What happened to all the gold Spain got from the New World? (1985)

https://www.straightdope.com/21341789/what-happened-to-all-the-gold-spain-got-from-the-new-world

by titaniumtown • 7 months ago

125 140 7 months ago

ggm• 7 months ago

Marx wrote about commodity fetishism. Perhaps the ultimate version is a belief gold is innately valuable. It has valuable properties, but almost its sole function is to be rare and desirable. That we now use gold for electronics in some ways undermines its rei-ification as the personification of value.

Spain fucked up. They mistook the gold for something more valuable than Labor. The Merino sheep of Spain were a better bet, in the long term.

The Spanish gold disappeared into economies with a better sense of what value is.

yieldcrv• 7 months ago

understanding what humans collectively find valuable is much more lucrative than understanding why humans collectively find a thing valuable

being on this forum for a decade I see people consistently get caught up in the latter, at the expense of noticing the opportunities the same people are here for

metalman• 7 months ago

then,

selling people a better understanding of why they find things valuable, is worth a lot!

empath752• 7 months ago

One thing you can do when people are spending money on magic beans is point out that magic beans don’t exist and they are all stupid for buying them. The other thing you could do is open a magic bean store.

aarroyoc• 7 months ago

Yes, I often say that the gold from America was a poisonous gift. It made the country so rich that they stopped caring about other stuff, they could just buy them from elsewhere. So there was little incentive to manufacture first, and industrialize later. Which is ironic because some of first steam engines you can find in Europe were invented in Spain (https://en.wikipedia.org/wiki/Jer%C3%B3nimo_de_Ayanz_y_Beaum...). It also enabled the funding of numerous stupid wars, with the human cost they bring. The name of this process is called the Dutch Disease https://en.wikipedia.org/wiki/Dutch_disease

Arab states could get into the same trap

saidnooneever• 7 months ago

never heard of the dutch disease (i am dutch). pretty cool comment thanks.

kind of funny to think they still have trouble to actually extract that gas due to activism around earthquakes and ppl not eager to move away from these places. also now the climate push.

it kinda looks (from an uneducated perspective) they suffered this disease for nothing.

Herring2• 7 months ago

It's a recurring theme. At the time of the Civil War, the Mississippi River Valley had more millionaires per capita than anywhere else in the US.

https://www.history.com/articles/slavery-profitable-southern...

anthk6• 7 months ago

Spaniard there. We have gentlemen like Leonardo Torres Quevedo and the 'Telekino', something even the IEEE would get amazed of.

But our damn national motto on R&D was "Que inventen otros" (Let the -foreign- ones invent).

EDIT: It actually was "Que inventen -sth- ellos" (let the others invent -it-).

Something like let's just slack down/keep living under a traditionalistic, rural, Romantic life at the 19th century, let the rest do the modern inventions. OFC as I said Torres Quevedo was the exception, but overall I find our right wing politicians still have that Empire bound mindset. Even the progressive left are almost ranting luddites, they look the Science down from their Liberal Arts thrones.

In the end it's some kind of outdated rural-Romantic idiots fighting another share of left sided outdated jerks with, paradoxically, a similar love to the Rural Spain, with the pure, hard working, 'ecological' peasant against the polluting urbanite.

And sometimes I wish these Boomer (literal boomers in both sides) influenced journalists get to the times for once and all. Use science to fight the climate change. Use libre software to expand education and knowledge like anywere else in History. Act smart and not with the guts.

But that's Science Fiction here.

lifestyleguru• 7 months ago

It made the country so rich that they stopped caring about other stuff, they could just buy them from elsewhere. So there was little incentive to manufacture first, and industrialize later.

Transcontinental fleet of ships regularly circumventing the globe and transporting cargo requires lots of technology. Why marine industry didn't stimulate manufacturing and industrialization?

faidit• 7 months ago

Marx called gold "the money-commodity" and said that paper money (even early fiat currency) always represents gold/silver in circulation.

