Spain

As some of you may recall, in 1492 Columbus sailed the ocean blue. He found an exciting new world full of gold and silver. And the Spanish spent the next couple hundred years pretty much exclusively using that new gold and silver to 1) buy themselves stuff 2) invest in getting more gold and silver from the new world.

This caused a level of inflation that destroyed Spain since there wasn’t much incentive in making the stuff they wanted. They had gold and silver – they could just import whatever they wanted. And they did.

The massive glut of gold and silver caused massive inflation in Spain and the Ottoman empire, it led to the British, French, and Northern Europes early industrial rise to produce the things like textiles that the Spanish wanted to buy. It led to the British and French colonial expansion to find new and exciting things to sell to the Spanish (and everyone else). It caused inflation in China and India as the British, Dutch, and French spread and traded with the Spanish bullion across the planet.

The only reason the Spanish supremacy ended was loss of naval superiority and several important military losses. It wasn’t a failure of this crazy extraction exploitation economy. There was plenty of financial mismanagement and crazy military spending, but for the upper class of Spain this worked.

Here’s my question to the AE group: How the hell did this work for HUNDREDS of years?!? The modern day equivalent would be if Elon was to somehow pull in an asteroid made of gold. And then the US could just buy from everyone for as long as the US maintained control of access to the golden asteroids.

That is damaging my interpretation of what a market is and all the AE concepts of economic productivity. It’s not supposed to be economically productive to just print money. Please help me understand how this worked as a functional economic system for so long.

I would have thought people would eventually get enough gold and silver that they would start demanding trade in other forms to avoid the inflation – and some did with mercantilism and protectionism that let the French and English and Dutch among others to invest the Spanish gold and silver into factories that make the stuff they trade for the gold and silver so their economic productivity went way up as they became the source of in-demand goods. But many didn’t and were happy just taking the bullion at their own expense.

Modern monetary theory and free market economics tells us you should always buy from the cheapest source and if you have an extraction economy your best choice of *cheapest source” will always be someone other than you.

This makes Spain somewhat unique – their empire was run for hundreds of years on just buying stuff from other people who were scrambling to make more and more stuff for them to buy until they became a lesser military power.

What’s the human action lesson here? How did this function so long and was the end inevitable or could this be a functional economic concept of 1 party just providing the “Demand” side of the supply/demand curve and everyone else building up supply and increasing their production levels to provide for the rich buyers.

If we treat the buyers and sellers as part of the same market then this is what built up Europe in the early colonial period. If we treat them as separate markets then the Spanish government and aristocracy really screwed over the rest of Spain through crazy inflation with limited productive investment internally.