2: Economic History of Spain!

Spanish economy in the mideaval ages:

Comon facts about the period:
Late Middle Ages is a base for the old regime. It was a predominance of the agrarian sector.
Markets where scarcely developed, and it was a hierachial and fragmented society.
The Reconquista:
- A geographic and military expansion of the Christian kingdoms at the expense of the
muslim kingdoms that implied.
 A repopulation
 A reorganization of the reconquered territories
 The explotation of the new land
 The establishment and reinforcement of the feudal system.
Definition: The Reconquista was a centuries-long series of battles by Christian
states to expel the Muslims (Moors), who from the 8th century ruled most of the
Iberian Peninsula. Visigoths had ruled Spain for two centuries before they were
overrun by the Umayyad empire.

A continuous and military expansion, motivated by:

- The political fragmentation of Al-Andalus in different kingdoms or taifas.
- The political and economic consolidation of the Christian (northern) kingdoms.
MAIN STAGES OF THE RECONQUISTA
1031-1086, advance over the Mondego and Tajo rivers, and the Pre-Pyrenees.
1086-1200:very little advance due to countteroffence of the Almoravids
First half of the 12th century: A relevant progress over the Ebro valley and the southwest.
1212-1266: A great advance right after the battle of Las Navas. Taking of the G. valley,
kingdom of Murcia, Kingdom of Valenica and Balearic Islands.

Central Spain (between the Duero and Tagus rivers): concession of privileges and
reconquered territories to urban councils. Small and relatively close settlements. Emergence
of common lands in the Castilian, Leonese and Portuguese Extremaduras. 

Southern Spain (south of the Tagus river): concession of very large (and still dangerous)
border areas to religious military orders and monasteries. Scatter settlements and lands
primarily devoted to pasture.

Ebro valley.  An abundant Muslim population. The kings of Navarre and Aragon allowed
them to stay in their lands. Continuity of the existing agrarian system.
13th to 15th centuries:
CONSOLIDATION OF THE FEUDAL REGIME 
- The Church and the nobility started to reinforce their social and economic power.
- There was a progressive seigneuralisation of the society, with a different judicial
status for the privileged. This implied the occupation and concentration of big plots of
reconquered lands. 
- With its different regional variations, the feudal regime in Spain evolved towards a
binomial: big seigneurial property vs. small family farm. 
- The feudal regime entailed the distinction between the privileged (aristocracy,
Church, urban estates) who possessed the direct dominion over the land, and the
small farmers, who could access the right of land use.
- Since most of the land dominion was in hands of the privileged, land markets were
very constrained. 
 - The privileged could impose rents, taxes and work services to the farmers. In the
crown of Castile, the latter enjoyed a relatively greater degree of freedom than in
Aragon.
 
 An AGRARIAN expansion
- The 11th to 13th centuries were characterized by a constant economic growth. Some
signs of the agrarian progress were: 
- A change in the agrarian landscape, due to the continuous deforestation and
plowing action, namely in the north. Main crops: cereals (wheat, barley, oats, rye) and
vine.
- Improvement of agricultural tools (usage of iron plow, yokes, hydraulic mills, etc.).
- The big reconquered spaces (pastures and meadows), the lack of workforce, and the
war economy allowed for the development of livestock activities. This gave way to
the rise of the Castilian transhumance and the creation of the Mesta (1273).
A COMMERCIAL EXPANSION
- The agrarian development was accompanied by that of the craft activities. The main
ones were linked to the production of textile products (wool, draperies, etc.).
- Trade also developed in the Christian kingdoms during the 12th and 13th centuries.
Some signs of evidence were:
o The proliferation of fairs and markets.
o The creation of inner commercial networks.
o A monetary development, with an increase of coinage and money circulation.
 
Concession of fairs and markets by the Iberian monarchs, 13th century
- Castile: 40 concessions between 1220 and 1302.
- Portugal: 38 concessions between 1255 and 1299.
- Aragon and Catalonia: More than 30 concessions throughout the century.
- Fair of Medina del Campo (Castile, Spain)
Bill of Exchange. Castile (Spain), 1558 ?
 
A COMMERCIAL EXPANSION:
EMERGENCE OF INTERNATIONAL TRADE
A progressive takeover of international trade by the Christian merchants since the 13th
century, at the expense of Al-Andalus’ cities.
New international trade centers in Lisbon, Burgos, Seville and, above all, Barcelona.
Urban DEVELOPMENT IN EUROPE
- The late Middle Ages constituted a period of urban development. A gradual
urbanization after 1000.  
- Yet, the rise of cities in this period should not be overstated. 
- Even by 1500, 5 to 20 % of European population lived in them.
 
 Urban development in Iberia
- The Iberian urbanization was a unique phenomenon in Europe, only comparable to
that of Northern Italy.
- Although the Peninsula had had a long urban tradition since the Roman and Muslim
periods, the Reconquista (and Repopulation) came to spark the process. 
- This way, the main factors behind the Spanish urban phenomenon were: demographic
growth, a rise of the agrarian production, the monetary circulation, and the effects of
the Reconquista.
 
The late medieval crisis:
late 13th century – 14th century
Two major external shocks afflicted Europe during the 14th century:
Subsistence crises caused by extreme climate conditions brought about (e.g.) the Great
Famine of 1315-1322, that was especially harmful in Northern Europe.
 
The Black Death, that swept through all of the continent and Middle East between 1346
and 1353.
.
THE BLACK DEATH and SUBSEQUENT plague outbreaks
- The Black Death was the main shock to European mortality in the preindustrial period.
It was brought about by a bubonic plague around 1347.
- Bubonic plague had high mortality rates - between 30 and 50% of the population of an
affected area could die.
 
- The plague disappeared from Europe in the 18th century, probably because of
improvements in sanitation. 

The black death in spain

- The Black Death entered Spain in 1348 through the Mediterranean, via Mallorca, and
rapidly expanded all over the Iberian Peninsula.
- The plague would have wiped out around 10% to 1/3 of the Crown of Aragon’s
population. 
- It even killed monarchs, such as Alfonso 11th of Castile.
- It was not an isolated episode. There were subsequent outbreaks –in 1361-1364, 1371-
1371, and the 15th century.
 
 
THE LATE MEDIEVAL CRISIS:
AN ONGOING DEBATE
The Malthusian view
Malthusian Trap.  «Any short term gains in income per capita through a technological
advance would have been inevitably lost in the long run through population growth».
During the first half od the 14th century,  some external (natural) shocks such as irregular
weather conditions affected a predominantly agrarian economy with limited resources,  a low
rate of technological advance and a stagnant production. The ultimate effect was a
demographic loss (hunger, illnesses, etc.) that would have temporarily contributed to restore
the equilibrium between population and resources.
 
