained around or slightly below the levels of the first half of the 17th century until the onset of new inflationary pressures in the latter decades of the 18th century.


See also

* Economic history of Europe * Eden Agreement *
European colonization of the Americas During the Age of Discovery, a large scale European colonization of the Americas took place between about 1492 and 1800. Although Norse colonization of North America, the Norse had explored and colonized areas of the North Atlantic, colonizin ...
*
Great Bullion Famine The Great Bullion Famine was a shortage of precious metals that struck Europe in the 15th century, with the worst years of the famine lasting from 1457 to 1464. During the Middle Ages, gold and silver coins saw widespread use as currency in E ...
* Kipper und Wipper


References


Further reading

* Kugler, Peter, and Peter Bernholz
"The Price Revolution in Europe: Empirical Results from a Structural Vectorautoregression Model"
{Dead link, date=July 2018 , bot=InternetArchiveBot , fix-attempted=yes , University of Basel, WWZ, 2007. * Munro, John
"The Monetary Origins of the 'Price Revolution': South Germany Silver Mining, Merchant Banking, and Venetian Commerce, 1470–1540"
Toronto, 1999. * Alexis Marinci

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Early Modern economics Inflation Revolutions by type 15th-century economic history 16th-century economic history 17th-century economic history Black Death Economic history of Europe Economic history of Spain Imperialism Medieval economics