DECLINE OF SPAIN----(16th Century)

16th century Spain was marked by the emergence of an absolutist state. According to Perry Anderson
“Absolutism is nothing but a recharged Feudal Apparatus” ie Feudal class remained the most dominant
class in the face of the rise of absolutism. There is no change in production relations, no major land
distribution and extra economic coercion continues to be applied in order to extract surplus. The only
difference being that the power of the king had increased tremendously and was able to curb the
authority of the feudal class to an extent in the interest of the crown.

The two major kingdoms in Spain were Castile and Aragon. In 1469, there was the marriage of the
Isabella-the queen of Castile and Ferdinand-the king of Aragon, which brought a great deal of political
stability to Spain. Their daughter Juanna was married to the Holy Roman Emperor, who’s line came
from the Hapsburg dynasty. The offspring of Juanna and Hapsburg descendant was Charles V who took
over the Spanish throne. He also laid claims on the Hapsburg and Burgundy throne and was the Holy
Roman Emperor. Thus, Charles V has claims over most of central Europe and also inherits the modern
day Belgium and Netherlands. Thus, he gets involved in a lot of affairs like the Reformation movement
as it was happening in territories under his control. Philip II became king of Spain once Charles V
abdicated and laid claims over the Spanish Indies Empire, parts of Italy, Low Countries, Spain etc. This
provides the political background to the Spanish economy in the 16 th century.

The Spanish economy was overwhelmingly agrarian and feudal in nature. The Catholic monarchs used to
follow pro-aristocratic policies in Spain; they were given lots of privileges, benefits etc in order to win
their support. The feudal privileges such as fiscal immunity extended into the 16 th century as well. The
feudal class had large tracts of land under its control which was not taxed; the crown also sanctioned
the monopoly of the feudal class over land. In 1480, the Spanish Parliament (Cortes of Toledo) decreed
that all the land that had been seized by the feudal class since 1454 had to be given back to the Crown.
However, the feudal lords had the right to entail or Mayorazzgo, which stated that the lands held by the
feudal lords were free from alienation and they would be held by feudal lords in perpetuity. This meant
that no redistribution of land took place and even the monarchs encouraged marriage alliances between
the aristocrats so that the concentration of wealth took place in a few hands alone.

The feudal lords had also participated in the ‘Reconquista’, which was the campaign to recapture the
land from the Moors. This land was also redistributed among the feudal lords. Thus, by the 16 th century,
2% of the population owned 95-97% of the land in Spain. Moreover, almost 95% of the population in
Spain lived in the countryside itself.

Thus, land was a crucial feature of the Spanish economy and was utilized for the cultivation of corn,
olives, wine or for the grazing of sheep. Many scholars believe that the Spanish agriculture was highly
lopsided-it gave more importance to wool production than to the cultivation of crops. For instance, John
Lynch stated that “Spain had a problem as it had an imbalanced arable economy as more importance
was given to sheep rearing and the sheep guilds (Mesta). The guild consisted of the big men associated
with sheep rearing. In southern and central Spain vast tracts of untilled land were monopolized by
members of this guild. This guild looked after the interests of the Merino Sheep.
Thus, according to Lynch agriculture in Spain suffered as a result of the sheep guilds. Numerous laws
were also passed in favour of the Mesta. In 1480, a law was passed which stated that all common laws
that had been dug up during the previous regime should be returned to pasturage and in 1501, a law
was passed according to which the Mesta was given the right to entail any land it had once used for
pasture. In this way large tracts of land in Andalusia and Estremadura was taken over by the Mesta for
the purpose of sheep grazing. The Mesta was allowed to occupy land at low rent. By the end of the 16 th
century nearly 1/3rd of the land in Spain was an uncultivated waste.

