Habsburg Spain - The Spanish Economy (1516–1700)

The Spanish Economy (1516–1700)

Like most of Europe, Spain had suffered from famine and plague during the 14th and 15th centuries. By 1500, Europe was beginning to emerge from these demographic disasters, and populations began to explode. Seville, which was home to 60,000 people in 1500 burgeoned to 150,000 by the end of the century. There was a substantial movement to the cities of Spain to capitalize on new opportunities as shipbuilders and merchants to service Spain's impressive and growing empire. The 16th century was a time of development in Spain as both agriculture and trade burgeoned. Throughout the harsh interior of Castile grain and wool production grew. The former fed an expansion of the population. The latter fed both local textile manufacturing and a lucrative trade with the Netherlands. The Castilian cities of Burgos, Segovia, Cuenca and Toledo, flourished with the expansion of the textile and metellurgical industries. Santander, on the northern Atlantic coast, grew in wealth from its traditional roles as a port linking the country's interior with northern Europe and as a ship building centre. Southern cities like Cadiz and Seville expanded rapidly from the commerce and shipbuilding spurred on by the demands of the American colonies. Barcelona, already one of Europe's most important and sophisticated trading port cities in the Middle Ages, continued to develop. By 1590, Spain's population was far greater than what it had been in any previous period. It was during this last decade when Castile began to suffer crop failures and was struck by a plague from 1596 that brought about the first serious reversal in population numbers; a cycle that would repeat itself a number of times in different parts of the country through the 17th century.

As the 16th century had worn on, inflation in Spain (a result of state debt and, more importantly, the importation of silver and gold from the New World) triggered hardship for the peasantry. The average cost of goods quintupled in the 16th century in Spain, led by wool and grain. While reasonable when compared to the 20th century, prices in the 15th century changed very little, and the European economy was shaken by the so-called price revolution. Spain, along with England was Europe's only producer of wool, initially benefited from the rapid growth. However, like in England, there began in Spain an inclosure movement that stifled the growth of food and depopulated whole villages whose residents were forced to move to cities. The higher inflation, the burden of the Habsburgs' wars and the many customs duties dividing the country and restricting trade with the Americas, stifled the growth of industry that may have provided an alternative source of income in the towns. Another factor was the militaristic nature of the Castilian nobility, which had developed during the centuries of the reconquest of the Iberian peninsula. They preferred careers in the government bureaucracy, the military, or the church, shunning economic activities. This militarism also meant that Spain exhausted its wealth and manpower in near-continuous wars. Under Philip II, these wars had much to do with combating Protestantism, but in the 17th century it became clear that the world that had existed before 1517 could not be restored. Spain's wars during that century became increasinly more to do with preserving the hegemonic power of the Habsburg alliance in Europe; although it should be noted that the Habsburg alliance was successful in buttressing the Catholic Church against the rise of Protestantism.

Sheep-farming was practiced extensively in Castile, and grew rapidly with rising wool prices with the backing of the king. Merino sheep were annually moved from the mountains of the north to the warmer south every winter, ignoring state-mandated trails that were intended to prevent the sheep from trampling the farmland. Complaints lodged against the shepherds' guild, the Mesta, were ignored by Philip II who received a great deal of revenue from wool. Eventually, overtaxed Castile became barren, and Spain, particularly Castile, became dependent on large imports of grain to make up for crop shortfalls, that, given the cost of transportation and the risk of piracy, made staples far more expensive in Spain than elsewhere. As a result, Spain's population, and especially Castile's, never dense on the generally very dry, rocky, mountainous peninsula, grew much more slowly than France's; by Louis XIV's time, France had a population greater than that of Spain and England combined.

Credit emerged as a widespread tool of Spanish business in the 17th century. The city of Antwerp, in the Spanish Netherlands, lay at the heart of European commerce and its bankers financed most of Charles V's and Philip II's wars on credit. The use of "notes of exchange" became common as Antwerp's banks became increasingly powerful and led to extensive speculation that helped to exaggerate price shifts. Although these trends laid the foundation for the development of capitalism in Spain and Europe as a whole, the total lack of regulation and pervasive corruption meant that small landowners often lost everything with a single stroke of misfortune. Estates in Spain, and especially in Castile, grew progressively larger and the economy became increasingly uncompetitive, particularly during the reigns of Philip III and IV when repeated speculative crises shook Spain.

Since the medieval period the Catholic Church had always been important to the Spanish economy. This importance increased greatly in the reigns of Philip III and IV, who had bouts of intense personal piety and church philanthropy, donating large areas of the country to the Church. The later Habsburgs did nothing to promote the redistribution of land. By the end of Charles II's reign, most of Castile was in the hands of a select few landowners, the largest of which by far was the Church. It has been estimated that at the end of the 17th century the holdings of the Spanish church had expanded to include nearly 20% of Castilian land and that the clergy made up as much as 10% of adult males in Castile. Government policy under the succeeding Bourbon dynasty was directed to steadily reducing the Church's vast holdings, which by then had come to be seen as an impediment to the country's development.