Common viewpoints
- Scholars agree that the late medieval crisis came to transform the feudal system.  The
privileged (nobility, church) kept their power, although their forms of dominance and
sources of income would be different from then on.
- The crisis has showed many signs of evidence, but there were significant differences
across Europe. 
- There is a long way to go to shed light on Spain’s late medieval crisis.  A lot of local
and regional studies are yet needed to accurately approach this phenomenon. 
The late medieval crisis in Iberia
- The Malthusian view, based on the scarcity of land to feed a growing population,
does not fit well with the Iberian Reconquista. Why? Land abundance and the need for
 labor in the reconquered areas (e.g.  Andalusia, Murcia) were indeed the main
characteristics of such a phenomenon.
- What it seems clear is the different patterns of the crisis impact on the Iberian
population:
o Long-lasting effects in northern Portugal, Galicia, Asturias, Basque Country,
Navarre, Catalonia and some areas of Castile. 
o Shorter effects in Andalusia, Murcia or Valencia. 
 
 
THE LATE MEDIEVAL CRISIS in Iberia shaped a new age
- Since the late 13th century, the economic situation of the Christian kingdoms started to
change. Subsistence crises implied hungers, epidemics and, therefore, population loss.
- The final process of the Reconquista had made the war industry vanish. This meant:
o The privileged no longer enjoyed the spoils of war as a source of income.
o Social mobility (derived from the military campaigns) decreased or
disappeared.
 
- Population loss considerably reduced land rents, that had constituted another of the
main sources of income for the privileged.
- They would have reacted by reinforcing their feudal dominance through seigneurial
taxes, land depredation, looting and promotion of civil wars.
- Such a behavior triggered uprisings and social fights.
- Crises and convulsions were accompanied by the development of trade, which implied
the emergence of new social and economic features that shaped a new age.
 
 
THE LATE MEDIEVAL CRISIS in Iberia:
REGIONAL CONTRASTS
Fast recovery in Castile
- In Castile, the crisis lasted from the late 14th century to the mid 15th century. Its end
marked the foundations of the hegemonic power in the Iberian Peninsula.
- The key was a rationalization of its economy (state reinforcement and institutional
centralization). 
- Development of agriculture and livestock activities (the Castilian Mesta).
- Emergence of putting-out system or verlagssystem.
 
 
DEVELOPMENT OF LIVESTOCK ACTIVITIES and textile centers in castile
Domestic or putting-out system
The Mesta: A castilian organixation of sheep raisers charted by the monarchs since 1273. Due
to its privilege the mesta controlled the production of the raw wool in Castile.

- Castile’s agrarian dynamism gave way to a development of its urban activities (above
all, crafts and textile manufactures).
- Urban merchants-employers used to «put out» materials to rural families, who
normally produced in their homes. 
 
-Finished works used to be returned to the merchants for a payment (wage basis or
piecework).
REGIONAL CONTRASTS
Fast recovery in Portugal
- In Portugal, the crisis lasted from the second half of the 14th century to the mid 15th
century, and was accompanied by social conflicts.
- It also prompted strong territorial imbalances. Population migrated from the interior to
the coastal areas. 
- As in Castile, the outcome was a reinforcement of the central power. The country also
took advantage of its geographical location,  reorienting its economy towards
international trade. 
 
THE LATE MEDIEVAL CRISIS in iberia
REGIONAL CONTRASTS
Later recovery in Aragon
Great economic and commercial development of Aragon’s territories, namely Catalonia,
between c. 1276 and the mid 14th century.  Development of a vast trade network all
along the Mediterranean, used by the Aragonese monarchs to expand their territorial
dominions.
 
 
 
THE LATE MEDIEVAL CRISIS in iberia
REGIONAL CONTRASTS
Later recovery in Aragon
Great economic and commercial development of Aragon’s territories, namely Catalonia,
between c. 1276 and the mid 14th century.  Development of a vast trade network all
along the Mediterranean, used by the Aragonese monarchs to expand their territorial
dominions.
Since the second third of the 14th century, an agrarian recession, accompanied by
hungers, epidemics, wars and social conflicts, started to reduce the demand of craft
manufactures, affecting prices and wages.
The crisis affected the Aragonese kingdoms differently. 
 
 
THE LATE MEDIEVAL CRISIS in iberia
REGIONAL CONTRASTS
Later recovery in Navarre and Granada, too
Geographically cornered by their neighboring kingdoms, Navarre and Granada were very
affected by the late medieval crisis (shortages, plagues, depopulation, social conflicts and
political struggle). 
 
The crisis in both kingdoms stretched on to the second half of the 15th century, and weakened
their respective political structures. 

Recap
By the mid 15th century, the economic and social situation of the Iberian kingdoms
significantly differed from that of the 11th century.
11th to 13th centuries, an age of economic expansion and urban development.
Late 13th to mid 15th centuries, a period of crises that affected the Spanish regions
differently (timing and economic incidence).
Reinforcement of feudalism after the Reconquista. The privileged (nobility, ecclesiastical and
urban elites) were able to consolidate their economic, political and social power.
This helped shape the economic and social characteristics that persisted until the end of the
Ancient Regime.

Life before the 19th century:

THE EARLY MODERN AGE
Last class
By the mid 15th century, the economic and social situation of the Iberian kingdoms
significantly differed from that of the 11th century.
11th to 13th centuries, an age of economic expansion and urban development.
Late 13th to mid 15th centuries, a period of crises (and plagues) that affected the Spanish
regions differently (timing and economic incidence).
Reinforcement of feudalism after the Reconquista. The privileged (nobility, ecclesiastical and
urban elites) were able to consolidate their economic, political and social power.
This helped shape the economic and social characteristics that persisted until the end of the
Ancient Regime.
 
 
BIBLIOGRAPHY
SEBASTIÁN AMARILLA, J.A., (2013), ”El largo siglo XVII: crisis en España, depresión en
Castilla”, in LLOPIS, E. &MALUQUER, J., España en Crisis. Las Grandes Depresiones
Económicas, 1348-2012, Barcelona, Pasado y Presente, pp. 59-96.
ARTICLE structure
Introduction
Economic growth in the 16th century
Transition into crisis since the last third of the 16th century
Recession in the 17th century
Recap
 
INTRODUCTION
A dual economic system in the early modern European societies:
Agriculture was the major economic sector. Its growth was namely extensive. It underwent
very few technological changes and was permanently subject to the Law of Diminishing
Returns. 
 