According to Lynch, the increasing power of the Mesta had made agriculture highly unattractive. Very
few people wanted to join agriculture. The peasant had limited powers over land; the Spanish monarch
gave certain rights to tenants by which they could abandon their lord, change their residence and move
around. However, Lynch stated that these rights were only theoretical and the peasant had no place to
escape. In Aragon, the peasant remained a tenant, did not possess any security of tenure and paid rent
in kind. Thus, on the whole even the conditions of the peasant were quite deplorable and there was
large-scale fleeing of peasants to towns or America. Thus, towards the end of the 16 th century only 1/3rd
of the male population in the Spanish countryside was engaged in agriculture; 2/5 th were outside any
direct economic production, engaged in non-productive occupations like the army, the Spanish fleet,
settling in colonies etc

As a result, cereal cultivation did not flourish in Spain. By the beginning of the 16 th century there was a
severe shortage of grains and Spain had to import its grains from Africa (1503), Flanders (1505), Sicily
and the Baltic region (1515). Moreover, there were administrative and infrastructural issues because
which lead to delays in the transfer of grains from various regions to Spain. Thus, famine like conditions
was a normal occurrence in Spain. However, cultivation of certain crops like wine and olives was thriving
due to the high demand for such products, intensive farming and heavy investment in irrigation.

However, on the whole the states preferential treatment to the Mesta at the cost of cereal cultivation,
the aristocratic control of land, lack of capital and will among the peasants, poor weather conditions and
the inadequacies of internal transportation had cause a serious deteriorating effect on Spanish
agriculture. By the 1570s, Spain had become a major grain importing country.

The crown saw more profit or revenue being generated for sheep rearing and the trade of raw wool. The
state used to tax the export of wool. The Mesta encouraged the export of raw wool rather than the
production of the woolen textiles. The state also tried to encourage wool trade and sent agents to
various European centers to study the price and competition, demand etc. However, the state was
exporting only raw wool and not finished products. Thus, the cloth industry never developed in Spain as
it never had more than a minimum amount of cloth to work with as most of it (over 2/3 rd was exported).

Morever, the world financial crisis had a major adverse effect on the Spanish cloth industry as well. The
16th Century price rise tended to affect the Mesta drastically. The cost of production went up making the
wool more expensive. Moreover, internal and structural constraints prevented the production from
increasing. Thus, the price of the wool went on increasing thereby losing its demand in the market.
Moreover, England was also producing raw wool, which was of better quality. In the 1570s, the cloth
industry of Flanders declined which was the main center for receiving raw wool from Spain. Between
1552 to 1563 the number of sheep declined by 20%.

At the beginning of the 16th century Spain had a number of expanding industries. The Castilian textile
industry centered in the North at Sergovia, Toledo and Cuenca, and in the south at Cardoba, benefiited
from the ample demand and also from the easy accessibility of the supplies of raw wool. Iron was
manufactured sufficiently to sustain an export industry in the far North; silk industry of Granada
prospered for a while and lesser industries produced luxury leather goods and fine weapons.

Spain possessed all the necessary economic stimuli for industrial growth-gold and silver from the New
World; population growth; and a class of affluent consumers. However, Spain still faced an industrial
decline and failed to develop a strong industrial section. It can again be largely blamed on the half-
hearted efforts of the crown.

The Crown’s preferential treatment to the Mesta was one of the most obvious causes for the stagnant
industrial sector in Spain. Spain had not realized the importance of a strong agrarian base for bringing
about a balanced and sound economy, unlike other European countries. Thus, the existence of a weak
agrarian setup naturally resulted in a simple and unsophisticated economy.

The industrial sector in Spain was under the strict regulations of the guild system. The method of
production continued to be determined by the rigid regulations and customs of these guilds. It curbed
expansion and innovation from below. Moreover, other countries in Europe were increasingly adopting
the ‘putting out’ system, which was providing a great base for further productivity. The Spanish Crown
had recognized the importance of guilds as a way of controlling industry and was thus encouraging their
proliferation in towns. The Spanish Crown decreed that everything should be produced through guilds
and in 1511 an ordinance was issued in Seville, which consisted of 120 rules prescribing the lawful
methods of weaving cloth. Similar ordinances were passed for other parts of Spain as well and in this
way the guild regulations were clamped upon the Spanish industrial sector.

