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].

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.

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.

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…

Good to see your still very active with your blog. I wanted to forward a link to you about Krugman.
http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar

I just don’t understand this guy? Every time I hear something from him I try to follow his logic and it seems so far from generally accepted principles of economics.
I understand the world of macroeconomics is a bit ambiguous compared to micro but I feel like he has really let the political animal inside take over his brain.

Maybe this article will shed some light onto Krugman the man vs Krugman the economist. (Oh wait, they are one in the same)

It’s okay; sometimes I forget to take my crazy pills too.