 
 
LAW OF DIMINISHING RETURNS (DAVID RICARDO)
When the amount of a production factor grows, holding endowments and technology
constant, marginal output declines.
 
(exponential growth)
INTRODUCTION
A dual economic system in the early modern European societies:
Agriculture was the major economic sector. Its growth was namely extensive. It underwent
very few technological changes and was permanently subject to the Law of Diminishing
Returns. 
 
Manufacturing and trade were relatively small, urban sectors, but much more dynamic
than agriculture. Those allowed families to increase both their earnings and consumption.
The reason that this was small was because a large part of the population lived on the country
side.
 
Among other things, early modern economies were constrained by:
- Geography. Spain: land ruggedness, a high altitude, and extreme climate conditions
would have hindered agriculture’s development and communications.
- Institutional, political and social factors that would have hampered a more efficient
allocation of resources.
However, the previous restrictions didn’t seem to be so important in Spain’s early
modern economy.  
- Why? Because the Spanish economy wouldn’t have completely taken advantage of its
agrarian resources. Spain’s agrarian colonization was still incomplete in the 19th
century.
- Evidence? A relatively underpopulated country. By 1800: 11-11.5 million people.
 
1500-1570/80, a period of economic growth.
- 1500-1570/80, a period of economic growth, more intense in Castile than in Aragon.
- Main factor? A greater availability of cultivable land.
- Some other factors that would have contributed to a crop intensification: organization
changes, advance of vine, or a wider crop variety in certain areas.
- The economic growth allowed for an urban expansion, significantly intense in three
areas of Castile, linked to high-quality textile manufacturing. It´s possible to disqinish
three areas:
 Duero valley (Segovia, Valladolid, Medina del Campo, Burgos, Palencia,
Salamanca, Ávila).
 Toledo,  Alcalá de Henares, Guadalajara, Cuenca, Talavera de la Reina, Ciudad
Real, and Madrid.
 Guadalquivir valley (Sevilla, Córdoba, Baeza, Úbeda, Jaén).
 Relevance of Verlaggsystem or Putting-Out system.
 
Northern CASTILIAN DRAPERIES IN THE MID 16TH CENTURY
- They used to be located near the major transhumance routes, which connetved the
northern mountains with the southern pastures.
 
In the Crown of Aragon’s territories, textile manufactures underwent fewer advancements
than in Castile:
 Draperies were of relatively low quality.
 They were mainly destined to meet local demand.
 This helps explain, in part, a lower development of Aragon’s urban world at that time. 
 
Spain’s economic development led to an increase of interregional and international trade:
- Relevance of local and regional markets.
 
- Spain’s economic development led to an increase of interregional and international
trade. Relevance of local and regional fairs. Products traded: foodstuffs, wine, textiles,
fuels, and American precious metals. 
LATE 16TH CENTURY
- The cost of the Spanish empire fell essentially on Castile.  
- This implied a great increase in taxation, that mainly affected ordinary people’s
income and trade activities (servicio de millones and alcabalas)
HEADING TO THE CRISIS
 Alcabala: one of the most important royal taxes in early modern Spain.  An indirect
tax (similar to nowadays VAT) on sales of around 10%. Increased in 1561, 1575, and
1577. It affected the trade (because it made the porducts more expensive)
 Servicio de millones: a kind of (direct) income tax to finance the king’s military
campaigns. Introduced in 1590.
LATE 16TH CENTURY
HEADING TO THE CRISIS
Some other causes? 
 The way of life of the privileged led them to have debts. They resorted to their estates
to face such debts and increased their farmland rents. Besides, more farmers means
more demand for farmlands, which makes rents rise up.
The Habsburgs put many common lands for sale to face its debts. Common lands were the
Crown’s property. 
 Ordinary farmers had been taking advantage of those lands, since they provided them with
additional resources (firewood, pastures for their animals), essential to reach their subsistence
levels.
 With the common lands sales, farmers were deprived of such additional agrarian resources.
LATE 16TH CENTURY
HEADING TO THE CRISIS
Some other causes? 
 A worsening of weather conditions gave way to an agrarian contraction in the last quarter of
the 16th century. This brought about subsistence crises.
 Such a situation of bad crops and shortages caused subsistence crises, which would force the
imports of grain from Northern Europe (mainly, from the Baltic sea countries).
 But the Atlantic plague accompanied those grains imports and hit Spain in the last years of
the 16th century (1596-1602).  The plague entered through the Cantabrian sea and the western
coast of Andalusia. Hence,  the name of Atlantic plague.
 The Atlantic plague swept away 9% of the Spanish population.
RECAP
SPAIN’S 16TH CENTURY
First seven or eight decades: economic growth (golden age), based on the agrarian
growth and an increase in the cultivable area. Such a growth led to an increase in the
manufactures production (textiles) and trade (urban) development, more intense in
Castile than in Aragon.
 
Late 16th century: first signs of the crisis. Spain’s empire was costly. The king’s debts
would be paid through taxes, sales of privileges, and common lands. This damaged
ordinary people’s economies, mainly in Castile. Bad weather conditions brought about
subsistence crises and the Atlantic plague.
Life before the 19th century:
SPAIN’S ECONOMY IN THE 16TH CENTURY
First seven or eight decades: economic growth (golden age), based on the agrarian growth
and an increase in the cultivable area. Such a growth led to an increase in the manufactures
production (textiles) and trade (urban) development, more intense in Castile than in Aragon.
Two or three last decades of the century: first signs of the crisis. Spain’s empire was
costly. The king’s debts would be paid through taxes and sales of privileges and common
lands. This damaged ordinary people’s economies, mainly in Castile. Bad weather conditions
brought about subsistence crises and the Atlantic plague.
LATE 16TH CENTURY
HEADING TO the CRISIS
- Alcabala: one of the most important royal taxes in early modern Spain.  An indirect
tax (similar to nowadays VAT) on sales of around 10%. Increased in 1561, 1575, and
1577.
- Servicio de millones: a kind of (direct) income tax to finance the king’s military
campaigns. Introduced in 1590.
- Such a situation of bad crops and shortages caused subsistence crises, which would
force the imports of grain from Northern Europe (mainly, from the Baltic sea
countries).
- But the Atlantic plague accompanied those grains imports and hit Spain in the last
years of the 16th century (1596-1602).  The plague entered through the Cantabrian sea
and the western coast of Andalusia. Hence,  the name of Atlantic plague.
- The Atlantic plague swept away 9% of the Spanish population.

