CHAPTER 3

THE EVOLUTION OF THE ECONOMY DURING THE PRE

INDUSTRIAL ERA
Rey Juan Carlos University
Instructor Benito Cadenas
LEARNING OBJECTIVES

• Analyze the trade expansion and Mercantilism

• Understand the causes for the increase in “Prices”.

• Analyze the decline of the Spanish Empire and the economic policies
of “Los Austrias”.
TRADE EXPANSION IN THE XVIth
CENTURY

• Extra-European commerce was minor in comparison with intra-

European commerce (XVI and XVII Century).

The discoveries profoundly affected the course of economic change

(Spain and Portugal)

First globalization. Prices from the spices in Asia

THE PRICE REVOLUTION
• The flow of gold and silver from the Spanish colonies created a long
period of inflation

• This increased Europe’s supplies of monetary metals

• By the end of XVI century prices were 3 or 4 times higher.

PRICE REVOLUTION
the Price Revolution in Spain, 1501-1650,
Source: Earl J. Hamilton, American Treasure and

Harvard Univeristy Press 1934.

THE PRICE REVOLUTION
• Two theories:

Those in favor of the quantity theory of money

Non- monetarists
ECONOMIC NATIONALISM AND
IMPERIALISM
• States sought revenues to mantain and expand their military forces

• The policies from economic nationalism represented a transfer from

the local to the national level

• They competed for the extension of territory and the control of trade
ECONOMIC NATIONALISM AND
IMPERIALISM
• Spanish imperialism started in XV and norden countries in the XVIIth
century

• These last countries developed their imperialism through private

companies

• Trade pushed the economy in England and Holand changing the

population structure
% DISTRIBUTION OF POPULATION BY
SECTORS
1500-1750
1500 1750
Urb Rna. Agr Urb. Rna. Agr
Greatest transformation
ENGLAND 7 18 74 23 32 45
Significant modernization
NETHERLANDS 30 14 56 36 22 42
Little change
SPAIN 19 16 65 21 17 62
MERCANTILISM
• Alliance between the government and the traders

 First goal was to discover and to acumulate gold

Second goal was to have a positive balance of trade

“What is good for the traders, is good for the Nation”.
PROBLEMS WITH MERCANTILISM
• Only benefits the producers and monopolists
SPAIN AND THE POLICIES FROM THE
“AUSTRIAS”
First power of the XVIth century

 Despite this favorable condition, the economy didn’t grow that much

 Reason: Bad economic policies and huge ambitions

References

Cameron and Neal (2003): A concise Economic History of the World. Oxford University
Press.

Mark Skousen (2009): The Making of Modern Economics. The Lives and the Ideas of
the Great Thinkers. Armonk, New York 2nd ed.

Robert C. Allen (2011): Global Economic History. A very Short Introduction. Oxford
University Press

Todaro, M. Smith, S. (2009): Economic Development. Addison Wesley