One such example occurred when Spain brought in large quantities of gold from the Americas. This dramatic increase in their money supply led to the eventual collpase of their economy
Missed this fallacy. Many factors have been adduced to account for the "decline of Spain,", but mainly the perversity of their economic policies must bear a large share of the responsibility. In spite of their relative poverty, the Spanish people in the sixteenth century were the most heavily taxed of any in Europe. Moreover, the incidence of taxation was extremely uneven - the great landowners were exempt from direct taxation - thus, the burden fell principally upon artisans, tradesmen, and especially the peasants. Further, the Spanish economy was steeped in mercantilist favoritism with price supports for exports and heavy import duties.
Had those economic policies not been in place, the shock of a sudden wealth increase would have had little lasting impact. The world was essentially on a commodity monetary system and David Hume’s specie flow mechanism ensured that little, if any, of the treasure would remain in Spain (with, perhaps, the bulk of it flowing to France and England). While a temporary rise in the price level was certainly evident across all of Europe, why did Spain decline and not France, or England? I guess when all you have is a hammer, every problem looks like a nail. |