THE LONG 17TH CENTURY

SPAIN’S ECONOMIC RECESSION
- Spain’s economic recession became more intense during the first half of the 17th
century, especially in the inner regions. 
- The subsequent recovery turned out to be relatively slow, compared to that of the
north-western European economies (The Netherlands, England, Flanders, or northern
France).
 Do we have evidence on this recession in Spain?
- An example of Primary sources: baptismal registers
 On the left margin: “Ana, daughter of Bartolomé Serrano”
“On the last day of January of the year 1545, Ana was baptised. Her parents are Bartolomé
Serrano and (his wife) Brigida López. Her godfather was Juan Ruiz. Witnesses were
Reverend Gaspar de Arévalo, the priest of this town of Casarrubios, Reverend Hernando de
Linares, minister, and Francisco de Ávila. She was baptised by Reverend Bachelor Francisco
López, the priest lieutenant, who, upon his word, signed his name. Bachelor López.” 
ECONOMIC RECESSION IN IN LAND SPAIN
What were the reasons?
- An intense period of  wars, rebellions and conflicts between 1621 and 1665. 
- Again, financial issues of the monarchy, due to the great military expenses.  
- The crown resorted to debt renegotiation, taxation, monetary manipulation, and sales
of royal patrimony.  
- Again, such a policy would have seriously affected Castile’s economy.
 
 
WARS AND CONFLICTS CONCERNING THE SPANISH MONARCHY IN THE 17 TH
CENTURY
1618-1648, Thirty Years’ war
1621-1648, war against The Netherlands
1635-1659, war against France
1640-1665, war against Portugal
1640-1652, Catalan rebellion
1655-1659, war against England
SPAIN’S ECONOMIC RECESSION
- Since the second half of the 17th century, Spain’s coastal regions became more
populated and more dynamically active than the inner ones.
- Some examples: 
o Galicia. A greater soil fertility and the introduction of new crops (millet, corn)
gave way to a production increase. Hence, demographic increase, although
incapable of compensating the loss at the inner regions. 
o Valencia.  A low demographic density (mainly caused by the expulsion of the
Moriscos in 1609) and a secure supply of basic grains (wheat) through the
Mediterranean ports, would allow for the introduction of more market-oriented
crops (e.g. vine, rice, and mulberry, olive, almond tree). This led to a
demographic recovery by 1690.
18th century
A PERIOD OF economic recovery
- Demographic growth. 
- Agricultural production per capita would have slightly increased, namely in the second
half of the century.
- Urbanization rates increased. 
- Labor force intensified in the second half of the 18th century.
- Adult mortality rates significantly dropped in the second half of the century.
Early 19th century: an economic recession that OPENED the OLD REGIME’S first
leaks
- A severe subsistence crisis in 1803-1805, as a consequence of bad weather conditions,
bad crops, food scarcity.
- The crisis brought about political and social problems that started to undermine the
prevailing Old Regime. 
o  Subjects refusing to pay tithes, taxes and feudal rights. 
o Longer distance between the State and the Church.
o  Local elites and rich farmers started to question the land ownership regime.
EFFECTS OF THE THE PENINSULAR WAR (1808-1814)
The war came to bring down or weaken many Old Regime’s institutions:
Seigneurial regime
 Municipal regulations
Mesta’s privileges
Ecclesiastic taxation
- The wars demographic loss reduced the countrys workforce.
- Prices of foodstuffs rose or kept at high levels
- Manufacturing production decreased
- The war would increase the pressure to extend and break up the cultivable land. Most
of this land had been in hands of the privileged.
- The war and the power vacuum prompted the Old Regime’s fall. This enabled the
breaking of cultivable land its surface increased (a land breaking wave).
- Agricultural production increased and prices of basic foodstuffs went down.
- Income per capita temporarily increased. Economic inequalities temporarily
decreased.
Post-peninsular war period
- The post-war agricultural growth also benefited from the grain protection established
by the new liberal regime in 1820.
- Such a protection was embedded in a wider policy that affected the international trade,
as a response to the loss of the Spanish American markets and a protectionist wave.
RECAP
17TH CENTURY: Economic recession, mainly in inland Spain, caused by subsistence crises
and, again, the cost of the empire.
18TH CENTURY: Economic and demographic recovery, namely in the second half. 
EARLY 19TH CENTURY: Subsistence crises (1803-1805) and Peninsular War (1808-1814)
that extended the crises. Both events implied political and social problems that started to
undermine the prevailing Old Regime. 
POST-WAR PERIOD-c.1840: agricultural and demographic growth, mainly derived from a
land breaking wave and the grain protection by the new liberal regime.

 The making of the liberal state:

Lecture 1:
Some relevant dates for Spain´s history of the time:
 The british industrial revolution
 French revolution
 War against France (1793-1795)
 Wars against England (1805-1808)
 Peninsular War (1808-1814)
 Spanish American independences (1810-1826)
 Old Regime restoration (1814-1820)
 Liberal Triennium (1820-1823)
 Absolutist restoration (1823-1833)
 
The collapse of the American trade:
South America gains independence, which has a big impact on the Spanish economy.
Impact on trade:
 Total exports dropped by 40%
 Total foreign trade fell by 15%
 In conclusion the Spanish trade balance got worse
Because there are no real way to know exactly how much the Spanish economy dropped since
there are no real ways to measure GDP back then.
Imports: a strong reduction in the relative weight of food products. A tariff legislation in 1820
would have implied the development of a grain axis. Would ecpect an import substation
strategy since 1820, but it didn’t happen. Why? Maybe because the state wouldn’t be very
good at controlling the border.
Exports: a big drop in the weight of manufactures goods Conversely, a big rise in the weight
of primary goods.

How did Spain adapt to the changes?

- Primary goods specialization opened up great prosepcts for the agriculture
o The taxes was a burden for the farmers
o The farmland was poorly exploited

.Fiscal crisis
- Because of the war against Britain
- The military spending doubled in the 1785
- Debt issuance was cloes to foreign investment, and the state began with domestic debt

Royal vochers:
- Public domestic debt
- Fixed interst rate U a daily quarter of the real.)
- The royal vouchers rapidly depreciated, because the govurnemnt didn’t respect the
voucher redemption schedules , and it collapsed in 1799
- A disentailment happened of church property, but it wasn’t enough to stop the rising
debt.
- Because the public debt almost doubled, and the crown had no choice but to susend
the payment of debt.

A solution: cutting public spending:

- 1844-1833, they were not able to restore the state finicaial equilibrium
- They where forced to reduce public spending, and in 1815 the actual payments made
by the public treasury where cut in half
- They neglected the main expenditure items, for example the military
- This weaked the states capacity to face revolts, and it made the libareal revolution
possible
The liberals introduces a revolucuanry program to dismantle the olde in 1812. They consisted
in changing land ownership rights. Agrarian reform:
They basically consisted in changing land ownership rights:
• Civil and ecclesiastical disentailment.
• Abolition of the seigneurial regime.
• Unbinding the nobility’s possessions.
• Abolition of ecclesiastical tithes.
• Abolition of restrictive land use regulations.