The decline of the industrial sector was also brought about by the state’s desire to maintain a
homogenous society as they believed that it was easier to rule over one set of people. Thus, there were
waves of expulsions of Moors and Jews from Spain. Anti-Jewish feeling was very old in Spain. In the 14 th
century itself there had been massacres of Jews in cities like Valencia, Seville, Toledo, Barcelona etc. in
1480, an inquisition was setup to look into the matter of baptized Jews. In 1482, there was partial
expulsion of Jews from Spain and in 1492 they were given the option of either converting to Christianity
or being thrown out of the country. According to John Lynch, there were 200, 000 Jews in Spain at the
beginning of the reign of the monarchy and 150,000 of them refused to convert to Christianity. Thus,
they were expelled from the country in 1492. The Jews, who converted to Christianity and stayed
behind, came to be known as the Conversos. They played a dominant role in the urban Spanish
economy. They not only invested heavily in the silk industry, which was flourishing in Granada and had a
thriving domestic market and the production of Iron they also formed a skilled and talented labour
force. However, the strict inquisition movement had a damaging impact on their contribution.
Legislation was passed confiscating Jewish and Moorish property, heavy taxes were imposed on the silk
industry at Granada and even the export of silk was banned. Thus, a large number of Jews fled and this
anti-Jewish policy acted like a major growth deterrent for the silk industry.

Leather working was another important industry in Spain during this period centered in Cordoba. After
1530s cheap hides and skins were coming in from America which were then converted into good
ornamental leather goods, jackets, bags etc. it was the Moors or the Morescos who were involved in
leather working. The revolt and expulsion of the Moors from Spain upset the leather industry as well.

Moreover, the Spanish expansionist policy was having a detrimental impact on its resources. The highly
expensive military and naval campaigns undertaken by its monarchs were diverting its resources away
from productive purposes to sponsoring the wars. Also, the state was not utilizing the resources that it
had properly. Public bonds-Senso and Juaros-which could be bought by the oublic meant safe
investment of public money. This money could be utilized by the state for different purposes. However,
instead of reinvesting this money in the economy it was being squandered by the state.

The Spanish colonial policy was also faulty which had an adverse affect back home. Instead of following
a policy of mutual benefit an imbalanced trading policy was followed by Spain towards it colonies. At
one level, they were only interested in exploiting the bullion (which accounted for 80% of the exports
from the New World) and not the other products which were abundant in this region-spices, maize,
cassava, beans, sugar etc-and which were required in great amount back home. Moreover, other
European countries like the Netherlands took advantage of this and soon emerged as the most
important redistribution centers for tropical goods. Moreover, Spain was unable to meet the needs of
the New World for food and manufactured goods. Thus, in failing to meet the needs of her colonies to
stimulate home industries, Spain relinquished one of the main benefits of mercantilism.

Trade also suffered a serious setback towards the end of the 16 th century. The Colonial economies were
slowly edging towards self-sufficiency as they began to produce their own needs, such as grain, oil and
wine. Coarse cloth was also being produced locally and there were developments in the shipbuilding
industry as well. Gradually, foreign merchants-English and Dutch-gained control of the trade as they
could provide the sophisticated goods that these colonies were demanding and only 5% of the trans-
Atlantic trade in the 17th century was in Spanish hands. Trade with other countries also suffered. The
Spanish trade was in surplus only with the hanseatic cities. An important part of the profit of trade went
to the Genoese traders. The Genoese business houses through their branches in Seville, had already
taken an important part in Spanish enterprises in the Atlantic, financing the development of sugar
production in Canaries and controlling its trade. They also shared in the financing of the new American
trades and acquired some footholds in the new World itself.

