> 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.
"The Spaniards will never see their gold again, just as they don't see their ears" this is supposedly what Stalin said according to Alexander Orlov. From the same link.
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.
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.
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.
Think of difference between buying bunch of cars from someone making cars. Instead of buying the factory making cars.
Or maybe currently RAM. You found pile of money somewhere. You buy big amount of RAM. RAM prices go up, you do not care you have money. In a few years DDR6 comes out. The RAM you bought is not that expensive anymore. You do not really have either money or something currently expensive.
Wealth is owning the land, the machines, the buildings, the knowledge(more so now). Being rich is owning lot of what can buy those things. But if you keep spending liquid wealth, eventually it is gone and you are not wealthy anymore.
You can, but then those people have more money, and you have less. The money supply is much smaller than the supply of goods and services, because the same money circulates repeatedly. So simply doubling your money can tilt things a little more your way, but does not make the situation completely lopsided, because you can only spend the extra money once.
Also, to quote Jastram [0], "In spite of the romanticism of the Spanish Main and treasure ships, the supply of gold from the New World was just a trickle by later standards. Less than 1% of what was to be 1930 world production was produced in each of the years from 1500 to 1520." Over the next 80 years, it never got much above 1.3%.
[0] Roy W. Jastram, The Golden Constant (1977), pg. 41.
They could and they did. That meant that Spain ended up importing more and exporting less, which would have been bad for Spanish businesses.
There’s a lot more to “wealth” than just having a bunch of stuff. Especially in the long term, since most “stuff” will wear out or otherwise decay over time.
Fine: you can't physiologically sustain yourself on a diet of gold alone. Gold is not a nutritionally complete diet. If all you have to eat is gold, you will soon be dead.
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.
Marx wrote about commodity fetishism. Perhaps the ultimate version is a belief gold is innately valuable. It has valuable properties, but almost its sole function is to be rare and desirable. That we now use gold for electronics in some ways undermines its rei-ification as the personification of value.
Spain fucked up. They mistook the gold for something more valuable than Labor. The Merino sheep of Spain were a better bet, in the long term.
The Spanish gold disappeared into economies with a better sense of what value is.
Yes, I often say that the gold from America was a poisonous gift. It made the country so rich that they stopped caring about other stuff, they could just buy them from elsewhere. So there was little incentive to manufacture first, and industrialize later. Which is ironic because some of first steam engines you can find in Europe were invented in Spain (https://en.wikipedia.org/wiki/Jer%C3%B3nimo_de_Ayanz_y_Beaum...). It also enabled the funding of numerous stupid wars, with the human cost they bring. The name of this process is called the Dutch Disease https://en.wikipedia.org/wiki/Dutch_disease
never heard of the dutch disease (i am dutch). pretty cool comment thanks.
kind of funny to think they still have trouble to actually extract that gas due to activism around earthquakes and ppl not eager to move away from these places. also now the climate push.
it kinda looks (from an uneducated perspective) they suffered this disease for nothing.
Spaniard there. We have gentlemen like Leonardo Torres Quevedo and the 'Telekino', something even the IEEE would get amazed of.
But our damn national motto on R&D was "Que inventen otros" (Let the -foreign- ones invent).
EDIT: It actually was "Que inventen -sth- ellos" (let the others invent -it-).
Something like let's just slack down/keep living under a traditionalistic, rural, Romantic life at the 19th century, let the rest do the modern inventions. OFC as I said Torres Quevedo was the exception, but overall I find our right wing politicians still have that Empire bound mindset. Even the progressive left are almost ranting luddites, they look the Science down from their Liberal Arts thrones.
In the end it's some kind of outdated rural-Romantic idiots fighting another share of left sided outdated jerks with, paradoxically, a similar love to the Rural Spain, with the pure, hard working, 'ecological' peasant against the polluting urbanite.
And sometimes I wish these Boomer (literal boomers in both sides) influenced journalists get to the times for once and all.
Use science to fight the climate change. Use libre software to expand education and knowledge like anywere else in History.
Act smart and not with the guts.
Gold is a VERY unique metal and its value comes directly from that. Particularly the complete lack of oxidation, I'm sure it was seen as absolutely magic that it would not tarnish while every other metal known at the time would oxidize very easily.
Value is ultimately always in the eye of the beholder.
Indeed. I believe the parent commenter should pause and assess why people buy things, and what makes something desirable or a luxury good. We can start with mechanical watches: They are of poorer quality by every utilitarian measure than a crystal-oscillator driven one, but command much higher prices and status.
> They are of poorer quality by every utilitarian measure than a crystal-oscillator driven one, but command much higher prices and status.
But the value of the watch is not reducible to its value as a timekeeping device. (Even here, you could argue that the mechanical watch has more instrumental value as a timekeeping device where batteries are unavailable.)
A mechanical watch has greater value as a mechanical watch; it is mechanically more sophisticated, even if not electronically. It can have greater value as a product of superb craftsmanship or as an object of art. (And here, while tastes vary, I would reject the reduction of beauty to taste.)
spain was no longer a major player in world politics by 1800s, but they had a good 2-3 century run. not sure if the monetary crisis was really did them in, or more just it being the ebb and flow of history. britain's world dominance is long over too. if they did "fuck up", it was because charles v was the first global hegemon, nobody know how to do that, he was in uncharted territory. and obviously no, the merino sheep weren't a better bet long term, that's absurd. global dominion required a cohesive domestic home country to serve as the wellspring of power, not the fractured foedal remnants of a mediaeval europe that required constant war to keep together. and then of course, industrialize early.
Gold is used by industry at current prices due to its physical properties, so its current price and value are fairly close.
This still allows for significant price swings because there vast quantities of gold sitting around in vaults, but unlike say bitcoin it does have high intrinsic value. IE: If gold sustained a 90% drop in price across decades at lot more would be used by industry creating a price floor.
How can you conclude that the current price and value is fairly close? Seems to me that all you are showing (rightly so) is that there are some use of gold which has higher value than today's price.
I agree that industry use creates a price floor, but that might be much lower than what the price is today. I.e if suddenly everyone lost faith in gold as a carrier of value, so everyone who keeps gold just as a passive keeper of value started selling it off, then we would get a new market clearing price which represents golds 'real value'. I have no clue what this would be, but it is certainly not obvious to me that it's close to today's price.
I’m talking orders of magnitude here. Supply and demand curves generally have a slope. As in the demand for goods by industry increases as the price decreases. A significantly larger portion of minded gold is used for jewelry than industry or investment, but a price drop would also reduce the amount mined.
Combine those and yes gold could get significantly cheaper especially with the vast quantities on hand, but it would still be a very expensive metal vs steel, aluminum, etc.
Gold's resistance to oxidation is pretty unique and valuable. Every metal with similar properties is also expensive — palladium is the most common and its price hovers around several hundred dollars per ounce despite being much less popular for jewelry or currency.
If gold is inherently valueless, then isn’t shipping all of it away immediately to other countries in return for useful goods the most rational thing to do?
And if they could get gold at a fraction of the cost of other countries and exchange it for useful goods, isn’t that more rational than building the goods yourself?
The Spanish were not stupid and were not acting irrationally — except perhaps thinking on too short of a time frame. The gold trade was a total moral abomination, but it was a good trade economically for hundreds of years.
The main problem was that it was basically an arbitrage play and once the margin got erased from inflation, they had let the rest of their economy atrophy.
This is one of the reasons the Saudis invest so much money in tech companies and other industries.
It wasn't an arbitrage thing and I'm not sure there's anything fruitful in the comparison to saudi arabia.
The Spanish Empire was, more than anything else, a product of the reconquista. The major institutions of Spain were all directed towards the taking and holding of new lands. When granada finally surrendered in 1492, the monarchy turned towards conquering the canaries and then the new world to avoid the large scale structural changes needed to go from a militaristic, medieval nation to a peacetime state in the early modern. The systems of repartimiento and encomienda were more or less borrowed wholesale from the reconquista. The conquistadors and chroniclers all saw the Americas through the lens of the chivalric literature they loved. The name "California" was borrowed from one of those books, about a fictional island of Amazons who aided the moors.
Precious metals were a solution to the problems Spanish monarchs had in organizing Spanish society. It paid for soldiers in the monarchy's constant wars. It paid off loans to italian and dutch financiers, and it was something that could much more easily be controlled by a distant monarch than import duties or taxation (which nobility were largely exempt from). It also gave them some limited control over their inflation issues by devaluing and revaluing the coinage as financial pressures required. This eventually caused other problems, but the point is that Spain was never really an arbitrage play. They didn't have to be, since they controlled some 30% of the world's gold supply and >90% of its silver at points.
understanding what humans collectively find valuable is much more lucrative than understanding why humans collectively find a thing valuable
being on this forum for a decade I see people consistently get caught up in the latter, at the expense of noticing the opportunities the same people are here for
One thing you can do when people are spending money on magic beans is point out that magic beans don’t exist and they are all stupid for buying them. The other thing you could do is open a magic bean store.
Ideally you do the first part while buying up all the beans for cheap, then commence step 2: convince people they are super valuable and sell the magic beans for profit.
The School of Salamanca about value and money said something else in 16th century. The Spaniards were anything but dumb.
It just happened that the British industrial revolution steamrolled everyone. You can't compete aganst the steam engine and the railway making communications and sharing of goods and raw materials something ridiculously cheap compared to the previous times, even by boat in both UK and Spain where the big rivers like Douro and Tagus could sustain a lot of transport. But, still, the train allowed to reach anyone in the country.
Which cheap transportation you can connect industrial powerhouses (and competent engineers and scientists) and the rest it's history. Addthe telegraph on top of that and it's game over for any outdated empire.
When knowledge sharing can be reduced hours and maybe a day or two instead of weeks or months, it's like upgrading from having a 486 based computer with DOS to a Ryzen one with multiparallel processing. Literally.
Marx called gold "the money-commodity" and said that paper money (even early fiat currency) always represents gold/silver in circulation.
The massive Spanish purchases of weapons and other manufactured goods from other countries in the 16th and 17th centuries played a large role in jump-starting the capitalist economic revolution in Europe.
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.
https://en.wikipedia.org/wiki/Moscow_Gold_(Spain)
Did you actually read the wiki you linked?
Spain transferred the gold to Moscow who liquidated it on Spain's behalf to buy guns, fund the civil war, and deposit in banks.
There's mixed views whether Moscow took too much of a margin, but they melted down gold after selling it and the gold is still in circulation.
If you melt down gold, how are you not staring at the same gold?
Moscow didn't steal anything either.
I guess Russia has always been a shitty country.
1. National treasures (ex gold) were returned in '35 and '56.
2. Romania intervened against the Bolsheviks in Bessarabia.
#2 seems like FAFO to me. And I'm sure some Romanians got kickbacks from the "transfers." Nobody forced Romania to transfer their assets.
Cherrypicking a quote from Stalin who was using sarcastic humor at a banquet when the gold arrived also doesn't refute my point or answer my question.
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.
Or maybe currently RAM. You found pile of money somewhere. You buy big amount of RAM. RAM prices go up, you do not care you have money. In a few years DDR6 comes out. The RAM you bought is not that expensive anymore. You do not really have either money or something currently expensive.
Wealth is owning the land, the machines, the buildings, the knowledge(more so now). Being rich is owning lot of what can buy those things. But if you keep spending liquid wealth, eventually it is gone and you are not wealthy anymore.
Also, to quote Jastram [0], "In spite of the romanticism of the Spanish Main and treasure ships, the supply of gold from the New World was just a trickle by later standards. Less than 1% of what was to be 1930 world production was produced in each of the years from 1500 to 1520." Over the next 80 years, it never got much above 1.3%.
[0] Roy W. Jastram, The Golden Constant (1977), pg. 41.
There’s a lot more to “wealth” than just having a bunch of stuff. Especially in the long term, since most “stuff” will wear out or otherwise decay over time.
Spain fucked up. They mistook the gold for something more valuable than Labor. The Merino sheep of Spain were a better bet, in the long term.
The Spanish gold disappeared into economies with a better sense of what value is.
Arab states could get into the same trap
kind of funny to think they still have trouble to actually extract that gas due to activism around earthquakes and ppl not eager to move away from these places. also now the climate push.
it kinda looks (from an uneducated perspective) they suffered this disease for nothing.
https://www.history.com/articles/slavery-profitable-southern...
But our damn national motto on R&D was "Que inventen otros" (Let the -foreign- ones invent).
EDIT: It actually was "Que inventen -sth- ellos" (let the others invent -it-).
Something like let's just slack down/keep living under a traditionalistic, rural, Romantic life at the 19th century, let the rest do the modern inventions. OFC as I said Torres Quevedo was the exception, but overall I find our right wing politicians still have that Empire bound mindset. Even the progressive left are almost ranting luddites, they look the Science down from their Liberal Arts thrones.
In the end it's some kind of outdated rural-Romantic idiots fighting another share of left sided outdated jerks with, paradoxically, a similar love to the Rural Spain, with the pure, hard working, 'ecological' peasant against the polluting urbanite.
And sometimes I wish these Boomer (literal boomers in both sides) influenced journalists get to the times for once and all. Use science to fight the climate change. Use libre software to expand education and knowledge like anywere else in History. Act smart and not with the guts.
But that's Science Fiction here.
Value is ultimately always in the eye of the beholder.
But the value of the watch is not reducible to its value as a timekeeping device. (Even here, you could argue that the mechanical watch has more instrumental value as a timekeeping device where batteries are unavailable.)
A mechanical watch has greater value as a mechanical watch; it is mechanically more sophisticated, even if not electronically. It can have greater value as a product of superb craftsmanship or as an object of art. (And here, while tastes vary, I would reject the reduction of beauty to taste.)
You’re forgetting lead, but the point is all the same.
If you mean value per se, not at all. There are difference kinds of value (intrinsic, instrumental).
A piece of bread has objective nutritional value, for example. It doesn’t matter whether you personally dislike bread.
As a trivial example, someone with celiac’s disease is not going to value your gluten ridden bread very high.
This still allows for significant price swings because there vast quantities of gold sitting around in vaults, but unlike say bitcoin it does have high intrinsic value. IE: If gold sustained a 90% drop in price across decades at lot more would be used by industry creating a price floor.
I agree that industry use creates a price floor, but that might be much lower than what the price is today. I.e if suddenly everyone lost faith in gold as a carrier of value, so everyone who keeps gold just as a passive keeper of value started selling it off, then we would get a new market clearing price which represents golds 'real value'. I have no clue what this would be, but it is certainly not obvious to me that it's close to today's price.
I’m talking orders of magnitude here. Supply and demand curves generally have a slope. As in the demand for goods by industry increases as the price decreases. A significantly larger portion of minded gold is used for jewelry than industry or investment, but a price drop would also reduce the amount mined.
Combine those and yes gold could get significantly cheaper especially with the vast quantities on hand, but it would still be a very expensive metal vs steel, aluminum, etc.
And if they could get gold at a fraction of the cost of other countries and exchange it for useful goods, isn’t that more rational than building the goods yourself?
The Spanish were not stupid and were not acting irrationally — except perhaps thinking on too short of a time frame. The gold trade was a total moral abomination, but it was a good trade economically for hundreds of years.
The main problem was that it was basically an arbitrage play and once the margin got erased from inflation, they had let the rest of their economy atrophy.
This is one of the reasons the Saudis invest so much money in tech companies and other industries.
The Spanish Empire was, more than anything else, a product of the reconquista. The major institutions of Spain were all directed towards the taking and holding of new lands. When granada finally surrendered in 1492, the monarchy turned towards conquering the canaries and then the new world to avoid the large scale structural changes needed to go from a militaristic, medieval nation to a peacetime state in the early modern. The systems of repartimiento and encomienda were more or less borrowed wholesale from the reconquista. The conquistadors and chroniclers all saw the Americas through the lens of the chivalric literature they loved. The name "California" was borrowed from one of those books, about a fictional island of Amazons who aided the moors.
Precious metals were a solution to the problems Spanish monarchs had in organizing Spanish society. It paid for soldiers in the monarchy's constant wars. It paid off loans to italian and dutch financiers, and it was something that could much more easily be controlled by a distant monarch than import duties or taxation (which nobility were largely exempt from). It also gave them some limited control over their inflation issues by devaluing and revaluing the coinage as financial pressures required. This eventually caused other problems, but the point is that Spain was never really an arbitrage play. They didn't have to be, since they controlled some 30% of the world's gold supply and >90% of its silver at points.
being on this forum for a decade I see people consistently get caught up in the latter, at the expense of noticing the opportunities the same people are here for
selling people a better understanding of why they find things valuable, is worth a lot!
It just happened that the British industrial revolution steamrolled everyone. You can't compete aganst the steam engine and the railway making communications and sharing of goods and raw materials something ridiculously cheap compared to the previous times, even by boat in both UK and Spain where the big rivers like Douro and Tagus could sustain a lot of transport. But, still, the train allowed to reach anyone in the country.
Which cheap transportation you can connect industrial powerhouses (and competent engineers and scientists) and the rest it's history. Addthe telegraph on top of that and it's game over for any outdated empire. When knowledge sharing can be reduced hours and maybe a day or two instead of weeks or months, it's like upgrading from having a 486 based computer with DOS to a Ryzen one with multiparallel processing. Literally.
The massive Spanish purchases of weapons and other manufactured goods from other countries in the 16th and 17th centuries played a large role in jump-starting the capitalist economic revolution in Europe.