Nationalization (and further privatization) of lands belonging to the Church and

municipalities. It affected 40% of Spain’s arable land.
Positive effects: cultivation area increased, which led to an increase in the food and labor
supply.
Negative effects: instead of improving the resources allocation, the process seemed to polarize
the ownership distribution. Small farmers weren’t able to compete with wealthy bidders at the
auctions. On top, they lost their access to the common and Church lands that were auctioned.

LIBERAL REFORMS ON LAND OWNERSHIP: ABOLITION OF THE FEUDAL

REGIME
• Another of the big liberal reforms over the agrarian world.
• Around half of Spain’s population had lived under the seigneurial regime, where there were
different property rights over the same plot of land.
• According to liberalism, a piece of land had to belong exclusively to one owner.
• However, the feudalism abolition came to increase economic and social inequalities between
the richest and the poorest. Most of the process ended up benefiting the lords, since property
rights weren’t well defined.

Unbinding of the nobility estates:

This allowed of an expansion of the land market. In the Old regime, the aristocrats estates
couldn’t be fragmented or reduced. The noble heritage had been bonded.
Positive direct effect. More available income for agricultural producers, greater savings and
greater investments in agrarian production.
Positive indirect effect. Under the new capitalist regime, new taxes had to be paid in money
(not in kind as before). This forced farmers to market their products to a greater extent and
learn to react to market signals. This favored agricultural development

Abolition of restrictive land use regulations.

Abolition of the Mesta and its privileges. • Legalization of land closures. • Freedom of land
lease. Such measures provided land owners with a legal protection to use their properties
without any constraints. This would have favored Spain’s agrarian development.

Liberal reforms on labor and capital:

- Free hiring of labor workers
- Market liberalization, meaning abolition of price rates, free internal movement of
agricultural products, elimination of intern customs and establishment of the metric
system (because before this the measurements units could differ between nearby
towns)

Spain in the great divergence debate:

Recent historical evidence allows for the international comparison of living standards and
productivity since the Preindustrial Period. • Scholars see no significant differences between
Northwestern Europe (UK, The Netherlands) and Eastern Asia (China, India) around 1500.
However, by 1800, there was a big gap. How come? The key was the onset of the Industrial
Revolution.Why did the Industrial Revolution take place in England, and not in China or
India? What were the conditions for the British Industrial Revolution to occur? In other
words: why did the British start to substitute workers by machines? Scholars point to several
determinants: adequate factor endowments (a relatively expensive labor, a relatively cheap
capital, and relatively cheap energy sources), and institutions that favored economic growth.
Spain was late in emulating the British industrialization. It was not until the second half of the
19th century, when most policies in such a direction were put into practice: • Formation and
integration of the domestic market. • Investment in modern transport technologies (railways)
to integrate markets. • Promotion of investment banking to finance the industrialization
process. • Universal primary education to improve human capital.

Recap of the liberal ideas:

•1814-1820, Old Regime restoration (king Fernando VII).
•1820-1823, Liberal or Constitutional Triennium.
•1823-1833, absolutist restoration.
•1833-1839, first Carlist War.

Spain´s economy in the second half of the 19th century:

Spain’s economy grew as quickly as possible within its new institutional framework.
Modernization policies continued, especially as a response to the 1846 abolition of the British
corn laws, which opened the world’s richest economy of the time to foreign exports.
• 1854-1856, Spain’s progressive biennium (bienio progresista).
• 1868-1874, La Gloriosa revolution, the sexenio democrático, and the first Spanish
republic (1873-1874)

Should they have an agrarian or industrial path ?

Most of Europe opted for an agrarian, because of the UK. Most of the Spanish economic
lobbies were for the agrarian path, except some peripherical towns, and the Catalan and
Basque industrialists who had enjoyed the state’s protection and access to the former Spanish
American markets. The whole 19th century was dominated by a debate between agrarianists
(free traders) and industrialists (protectionists). Neither of them were able to bring Spain
closer to advanced Europe, though.

Why didn´t Spain get closer to Europe?

Spanish agriculture grew only moderately. Estimates of yearly growth rates between 0.7%
and 1% between 1820/29 and 1880/89.
• Extensive agriculture: growth was exclusively based on the expansion of cultivated area. An
increase of 50% between 1815 and 1855.
• Some signs of agricultural backwardness and inefficiency: yearly growth rates of cultivated
area exceeded those of agricultural production. Predominance of cereals, when most of
Spanish soils were not suitable for such a crop.
Agricultural backwardsness?
• Environmental or geographic factors. Moderate or extreme aridity affects 85% of Spain’s
territory. Dry farming was a relatively late technology.
• Institutional factors. Polarization of land ownership. Dominant presence of smallholdings (in
number) and large holdings (in size). Grain protection policies until 1868. Lack of public
investments to intensify crops (e.g. irrigation).

Civil disentailment of 1855:

• Introduced by Pascual Madoz, ministry for the Treasury, in 1855. • It essentially affected
lands of municipal councils. • Some positive effects: an increase in the cultivated area and
employment of salaried farmers (development of labor market). • Negative effects: it ended
up benefiting mid-sized and large landowners -who increased their estates, and deprived
peasants from the free use of common lands.

Spains foreign trade policies at the time:

1849-1891. A very gradual but clear trend towards trade liberalization. • 1849. A new tariff
was established. • 1869. Remaining import and export bans were abolished. • 1875-1890.
Custom duties continued to be lowered. Also, application of policies based on bilateral trade
agreements and the so-called most-favored-nation clause

The most favored nation clause:

• A non-discriminatory trade policy, based on reciprocity. • It requires a country to provide
any privileges, concessions or advantages granted to one nation through a trade agreement to
other countries. • It denotes an equal treatment of all countries in terms of international trade
The trade liberalizations had an effect on trade, beucase it rose from 8% to 19% from 1850 to
1890, as it did in the rest of Europe.

Spain greatly benefited from the export specialization in primary goods for which it had a
comparative advantage (e.g. wine, minerals). • Spain’s degree of trade openness rose in the
second half of the 19th century. • Exports expanded steadily, especially in the 1870s and
1880s. • Exports purchasing power increased 9-fold between 1830/39 and 1880/89. • Real
terms of trade significantly improved

Capital flows:

Foreign capital was essential for Spain’s modernization, given its lack of financial resources
and technologies. Capital inflows helped finance the acquisition of industrial inputs and
imported capital goods. • According to some calculations, between 1850 and 1876 foreign
capital represented more than one third (37%) of aggregate investment in the country. •
France was the main investor. • Railways absorbed 2/3 of foreign investments.