Moreover, Spain had become an exporter of only raw materials while it continued to import luxury and
finished goods from other countries. The Spanish domestic markets were flooded with foreign goods
which also had a major adverse affect on the industrial sector. Already suffering under the guild
regulations, many of the Spanish manufacturers were unable to survive this foreign competition and
were destroyed.
In the 16th century, Spain was suffering from stagflation (Stagnancy and inflation). Many scholars
attributed this crisis to the importation of bullion from Spain. The bullion from the New World was the
most important product of the Spanish Empire; the output of treasure increased steadily between 1530
and 1570, accelerated between 1571 and 1580, and reached a peak between 1586 and the first few
decades of the 17th century. At first the treasure shipments had a beneficial impact on Spain, and Seville
became one of Europe’s major ports. For the first half of the 16 th century, the moderate levels of
shipments provided a stimulus to Castilian exports. As 60 to 70% of this bullion had to be bought as a
commodity like any other from the local entrepreneur in America, a thriving trade with the colonies
developed mainly in the textiles, oil and wines. These products were sold at inflationary prices and
brought benefits to the Castilian merchants. However, after a brief period of prosperity a severe crisis
set in as a result of these treasure shipments.

When the American silver first entered Spain it experienced a monetary inflation that pushed its prices
ahead of those in the rest of Europe. These high prices encouraged an inflow of foreign manufactured
goods from England, Netherlands and France, which eventually lead to the ruin of the Spanish
industries. Moreover, this inflationary value of the currency was also dangerous as it created an illusion
that bullion automatically means wealth and prosperity. Thus, the Spanish crown began to fund his
expenses and he paid back his loans and credits also in silver, thereby, pledging the future income of
Spain.

The rise in prices was partly due to the increased quantity of money coined from metal obtained from
the newly developed European mines, the importation of silver from America, and the quickened
commercial pace. Moreover, there was a drastic rise in population in Spain during this period, which was
rising at a much faster rate as compared to the increase in production. Thus, the excessive demand for
goods also increased their prices. These inflationary tendencies created rapid social changes as well; the
influential sections of society living on relatively fixed income , found themselves at a disadvantage
when compared with the social groups, which were dynamic enough or sufficiently placed, to seize the
opportunities offered to them by the rising price levels. Thus, rising prices caused a change in income
distribution and brought loss or gain to some according to their relevant contexts.

The effect of bullion on Spanish industry and agriculture was quite fatal. We have already seen how
because of rising prices Spain was an attractive place to sell goods and services but not purchase them.
Thus, the domestic market suffered drastically. Moreover, the influx of bullion stimulated a lethargic
attitude towards further development of industries, as it was easier to import articles from other
countries using bullions as a means of exchange, rather than set up industries to manufacture goods.
This would have required much time and effort, and the Spanish rulers were in a hurry, and more
interested in immediate gains.

Rising prices had driven up the costs of production of the textile industry as well, which operated within
very rigid technical limits, to the point where Castilian cloth was being priced out of both the colonial
and metropolitan markets. The English and Dutch merchants soon captured the colonial markets and
their cheaper goods began to invade the domestic market as well. Spain had become a colonial dumping
ground for foreign goods in Europe. Moreover, the cost of raw wool had increased which decreased its
demand in the international market.

The political policies and ambitions of the Spanish Crown also accelerated its decline. The hue military
and naval expeditions of Philip II from the channel to the Aegean, from Tunis to Antwerp were possible
only because of the huge amounts of silver shipments coming from the Americas. Between 1586 and
1588, Philip II had spent 10,000,000 ducats on Spanish Armada and much more on the suppression of
the Dutch revolt. Since the maximum revenue that the treasure ships accounted for was not more than
20-25% of Spain’s revenue the bulk of the rest of Philip II’s income was provided by taxing Castile. The
Spanish state imposed two important taxes, Alcabala (sales tax on goods and 10% of the value of the
goods) and Millones (tax on basic consumer items- meat, wine, oil and vinegar). Thus, this gave rise to a
lot of discontent among the common people.

Similarly, Charles V’s involvement in the counter-reformation movement and in the Hapsburg-Valois
struggle created unbearable demands on the Spanish economy. The Crown raised enormous loans from
the foreign bankers on the security of the next treasure shipments, thus mortgaging royal shares many
years in advance. Many times these debts could not be repaid and with a decline of treasure shipments
to Europe towards the end of the 16 th century created further problems. Spain had to declare
bankruptcy four times in 1557, 1560, 1575 and 1596.