The massive Spanish purchases of weapons and other manufactured goods from other countries in the 16th and 17th centuries played a large role in jump-starting the capitalist economic revolution in Europe.

trgn• 7 months ago

spain was no longer a major player in world politics by 1800s, but they had a good 2-3 century run. not sure if the monetary crisis was really did them in, or more just it being the ebb and flow of history. britain's world dominance is long over too. if they did "fuck up", it was because charles v was the first global hegemon, nobody know how to do that, he was in uncharted territory. and obviously no, the merino sheep weren't a better bet long term, that's absurd. global dominion required a cohesive domestic home country to serve as the wellspring of power, not the fractured foedal remnants of a mediaeval europe that required constant war to keep together. and then of course, industrialize early.

B1FF_PSUVM• 7 months ago

then of course, industrialize early.

It's extremely convenient to have coal, iron, and waterways in the region where you wish to achieve that early industrialization.

There's a map somewhere showing where those happened - England, France/Germany, eastern/great lakes US.

Scubabear682• 7 months ago

Gold is a VERY unique metal and its value comes directly from that. Particularly the complete lack of oxidation, I'm sure it was seen as absolutely magic that it would not tarnish while every other metal known at the time would oxidize very easily.

Value is ultimately always in the eye of the beholder.

the__alchemist2• 7 months ago

Indeed. I believe the parent commenter should pause and assess why people buy things, and what makes something desirable or a luxury good. We can start with mechanical watches: They are of poorer quality by every utilitarian measure than a crystal-oscillator driven one, but command much higher prices and status.

tylerflick• 7 months ago

every other metal known at the time

You’re forgetting lead, but the point is all the same.

lo_zamoyski4• 7 months ago

Value is ultimately always in the eye of the beholder.

If you mean value per se, not at all. There are difference kinds of value (intrinsic, instrumental).

A piece of bread has objective nutritional value, for example. It doesn’t matter whether you personally dislike bread.

ajross• 7 months ago

To be fair, Adam Smith and Marx would 100% agree on this point. It's not "capitalist" to confuse money with value, it's just a mistake.

RobotToaster• 7 months ago

A lot of Marx's writing was based on Smith's, so they agree a lot.

Retric2• 7 months ago

Gold is used by industry at current prices due to its physical properties, so its current price and value are fairly close.

This still allows for significant price swings because there vast quantities of gold sitting around in vaults, but unlike say bitcoin it does have high intrinsic value. IE: If gold sustained a 90% drop in price across decades at lot more would be used by industry creating a price floor.

Epa095• 7 months ago

How can you conclude that the current price and value is fairly close? Seems to me that all you are showing (rightly so) is that there are some use of gold which has higher value than today's price.

I agree that industry use creates a price floor, but that might be much lower than what the price is today. I.e if suddenly everyone lost faith in gold as a carrier of value, so everyone who keeps gold just as a passive keeper of value started selling it off, then we would get a new market clearing price which represents golds 'real value'. I have no clue what this would be, but it is certainly not obvious to me that it's close to today's price.

empath752• 7 months ago

If gold is inherently valueless, then isn’t shipping all of it away immediately to other countries in return for useful goods the most rational thing to do?

And if they could get gold at a fraction of the cost of other countries and exchange it for useful goods, isn’t that more rational than building the goods yourself?

The Spanish were not stupid and were not acting irrationally — except perhaps thinking on too short of a time frame. The gold trade was a total moral abomination, but it was a good trade economically for hundreds of years.

The main problem was that it was basically an arbitrage play and once the margin got erased from inflation, they had let the rest of their economy atrophy.

This is one of the reasons the Saudis invest so much money in tech companies and other industries.

AlotOfReading2• 7 months ago

It wasn't an arbitrage thing and I'm not sure there's anything fruitful in the comparison to saudi arabia.

The Spanish Empire was, more than anything else, a product of the reconquista. The major institutions of Spain were all directed towards the taking and holding of new lands. When granada finally surrendered in 1492, the monarchy turned towards conquering the canaries and then the new world to avoid the large scale structural changes needed to go from a militaristic, medieval nation to a peacetime state in the early modern. The systems of repartimiento and encomienda were more or less borrowed wholesale from the reconquista. The conquistadors and chroniclers all saw the Americas through the lens of the chivalric literature they loved. The name "California" was borrowed from one of those books, about a fictional island of Amazons who aided the moors.