New tax reform:

Mon Santillan reform, who tried to follow the liberal principles and the state had to possess
the tax monopoly.
Built with a few of direct and indirect taxes, plus customs and some tax monopolies. • Direct
taxes charged income-generating sources instead of total income earned. • Indirect taxes
charged mass consumption goods with inelastic demand. • A very stable tax system.

Some problems with the tax framework:

• Predominance of indirect taxes over direct ones. • A socially unfair system. The tax burden
was heavier for the lower-income social strata than for the higher-income sectors. • As for the
direct taxes, there was no information on the taxpayers’ wealth. The state resorted to Old-
Regime quotas and distributions. • This gave way to fraud, tax evasion, and lack of equity

Milestones in the Spanish banking system:

• Banking laws of 1856, linked to the railways construction. • Collapse of the banking system
in 1866. • Banco de España’s banknote issuing monopoly, granted in 1874.

Spanish early industrilazation

First liberal tax reform: 1845 – giving more power to the state.
Bank reform linked to the railways network construction.
Railways:
In a short amout of timspain was able to give theselves their one railway ( mostly because of
foreign capital. Two big companies started absorbing the small ones (monopolys ruled in that
time.) The reason Spain chose to invest in railways was because they were convinced that it
would trigger economic growth (historians are unsure of wether or not this is true.)

What where the cost of building these railways?

The railway companies decided to suspend payments in 1866 due to low profitability. Other
costs was that it was a lot of free imports of equipment, and therefor local steel and iron
industries didn´t get the chance to develop.

The benefits:
Railways made up 11-13% of Spains GDP per capita growth in the mid 1800 – therefor
contributed to Spain´s marked integration. Also had some social benefits.

Spains first industrialization; some features:

- Powerfull textile industry had taken root in Catalonia in the 18th century.
- In 1850 industrial output only represented 13% of the country´s GDP
- The weight of industrial employment remained unchanged
- Industrial deveoplment only affected catalonia and Basque Country(cotton and steel)
- Agro food industry continued to be spains major industry

Therefor, neither agriculture or industrialization brought Spain closer to economic

development, because agriculture lagged behind it´s expanision and industry grew in a
moderate rate in very specific areas.

Spain and globalization:

Spains globalization happened between 1870 and 1913.
- Massive movements of goods worldwide
- Caused by technological breaktroughs from the industrial revolution and a gradual
process of trade liberalization.

How did the agarian depresions affect spain?

In the late 1870s, foreign wheat sarted being imported and local producers wheren´t able to
compete. Around this time, Spanish wine producers where attacked by a plague, which set
back their production and the French slowly took over.

Between 1885 and 1913, more than 2.5 million people emigrated (almost 10% of the Spanish
population.
This was however less intense than other Europe countries. Why? Mostly because of the
cereal protectionism and effects of universal male suffrage.

Spains 1898 distaster:

Spain lost Cuba, Puerto Rico, Guam and the phillipines.

- Because of economic reasons, but also bevause of a law that established an unfair
treatments towards Cuban producers, who had tariffs to acsess the peninsular markets.
- Therefor, a war broke out from 1895-1898
However, when spain lost the overseas territories caused a massive influc of capital back to
the peninsula. Also, Spanish businesses withdrew their investments in America, and therefor
depreciation made peseta investments attractive.
Industrial revolution:
- A trend of a lot of big companies, who often bought up smalled existing ones.
- There was a defensive moment and a sach for economices of scale
- They were established on the eve of the 20th century.
- Spanish capital
- Fast electrification of the companies

There are different views on the Spanish industrial failure:

- Main cause: agricultural backwardness.
o Liberal reforms were incable of increasing agricultural productivity, which
didn´t increae the income of rural population. Absence of a growing domestic
market for indutral goods. Hence, the industry wasn´t able to transform
itselves.
- There are other theories: that the industry destroyed itself.
o Spanish industrial sector wasn´t able to manage to get into the world markets.
- That the loss of Spains colonies, because it reduzed the marked size of the Spanish
industrial companies.
- Lack of schooling – not many people where educated

Spains economy in the interwar years:

- WWI
o The end of the expansion period
o Howver, since Spain was neutral, it did not have a big effect

Spanish economic performance in 1920s:

- It was a period of growth – gdp grew 4.1% during the decade.
- Industry grew at a yearly rate 5.8%
- Slow growth of agriculture because industry absorbed many agriculture workers.

Spains second stage of industrializations driving forces:

- Enormous investment in the new machinery and facilities. Companies had to postpone
for yeats
- Constroction boom
- Electrification, creation of large scale electricity
- Thrust of industrial districts.

The crash of 1929: how did that effect spain?

- Financial – not very affected, because they had no debt after WWI
- Foreign trade channel: there was a protectionist reaction that made international trade
decline.
Spain suffered less than a lot of their other neighboring countries.

Franconism

Something for my self:

The spanish civil war from 1936-1939. Why?

There was an election in in the 1930s and that was won by a left wing coaliction – in newer
years the elction resolt has been put in doubt.
There where two opposing sectors during the Spanish second republic.
- The left wing supporters – worried about social and economic inequality
- Right wing supporters: feared that their property rights would be taken away
1933: the Republican-Socialist government dissolution gave way to a general election in
November. The winner was the right-wing coalition, but the government was assumed by the
center block (3RD in the election). Unsuccessful anarchist insurrection in December.

1934: the right-wing coalition entered the government in October. This led to another failed
coup d’etat, promoted by left-wing forces. •

1936: the Popular Front (left-wing coalition) declared its victory in the 1936 general election.
José Calvo Sotelo, an opposition leader, was shot in July 1936. This triggered a military
insurrection, headed by General Franco, that would derive in the Spanish Civil War.

How did the economy behave in this period?

There is lack of statistical information for this period, but historians guessing:
- Agriculture and industry fell around 1/3 during the fist months of the war
- Exports were reduced by half
- Public finances struggled because of collapse of tax collection

Francoist side:
Managed to develop an efficient was economy, with at least 4 advantages:
1. Predominant military organization
2. Dominion over the main agriculturar regions
3. Support of spains business men
4. Assistance of nazi Germany and fascist Italy

Popular fronts side:

Initially, the republican government disposed of most the countries resources, but it wasn´t
able to effectively mobilize them. Why?
- Fast loss of entrepreneurial sector
- Supply difficulties to a mostly urban population
An external problem: unfriendly international attitude

What were their economic effects?