Although, there is a general consensus that the Spain declined towards the end of the 16 th century and
beginning of the 17th century, different scholars have different viewpoints for its decline. EJ Hamilton
places the collapse of the Spanish Empire around the mid-16 th century. According to him, the reasons for
the decline was an economic chaos as the state depended too much on American silver and completely
neglected the internal economic development. While, the 16 th century was a period of increase in
population, production, trade and shipping; the influx of silver into Europe off set a period of decline.
Besides the economic factors, he lays stress on the political, religious and intellectual factors as well. The
17th century is seen as a century of contraction, decline of production, bad weather, decline of demand,
decline of prices, decline of trade and a number of political rebellions and all these aspects are seen in
the 17th century Spain also.

He also believed that the guild system had a major disastrous effect on the Spanish economy. The guild
used to produce goods of a particular quality. However, gradually this highly restrictive guild system
resulted in the standardization of quality and the cost of production was also much higher in the guilds.
This was happening at a time when most of Europe was freeing itself from the guild system and
adopting the ‘putting out’ system, wherein the total productivity was higher, quality was better and cost
was less. Thus, the Spanish industries were exposed to competition which they could not live up to.

Other Scholars such as Cipolla also share this view point. He believed that the price revolution brought
about by the influx of silver from the Americas played a huge role in this decline. While this influx of
bullion benefitted some countries like England and the Dutch, it marked a black century for the Spanish,
Portuguese and Italians.
According to JH Elliot, the basic foundation of Castile was population, production and overseas wealth.
This is something which is thriving in the 16 th century. However, towards the end of the 16 th century
famine like conditions swept Andalucía and other parts of Spain. It had a disastrous impact on both the
rural and the urban economies. Moreover, the expulsion of the Jews and the Moors as a result of the
Crown’s desire to bring about religious homogeneity uprooted the industries in silk, leather and iron
working.

Moreover, he believed that the influence of the influx of bullion was over exaggerated. He admitted that
there was a serious problem associated with price rise but this was not due to the gross arrival of bullion
in Spain. The highest price rise in Spain is between 1521 and 1530, much before the discovery of the
silver mines in the Spanish America. The price rise according to him was due to the reign of Charles V; an
increased expenditure, rising debt of monarchy, distribution of public bonds etc were an important
cause for price rise. However, he laid the most emphasis on the rising population of Spain during this
period, which was growing at a much faster rate as compared to food and goods which were demanded
by this increasing number of people. It was the increase in this demand which had lead to an increase in
the prices.

Also, he claims that the fiscal policies of the Crown did not create an environment which was favorable
to investments. Whatever public money was invested in the public bonds was seized by the state to
finance their wars and private expenditure and wasn’t reinvested in the economy. Moreover, the social
climate in Spain which was pro-aristocratic did not favour the development of industries or enterprise.

John Lynch claims that the 16th century Spanish economy was suffering from a serious imbalance as
more emphasis was given to sheep grazing than to cereal cultivation. This in the long run resulted in
food shortage and rise in the prices of grains. Braudel also agreed with this view and stated that this
was the reason for the increasing Spanish dependence on importation of foreign grains. The pro-
aristocratic policies of the Crown had also lead to the depopulation of the countryside resulting in the
creation of a weak, unstable agrarian base.

Henry Kamen stated that before we talk about the decline of the Spanish Empire, we should talk about
when it rose. According to him, the Spanish Empire never rose; it was never really an economic
powerhouse. It suffered from the fact that it was a poor country with few good natural resources,
primitive agrarian structure, bad communications and there was always contempt towards commerce,
industry and investment.

He divided the Spanish economy into two phases and showed how there was decline in both those
phases. In the first phase, Spain was dependent on the trade of raw wool and influx of bullion from
Spanish America. It had no uniform economic pattern, had a poor underdeveloped secondary sector
under the guild system and required to import grains from foreign sources. In the second phase, the
problems of the first phase were intensified. Spain’s dependence on foreign goods had increased-food
as well as finished products. It was unable to maintain a favourable balance of trade; the terms of trade
favoured the foreign merchants, it lost its control over trade with the Atlantics and 1/3 rd of the goods
leaving Cadiz were foreign. Moreover, there were fiscal problems and rise in prices which contributed to
more problems.