It would be exceedingly interesting if we were able to examine in detail the extent to which the precious metals came into circulation in Spain, and the precise course of economic affairs in different parts of the country; but the material for such an enquiry does not appear to be forthcoming. Yet one thing is obvious; the Spanish colonists devoted themselves almost entirely to mining for the precious metals, and they were largely dependent for their supply of food of all kinds on the mother country. This caused an increased demand for corn in Spain and a rapid rise of prices there, as the colonists were able to pay large sums for the necessaries of life. Charles V, indeed, endeavoured to carry out works of irrigation, and to increase the food-supply by bringing a larger area under cultivation. But tillage could not be developed so as to meet the new demands. The methods of cultivation already in vogue were as high as was generally practicable in the existing state of society; the vine- and olive-growers on the one hand, and the pasture-farmers on the other, resented any encroachments on the land at their disposal, so that it was impossible to bring a larger area under crop. So powerful were the Mesta, a great corporation of sheep-farmers, that they were actually able in 1552 to insist that Crown- and Church-land which had been brought under tillage should revert to pasture. The result was inevitable; food became dearer, and the government was forced to recognise the fact by raising the maximum limit of price; as a consequence, the necessary outlay of all classes increased, while a large part of the population were not compensated by the profit obtained through the new facilities for trade.
Under ordinary circumstances the increase in the price of food would have been merely injurious to industry; it would necessitate a larger outlay in the expenses of production, and would leave less margin for profit, and no opportunity for the formation of capital. Ultimately, this seems to have been the effect on Spanish manufactures, and the high cost of production in the peninsula rendered it possible for other European countries, where the range of prices was lower, to undersell the Spanish producer in the home market. No serious attempt was made by the government to check this tendency, as the policy pursued was in the main that of favouring the consumer, and protective tariffs were not introduced.
The circumstances which prevailed in Spain at the opening of the sixteenth century were, however, quite exceptional, and as a matter of fact there seems to have been a considerable, though short-lived, development of industry. The colonists not only imported their food, but manufactures as well; there was a sudden increase in the demand both for textile goods and for hardware, to meet the American requirements, and of course there was a great rise of prices. The small independent masters, working on the old industrial system, were unable to cope with this new state of affairs; but the foreign capitalists saw their opportunity. Manufacturing of every kind was organised on a large scale at Toledo and other centres; wages rose enormously, and a great influx of population was attracted into the city. This was doubtless drawn to some extent from the rural districts; but the stream must have been considerably augmented by the immigration of French and Italians. Hence it appears that this rapid industrial development was merely an excrescence, which had no very deep attachment to the country; the Spaniards themselves appear to have regarded it as an intrusion, and to have resented it accordingly. The Spanish gentry had no means of paying the increased prices which the colonial demand had occasioned, for natural economy was still in vogue in many rural districts, Indeed, this revolution in industry must have given rise to many social grievances; the craftsman of the old school would suffer from the competition of the capitalist in his own trade, while the great rise of prices to consumers was attributed to the greed of the foreigner. The government was persuaded to pass measures which imposed disabilities on foreign capitalists; it succeeded in forcing the withdrawal of the French and Italian workmen, as well as in expelling the Moriscos. As these changes ensued, the foreign capitalists were doubtless successful in transferring large portions of their capital to other lands; but the decline of alien competition on Spanish soil did riot enable native manufacturers to take their place or to recover the lost ground. With the new scale of outlay they had little opportunity for forming capital, and the bourgeois class may not have had the skill for organising business on the new lines. On the whole it appears that the large colonial demands for food on the one hand, and the large supplies of foreign manufactures on the other, prevented a healthy reaction of commercial on agricultural and industrial development; Spain was left •exhausted by the feverish activity which had been temporarily induced, and which passed away.
The Spanish government was firmly convinced that the best means of promoting the power of the country was by hoarding the large share of the produce of the mines which came into their possession, and they made frequent efforts to prevent the export of any bullion into other parts of Europe, though the Genoese and German capitalists had special licenses which allowed them to transmit it. It is obviously impossible that the government could have succeeded in enforcing this prohibition, under the existing conditions of trade; most of the bullion which arrived at Seville belonged to the merchants and manufacturers who were concerned in supplying the colonial demand for goods. The ingots which were not taken to the mint may have been hoarded for a time; but the foreign capitalists would not allow their money to lie idle, and much of it must have been exported, in spite of all laws to the contrary, to pay for the cheaper manufactures which were coming in from abroad. Comparatively little coin could have passed into general circulation in Spain itself; payments from the towns for agricultural produce would scarcely overbalance the payments due from the country for the dearer manufactured goods.
The Spanish rulers had ignorantly and unintentionally pursued the precise course of policy recommended by Machiavelli. They had sought to accumulate treasure in the coffers of the State, and they had by their mistaken measures allowed the subjects to continue poor. The wealth which passed into the country had no steady and persistent reaction on industrial and agricultural life; and when the military exigencies of Philip’s policy reduced him to bankruptcy, it became obvious to the world that the Spaniards had completely misused the unique opportunities which lay within their grasp. They had sacrificed everything else to the accumulation of treasure by the Crown, and they had completely failed to attain the one object on which they had concentrated all their efforts.
The permanent gain from the treasure imported into Europe went to those countries which were able to employ it as capital for industrial or agricultural improvement, and Spain could do neither. There was every prospect, at one time, that the greatest advantage would be reaped by Spanish subjects in the Netherlands. The policy of the government, however, and the failure of the Duke of Alva to recognise the importance of trading interests, rendered this impossible. The War in the Low Countries not only caused the migration of industry from that part of Spanish territory, but tended to bring about the collapse of the great capitalists who had allied themselves to the Spanish interest. The foreigners were being gradually excluded from taking any direct part in the new industrial developments in Spain; they confined themselves more and more to banking business, and to financial operations in the government service. But the persistent failure of the Spanish and imperial policy in one country after another had the effect of crippling several of the great Genoese and German houses, and at length drained the resources even of such millionaires as the Fuggers. The decline of these bankers proved that the control of the treasure of the New World was passing into other hands; as a matter of fact it was shifting more and more into the possession of the Dutch, who were making their country a harbour of refuge for persons expelled from the Spanish Netherlands, and who were building up a great centre of commercial and industrial life at Amsterdam. At the beginning of the seventeenth century the