- The rulers justified the bad economic situation trhough the was losses and psians
international isolation (no basis in this.)
- The wages collapsed due to the demand of massive consumption goods, which lead to
an increaee in productivity.
o Many workeds could no longer afford to live in urban areas, which causes an
re-argarization of the Spanish economy.
- Major contraction in Spain´s GDP – the 1935 level would not be reached again until
1951
- Major contraction in Spains GDP per capita

It is said that spains great depression tok place between 1935 and 1950.
- The rulers justified the bad economic situation trough the war losses.
 - But many economic historians don´t agree because the capital assets seemed to be
rapidly repared

Early Francoism: market intervention:

- Linket to the military character of the state´s rulers
o Regulated prices, below equilibrium level
o Bad resources allocation – led to rationing of basic and imported goods – led to
a black marked during this period
- When a market is interviend – the marked is smaller – therefor is was rationing
booklets
- The policy of price internetion and rantioned consumption gave way to a “speculative
capitalism”
- Black marketers could make wuick and big fortunes trough political connections and
corruption
- Also affected energy surplus.

The resource allocation worked trhough three channels:

- Establishment of quotaes and import licenses
- Regulation of private investment
- Creaton of a public business sector without economic rationality
Outcome: a very poor allocation of available resources.

Autarkic policies:
- Specialization in agricultural products the lack of imports mortgaged the capacity to
export.
- Trade policies were dominated by an obsession to save foreign currency and favor
trade realtions with Germany
- The exchange rate poicy overvalued the spansih currency under a mistaken idea of
prestige.
- Didn´t guarantee the supply of strategic goods for the country
- The evolution of foreign teade during the 1940s was catastrophic
- By 1940, foreign trade had dropped to 40% of the level reached in 1935.

Causes of spains poor export capacity in the 1940s.

- Specialization pattern in agricultural products. The lack of imports mortaged the
capacity to export.
- Trade policies were dominated by an obsession to save foreign

1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION

Autarky’s lack of success in the 1940s gave way to another model in the 1950s: the import
substitution industrialization.
It implied a flexibilization of Spain’s autarky.
The swift was mainly motivated by changes in the international context: Cold War and US’s
anti-communism.
A NEW INTERNATIONAL CONTEXTTHE COLD WAR
1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION
Political and economic sanctions were revoked since 1950.
Spain was incorporated into the Western defense system.
Gradual process of normalization of international relations, although it hadn’t yet entered the
main international organisms.
Madrid Pact of 1953: Spain started to receive financial aid from the US. Such an aid wasn’t
sufficient to accelerate the country’s economic growth, but it allowed for the arrival of
regular imports and helped improve local agent’s expectations.
1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION
If the American aid wasn’t sufficient to accelerate Spain’s economic growth, what were the
causes?
Intensification of trade with Western Europe. Spanish exports increased. Foreign currency
allowed for an increase in imports with productive capacity (raw materials, machinery,
fertilizers, etc.).
Relaxation of interventionism. Abolition of rationing booklets. Gradual abolition of quotas
and fixed prices.
Peseta’s devaluations in 1948-1951 (-225%, relative to the $).
1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION
Most immediate effects on the goods market:
Increase in production.
Prices stabilization.
Disappearance of shortages and black market.
Energy sector:
Re-emergence, thanks to adequate industrial policies and more foreign currency
available.
A new regulatory framework for electricity.

1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION

What were the effects of the new economic model?
Spain’s GDP grew at a yearly rate of 5.2% (4.3% per capita GDP).

1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION

What were the effects of the new economic model?
Spain’s GDP grew at a yearly rate of 5.2% (4.3% per capita GDP).
Great increase in investment (gross fixed capital formation grew at a yearly 8.3%).
A never-seen growth in industry (yearly 8%), which caused a structural transformation
in the Spanish economy.
Agriculture was displaced as the main productive sector.
1950s: IMPORT SUBSTITUTION INDUSTRIALIZATION
The relaxation of the autarkic scheme from 1951 onwards opened the door to the effective
development of an inward industrialization strategy.

The import substitution strategy (ISI) pursued a powerful and diversified industry of its own.
The mean was to substitute imports.

THE ISI MODEL WASN’T SUSTAINABLE AND IT REQUIRED A STABILIZATION

PLAN
Two macroeconomic problems:
Inflation episodes in 1951, and from 1956 onwards. Escalation of bank credit since 1956, in
order to finance the issuance of public debt.
Currency account deficit. An overvaluation of the peseta caused a loss of Spain’s
international competitiveness, which would worsen its trade balance.
THE ISI MODEL WASN’T SUSTAINABLE AND IT REQUIRED A STABILIZATION
PLAN
Situation got worse by 1959. Spain was virtually in default due to lack of foreign currency. A
twofold dilemma emerged:
(1) Continuing with the ISI model and cutting imports. Back to the 1940s situation.
(2) Attracting foreign capital through an international trade liberalization.

1957-1958, pre-stabilizing biennium. Spain joined the IMF and the World Bank in 1958.
1959, stabilization and liberalization program, negotiated with the IMF.

1959 STABILIZATION PLAN

“The time has come to give a new direction to economic policy, in order to align the Spanish
economy with the countries of the Western world and free it from interventions inherited from
the past”. Memorandum sent to the IMF in 1959.

1959 STABILIZATION AND LIBERALIZATION PLAN

Main objective: correcting Spain’s external balance deficit, which, in turn, required:
Stabilization. A package of monetary, fiscal and exchange rate measures.
Liberalization. Long-term and structural reforms, consisting in deregulation and
liberalization of Spain’s economy.
1959 STABILIZATION MEASURES
Control recovery of the monetary policy by the authorities. Elimination of the issuance of
pledged public debt.
Credit restriction to the private sector. A decreed ceiling on bank credit increases.
Credit restriction to the public spending.

1959 STABILIZATION MEASURES

Increasing public revenues and the tax burden. This required unpopular measures such as
raising tariffs, prices of public services, and goods with administratively fixed prices.
Imposition of a mandatory prior deposit equal to the value of imports.
Establishing of a new (and only) exchange rate, closer to the market value. This allowed
Spain to enter Bretton Woods monetary system.