Precious metals were a solution to the problems Spanish monarchs had in organizing Spanish society. It paid for soldiers in the monarchy's constant wars. It paid off loans to italian and dutch financiers, and it was something that could much more easily be controlled by a distant monarch than import duties or taxation (which nobility were largely exempt from). It also gave them some limited control over their inflation issues by devaluing and revaluing the coinage as financial pressures required. This eventually caused other problems, but the point is that Spain was never really an arbitrage play. They didn't have to be, since they controlled some 30% of the world's gold supply and >90% of its silver at points.

nitwit005• 7 months ago

They did what was considered the rational at the time.

The modern view would be that investing the money can product long term economic benefits. The Saudis are trying to turn the temporary oil wealth into more permanent economic strength, so they'll remain wealthy when the oil is gone.

anthk6• 7 months ago

The School of Salamanca about value and money said something else in 16th century. The Spaniards were anything but dumb.

It just happened that the British industrial revolution steamrolled everyone. You can't compete aganst the steam engine and the railway making communications and sharing of goods and raw materials something ridiculously cheap compared to the previous times, even by boat in both UK and Spain where the big rivers like Douro and Tagus could sustain a lot of transport. But, still, the train allowed to reach anyone in the country.

Which cheap transportation you can connect industrial powerhouses (and competent engineers and scientists) and the rest it's history. Addthe telegraph on top of that and it's game over for any outdated empire. When knowledge sharing can be reduced hours and maybe a day or two instead of weeks or months, it's like upgrading from having a 486 based computer with DOS to a Ryzen one with multiparallel processing. Literally.

ErneX4• 7 months ago

510 tonnes went to Moscow to never be seen again.

https://en.wikipedia.org/wiki/Moscow_Gold_(Spain)

caminante9• 7 months ago

No it didn't. The gold didn't disappear.

Did you actually read the wiki you linked?

Spain transferred the gold to Moscow who liquidated it on Spain's behalf to buy guns, fund the civil war, and deposit in banks.

There's mixed views whether Moscow took too much of a margin, but they melted down gold after selling it and the gold is still in circulation.

ErneX4• 7 months ago

Exactly that, never to be seen again :)

mcc1ane• 7 months ago

The problem was that the conquest of the New World left Spain with a lot more money, but not that much more wealth, if you follow me.

ELI5, please!

adastra22• 7 months ago

Money is the thing you use to buy things. Wealth is having those things. Only in an ideal world are the two the same. The world is not ideal.

PessimalDecimal• 7 months ago

But why couldn't they, e.g. buy other people's thing in exchange for their gold? IOW, why is the relevant fact that _Spain_ didn't have much more wealth despite having more gold? Other people in other countries valued (and still value) gold too.

analog31• 7 months ago

That may be true, but a modern money system could get you pretty close to that ideal, where the main difference is the friction of transactions.

It's close to ideal for a loaf of bread, or a bag of nails. I can hop on my bike and turn my money into either of those things in a few minutes. Turning money into a house is further from that ideal of course.

HPsquared2• 7 months ago

You can't eat gold.

cenamus• 7 months ago

You also can't eat money, but I imagine it's pretty useful if you're hungry

wongarsu• 7 months ago

They spent a lot of resources (some tangible, some less tangible) and ended up getting a roughly equivalent amount of money out if it

esafak• 7 months ago

Bullion imports caused inflation; the money supply increased without corresponding increases in the production of goods and services. https://en.wikipedia.org/wiki/Price_revolution

kristianp2• 7 months ago

What an interesting topic. One of the further reading links is to a paper that claims the inflation started earlier in the 1500s, due in part to the rise of German silver mining: https://web.archive.org/web/20110706211346/http://repec.econ...

It would be interesting to learn about the technological developments Spain failed to make compared to some of their European neighbours. Merchant banking is one of them.

goodcanadian• 7 months ago

As a sibling comment said, gold was effectively money. Having more money, without having more products to buy, effectively triggered massive inflation. Prices went up, but the actual supply of goods and services didn't change much. The Spanish economy suffered massive inflation, as did Europe in general to a lessor extent.

ijk• 7 months ago

It's interesting that mining gold and silver is similar to printing more money; we usually think of inflation as represented by debasing coinage but there's been a few circumstances where flooding the local economy with precious metals is the same effect.

nickff• 7 months ago

Notably, the 'massive inflation' was a rate of 1-1.5% per year...

throwup238• 7 months ago

Spain’s colonies funneled huge amounts of gold and silver into the European economies without a complementary increase in productivity to absorb it, causing massive inflation.

A ship for transatlantic shipping might have first cost 100,000 maravedí to build and equip before the treasure fleet expeditions, but afterwards with so much gold flowing into the economy and lots of competition for a limited ship building industry, the costs would inflate to 1 million maravedí (number roughly from memory). Same with the canons and shot, animals and sailor salaries, and so on.

Meanwhile, shipbuilders with all their newfound money are competing for blacksmiths, the outfitters are competing for livestock and horses, and so on. This puts lots of pressure on the rest of society which might need the iron for farming tools and the livestock to survive the winter, which they can no longer afford since the conquistadors and their merchants can pay a lot more in gold. In the end the maravedí accounts look bigger but represent the same amount of physical goods or labor.

Repeat this process across the whole economy and it throws everything into chaos. Some people here and there get rich, but economy wide it’s a total wash. Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.

ares6232• 7 months ago

hold up a minute

littlestymaar• 7 months ago

This entirely misses the fact that Spain became a European superpower during that period because war was then done by mercenaries…

Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.

Wealth created for the state just went into paying for wars because that what mattered to the early modern aristocracy and that's what they wanted to pay with their additional money. From the point of view of the Spanish elite of the time, their “wealth” increased dramatically during that period, it's just that this don't fit your or my criteria for wealth.

jiggawatts• 7 months ago

Sounds an awful lot like the AI data center build out sucking up resources at the expense of the rest of the economy. E.g.: Sam Altman cornering the market for computer memory.

panick21_• 7 months ago

It was not actually a massive inflation. It was a little inflation but people were not used to it.

conception• 7 months ago

Actual EL5 - Stregga Nona but with money.

Herring2• 7 months ago

It's just investing vs extracting/exploitation. Both can get you rich, but one is short-term and the other is long-term.

Consider what that means for sustainability and the future.

rr808• 7 months ago

Today - if you give everyone $10 million dollars there isn't enough production for everyone to buy what they want - you just get inflation. Its probably worse for the economy as people stop working.

cherryteastain• 7 months ago

Adam Smith's Wealth of Nations explores the topic in depth

vondur• 7 months ago

They spent it on war. The Spaniards were fighting the Ottoman Empire and the Relgious Wars brought on by the Protestant Reformation. Funny enough their main enemy for the religious wars was France, who was also Catholic. The Spaniards also went bankrupt multiple times too.

rayiner• 7 months ago

For the latter part of the 1500s and on into the 1600s Spain was a debtor nation, spending more abroad than it took in. The result was a net outflow of gold and silver. Attempts were made to restrict the export of precious metals, but without much success. In the end it all simply dribbled away. The problem was that the conquest of the New World left Spain with a lot more money, but not that much more wealth, if you follow me. They didn’t realize that until too late, and suffered centuries of poverty as a consequence.

Sounds like America since the second half of the 20th century.

anthk6• 7 months ago

Spain was different. There were no 'proper' colonies, but everyething was deal as if they were an inner province in Iberia. That's the way you could get fancy universities for its time.

But backwards people like Ferdinand the 7th cut down the modernisation of Spain which could boost us up to the level of France if not more. I'm no kidding. Just look at the Cádiz constitution from 1812.

https://en.wikipedia.org/wiki/Ferdinand_VII

https://en.wikipedia.org/wiki/Spanish_Constitution_of_1812

Not bad for its time at all.

nradov2• 7 months ago

Nope. By any objective measure the USA has continued to organically generate enormous amounts of real wealth during that period. We have some issues with inequality and letting foreign countries take advantage of our trade policies but the new wealth is quite real.

rafterydj• 7 months ago

Could you elaborate a little bit more?

aurizon• 7 months ago

With all this gold, Spain went on a buying spree, weapons, art, churches etc - and the sellers(rest of Europe) industrialized as the gold trickled down into THEIR economies. When the gold no longer arrived, Spain went into a steady decline as their rich upper crust of RC Churche, Kings, Queens, Lords, Ladies etc. and eventually became democratic after Franco.

anthk6• 7 months ago

We were democratic before Franco. Twice. Until the damn conservatives threw the Republic down, twice, too.

otherme123• 7 months ago

Primarily spent in wars (mercenaries, weapons, warships...) and keeping the colonies under control.

pfdietz2• 7 months ago

As I understand it, some of the silver was siphoned off in trade with China (via the trans-Pacific route to Manila). China needed continuing silver imports because silver was not used there in the form of standardized coinage, but rather in ingots that were weighed and subdivided, with inevitable continuing loss.

exidy2• 7 months ago

It was very surprising to see zero mention of the Manila galleon[0] trade route in the linked article, even if technically the question was about gold rather than silver. The simple answer to the question of what happened to the money was that Spain spent it! The impacts on SE Asia were profound and are still being felt today.

[0] https://en.wikipedia.org/wiki/Manila_galleon

Dr_Birdbrain• 7 months ago

Would love to read about the impact on SE Asia that continue until today. Do you have a recommended resource?

TSiege• 7 months ago

I've not heard the inevitable loss as a culprit for Chinese demand. IIRC it had to do with a failed paper money system triggering inflation followed by a reversion to silver for exchange plus a growing population and market forces from the new supply from the new world.

https://en.wikipedia.org/wiki/Global_silver_trade_from_the_1...

nephihaha• 7 months ago

Some of it ended up on the sea bed.

beloch• 7 months ago

"while the flood of gold into Spain in the 16th century seemed like a big haul at the time, by modern standards it was a trivial amount. Total world gold production during the 1500s is estimated to have been around 36 tons;"

--------------

World silver production during the 16th century was around 23 thousand tons[1]. Silver was closer in value to gold back then too, at around one tenth the value per weight. The economic impact of new world gold was a rounding error compared to the impact of silver.

If you have a mental image of Spanish conquistadors sparking global inflation purely by looting Inca gold, erase it. The real culprit was silver extracted from Potosi and a few other New world mines.

[1]https://digital.library.unt.edu/ark:/67531/metadc40312/m2/1/...

pier25• 7 months ago

Zacatecas (Mexico) is mostly a desert now but it used to be covered with forests. The wood was used as fuel for smelting silver during the colonial period.

zenmac• 7 months ago

If you have a mental image of Spanish conquistadors sparking global inflation purely by looting Inca gold, erase it. The real culprit was silver extracted from Potosi and a few other New world mines.

That is when labors start to flood to Netherlands.

darubedarob• 7 months ago

It got also invested in religious ceremonies like https://en.wikipedia.org/wiki/Thirty_Years%27_War

venturecruelty2• 7 months ago

A solid 50% of this entire thread is people arguing about inflation and bikeshedding the concept of money. Amazing. (COVID gets an honorable mention. Six years on now, but hey. Stay mad.)

msylvest• 7 months ago

Some of all this gold is still on display in Spain. Earlier this year my wife and I visited Granada in southern Spain. Vast amounts, truely impressive, of gold are exposed in its Cathedral and in the burial place of Emperor Karl (Charles/Carlos) and his wife, Isabella. Alhambra is still the #1 sight there but if you can spare the time, do visit these two places. They are co-located in central Granada.

alejohausner• 7 months ago

As the poet Quevedo wrote,

Nace en las Indias honrado, // donde el mundo le acompaña; // viene a morir en España // y es en Génova enterrado.

(Mr. Money) is born in the Indies an honest man, with the world on his side; he comes to Spain to die, and is buried in Genoa.

What happened to all the gold Spain got from the New World? (1985)

Related Stories