[The following is a rough draft to an upcoming article on two episodes during Spanish history; given that it is loaded emotionally, and somewhat off topic, it has to be re-written, but should still give a fair image of the article to come.]
When we contemplate the magnitude of Spain’s hegemony, and compare it with the poverty from which it arose, we should not let ourselves give way to pride.—Ramón Carande[1]
The history of Spain is one beset by human tragedy. At first glance, the economic heritage of Spain seems cyclical, with periods of wealth and power followed by long epochs of poverty. Upon closer inspection, however, it becomes evident that even the years of wealth were at best illusionary. Until only recently, the Spanish people have known only poverty. The end of the Francisco Franco regime brought hope, as totalitarianism gave way to democracy. But, democracy has simply become a means of returning to totalitarianism.
Spain was the first great modern empire. Under the auspices of its Catholic regents it spanned across five continents, and for almost two hundred years commanded the European mainland. Military historians have attributed Spain’s rise to its martial capabilities, but her power ultimately came from the illusion of wealth—the inflow of gold from the Americas.[2] While an inflow of gold gave the Spanish government the advantage of being able to buy material for pre-inflationary prices, the common Spaniard became subjected to a dramatic increase in the general price level. Most tragic of all, wages tended not to rise proportionally with the price level, causing even more widespread pain and suffering than had existed prior to the discovery of the New World.[3] It should come as no surprise that the empire fell almost as soon as the “golden faucet” shut off. Any real wealth created was quickly stifled by Spanish mercantilism and regulation.[4]
The current debt crisis is one which fits Spanish history like a piece of a puzzle. Once again, government disillusioned the people and led the country to ruin. But, the degree of tragedy is far greater than any past episode, excepting the Spanish Civil War. For the first time since the birth of the Spanish State, the Spanish people as a whole were given an opportunity to attain prosperity. Although imperfect, Spanish democracy ushered in a period of undisputed general wealth—in 1976 Spain’s gross domestic product (GDP) per capita was roughly $3,200, compared to today’s $33,700. But, like Spain’s “Golden Age”, today’s “wealth” seems a result of the rise in the volume of money as opposed to a rise in the volume of capital.
Inflation brought ruin. The foundations of the wealth of the late 1990s and the new decade of the 21st Century collapsed like a house of cards. The current government has responded in a manner not too dissimilar to that of the Spanish monarchy of the late 17th Century. The current depression has been met with promises of greater regulation and taxation. President Zapatero’s advisors have even suggested a transition to a “planned economy” as a solution to the current economic quagmire.[5]
Hayek wrote:
The passion for “collective satisfaction of our needs”, with which our socialists have so well prepared the way for totalitarianism, and which wants us to take our pleasures as well as our necessities at the appointed time and in the prescribed form, is, of course, partly intended as a means of political education.[6]
One would be hard pressed to find a better contemporary example of this threat than Spain. Indeed, it is enticing to consider Spain to be on a road to serfdom, but in truth Spain is already there. The past three and a half decades represent an era in which the Spanish people have passionately tried to break free from the chains of government while marching into an era of liberalism. To one degree or another, the democratic revolution after the death of Franco was an attempt at liberalization. Despite these efforts, the Spanish people are intellectually married to the concept of big government. Even Spanish anarcho-syndicalists have been unable to divorce themselves from the presumed “necessity of government”. They have known nothing else—Spain was born under the auspices of statism. For most, if the savior of Spain is not the Socialist Party it must be the Popular Party.[7]
But, what difference is there between self-proclaimed socialism and socialism operating under the façade of so-called conservatism? Any utilitarian and centralized policy is bound to fail. The current crisis, unfortunately, has reaffirmed the flawed idea that poverty is a product of insufficiently large government. It is akin to saying that the solution to tyranny is even greater tyranny. The result has been the cornering of Spain’s political fiscal future to a handful of options, all of which promise hardship. The Spanish government, inexplicably backed by the Spanish people, seems intent on exhausting those options which allow for its growth. The end result will only be a return to general poverty.
The only solution to the Spanish tragedy is a turn to individualism and the abolition of the leviathan known as big government. It must finally be realized that any option which includes the government as the means of adopting said option—whether through financial bailout or inflation—will inevitably lead to ruin and oppression. The bureaucracy which works to subjugate entrepreneurship and accumulation of wealth must be toppled, and the doors to human spirit and passion opened.
[1] Quoted from: Kamen, Henry, Empire: How Spain Became a World Power 1492–1763, Perennial. New York City, New York: 2004; p. xxi.
[2] Rothbard, Murray N., An Austrian Perspective on the History of Economic Thought, Volume 1: Economic Thought Before Adam Smith, Ludwig von Mises Institute. Auburn, Alabama: 2006; p. 106.
[3] Grice-Hutchinson, Marjorie, The School of Salamanca, Ludwig von Mises Institute. Auburn Alabama: 2009; p. 1.
[4] Rothbard (2006), pp. 214–216.
[5] Marcos, J.J., “Los asesores de Moncloa abogan por una economía planificada” (“Moncloa’s advisors advocate a planned economy”), Expansión: 8 Demcember 2009. N.B.: Moncloa refers to the Palace of Moncloa, which is analogous to the White House.
[6] Hayek, Friedrich, Road to Serfdom, The University of Chicago Press. London, United Kingdom: 1944; p. 132.
[7] The Partido Popular is a right-of-center political party in Spain, and one of two major parties represented in government.
So your conclusion is that the Spanish Empire was powerful solely due to New World gold and it had nothing to do with any wealth creation at home? This comes as a greater surprise to me if than if you found the opposite to be true – that the gold had little to do with it.
But I suppose it can make sense this way too. It was a much poorer period I suppose a ton of gold represented a much greater portion of wealth in the world than it would today…
Hoct,
I’m sure that there was wealth creation in Spain, but much of it was stifled by the government. The thesis is that general prosperity was an illusion created by the respectable inflow of gold to the Old World. In one sense or another, it is the Austrian business cycle theory, only instead of fiat currency there is literally more gold being introduced into circulation. It would be interesting to know whether there are general estimates of how much gold was in circulation prior to 1493 and how much after the “great inflation”.
It should be noted that texts of that period, and the period directly after, including those of the Spanish scholastics, use the example of Spanish gold as a textbook example of monetary inflation as a means of impoverishing savers.
i don’t think that the the robust growth in money supply in a specie-regime is impoverishing, notwithstanding rising prices. it doesn’t generate the malinvestments that characterize the abct. if there were malinvestments occurring, then that would have to be sheeted home to the frb institutions of the day.
i think hoct is onto something. the imperial conquest of the americas only could come about because of the domestic riches. spain was a power even before the new world. why that was is the real question.
hülsmann’s paper on error cycles, if you’ve not already read it, defangs the argument that large growth in natural money supplies is somehow dangerous.
http://mises.org/journals/qjae/pdf/qjae1_4_1.pdf
i think spain spent its way into poverty through the costs of empire. not even the gold could pay for military and administrative expenses associated with hegemony.
Newson,
Even without capital theory, monetary inflation is impoverishing. I don’t think that the inflation that occurred thanks to the growth in the money supply after the discovery of the Americas created a general boom and bust, either. Most of the money probably went to government consumption, financing Spanish wars in Germany, the Netherlands, et cetera. Nevertheless, a rise in prices fueled by the increase in gold specie impoverished those who did not receive the money directly; this is not specific to the Spanish Empire: Henry Hazlitt makes the general argument in [i]Economics in One Lesson[/i].
The point is that real wealth is represented by capital, not money. Mises put it best when he wrote that an increase in money is not synonymous with an increase in wealth.
On the Spanish Empire, being a power and wealth, it should be noted that Spain was completely unified in the same month, and the same year, that Columbus discovered America. Spain has always been historically very poor, and if you read contemporary Spanish historians they will make a note of that. Also worthwhile is reading the political commentary produced by much of the School of Salamanca during the reign of Charles V. These Spanish scholastics made note of the general poverty which Spain rose out of, and of the negative effects of the monetary inflation that was taking place.
On the history of economic thought, I would really suggest Rothbard’s [i]An Austrian Perspective on the History of Economic Thought[/i].