1959 STABILIZATION MEASURESwhat were their effects?

In the very short run, there were some depressive effects on the economic activity (drops in
GDP, consumption, investment, and imports).
Nonetheless, within a year of the plan’s adoption, signs of recovery were multiplying.
Increase in exports of goods and services.
Increase in foreign capital.
Danger of financial insolvency disappeared.
1959 LIBERALIZATION MEASURES
A twofold strategy: commercial and financial.
Commercial: a new trade policy, much less disruptive of resource allocation.
 A change in the imports regulation, from quantities restrictions to the imposition of
tariffs and taxes.
A gradual and relative liberalization.
Signature of a preferential agreement with the European Economic Community in
1970. It greatly benefited Spain’s industry.
Financial: a new liberal framework.
It allowed for a complete freedom of capital investment and financial repatriation.
Equal treatment to both local and foreign investors. Attracting foreign investment was
essential to improve Spain’s industrial productivity and reduce the technological
gap with Western Europe.

1959 LIBERALIZATION MEASURESWhat were their effects?

Very favorable effects on Spain’s economic growth.
«A virtuous circle», according to scholars:
Financial opening provided the income sources which improved the balance of
payments. Increasing exports provided for foreign currencies to pay for the
increasing imports.
Such a virtuous circle wouldn’t be broken until the early 1970s oil crisis.

1960-1973: SPAIN’S GOLDEN AGETransition to an industrialized economy

Spain’s GDP grew at a rate of 7.3%.
GDP per capita grew at a rate of 6.1%.
Manufacturing grew at a rate of 10.3%.
Structural change: a strong increase in the relative weight of manufacturing industry
and a loss of relative importance of agriculture in terms of total employment and
production.

1960-1973: SPAIN’S GOLDEN AGEDrivers of industrial growth

Changes in final demand. A yearly increase of 7%. Lower goods’ share in Spain’s
household expenditure decreased, from 70% in 1958 to 47% in 1973-74. Higher goods
such as transport and communications represented 1% in 1958 and 10% in 1973-74.
1960-1973: SPAIN’S GOLDEN AGEDrivers of industrial growth
Changes in international demand. Exports considerably increased. Structural change in the
pattern of specialization (exports) towards industrial goods.

However, exports only constituted 22% of Spain’s industrial output growth.

1960-1973: SPAIN’S GOLDEN AGEDrivers of industrial growth
Changes in intra-industry demand. Imports of modern technology and foreign patents
allowed for an increase in productivity and economies of scale.
Lewis model of economic development
Given two sectors (an old sector and a modern sector) and some conditions that make possible
the expansion of the modern sector, economic growth will take place through a massive
migration from the old sector to the modern sector.
By 1973, 2 million agricultural workers emigrated.
WILLIAM ARTHUR LEWIS
1960-1973: SPAIN’S GOLDEN AGEModernization of agriculture
Massive migration to the industrial areas also accelerated the growth of the building industry
and the services sector.
The decline in rural workforce caused a rise in agricultural wages. There was also a
substitution of production factors: labor was replaced by capital (tractors, selected seeds,
fertilizers, etc.).
This would result in a productivity increase.

FRANCO’S NEO-INTERVENTIONISM (1964-1975)

Three polices that distorted the normal functioning of the economy in late Francoism:

Restrictions to domestic and foreign competition.

«Development plans».

The state’s capacity to condition the credit activity of the banking sector.

INTERNATIONAL CRISIS OF THE 1970S

Oil shock in Oct-Dec 1973. Oil prices grew and affected inflation. Production costs increased,
demand decreased, and this negatively affected investment, growth and employment.
How come? Political and economic reasons. Instability at the Middle East, especially after the
creation of the State of Israel and the Yom Kippur war (Oct 1973). Nationalization of oil
companies and creation of oil monopolies.

Modern Spain
1985-1993: Spain´s cycle of integration

This period is described as a complete cycle of integration (between Spain and the EU.) At
first:
- Gdp grew around 5 %
- Investment around 13.3% / the main driver behind the expantion)
- Domestic demand rose at 7.8%
However, in 1990 Spain reacted to the change in the international situation with sliding
downwards.
- Investment dropped
- Private consumption dropped ( sensitive to changes)
The combitation of rising public expendure and failing productive activity led to a worsening
of the public deficit.

The effects of integration in the EEC:

Spain joined the European Union in 1986. There are three major effects:

1. Liberalization of foreign trade. Spain became an open economy- In 5 years, imports

from the EEC rose from 37% to 60% of total imports, and exports to the EEC rose
from 50% to 70%. Because the exports didn´t rise as much as the imports, there was a
huge trade deficit. The reason for this was because the industrial exporters did not
benefit from this because they did not the subsides they had gotten before the EU(and
they alleready had acsess to the market). Secondly the appreciation of the peseta made
Spanish products less competitive on the market.
 2. Foreign investment wave in Spain, because they thought that the conomy would
expand a lot. Massive investment in capital goods. This imporoved the efficiency of
Spanish industries.
3. Aid from the EEC, the largest economic aid in history. Equivalemnt to 0.7% of GDP
per year. A lot of the money went to the agricultural sector, and to cofinance the
infrastructures.

Nominal effects on joining:

Spain joined the European Monetary System in 1989, trying to force the convergence of the
inflation by having an almost fixed exchange rate to the EU. Because of this, they did not
have a monitary policy of their own (remember the trilemma; one can not have free capital
movement, ficed exchange rate and their own monitary policy.) Spains mebmbership in the
EMS meant that its currency had an almost ficed exchange rate while its prices rose faster
than those of the other countries. The peseta startet appreciating, and Spanish companies
where not that competitive on the market. Why did the inflation remain so high in Spain?
- Higher incomes – higher prices.
- The government didn’t introduce institutional reforms to increase foreign competition
in the sectors that followed an inflationary patch.
- Public spending led to a big public deficit and inflation, since it exerted pressure on
aggregate demand and used liquid assets to finance the deficit.

Led to an imbalance, and an economic recession. Therefore, economic crisis in 1992. There
were also doubts about the single currency system, and a lack of confidence in EMS.

Institutional reforms policies:

EEC and EU adopted a pro-market strategy based on the reduction of the state´s invervention
in the economic activity. Liberalization measures have been channeled trhough EU´s
directies. Consists of:
- Privatization of public companies
- Market liberalization
- Creation of regulatory frameworks that prices competition
Each EU country is responsible for the implementation of the policies. However, the
authorities applied these three policies with very different intensities and doses: extreme, in
the case of the privatization of stateowned companies; decisive but very unequal, in the feld
of market liberalization; timid and ineffective, with regard to policies aimed at effectively
guaranteeing free competition in markets where it was threatened by the action of the already
established companies.
In Spain: some state owned companies where sold to foreign multinational companies. There
was absence of effective anti trust policies. Public monopolies gave away to private
monopolies. In general, very little social profit consumers.
Transition to the Euro: