The Price Revolution, sometimes known as the Spanish Price Revolution, was a series of

economic events that occurred between the second half of the 15th century and the first half of
the 17th century, and most specifically linked to the high rate of inflation that occurred during this
period across Western Europe. Prices rose on average roughly sixfold over 150 years. This
level of inflation amounts to 1.2% per year compounded, a relatively low inflation rate for
modern-day standards, but rather high given the monetary policy in place in the 16th century.[1]

Generally it is thought that this high inflation was caused by the large influx of gold and silver
from the Spanish treasure fleet from the New World; including Mexico, Peru, Bolivia and the rest
of the Spanish Empire.[2]: 70

Specie flowed through Spain increasing its prices and those of allied European countries (e.g.,
the imperial territories of Charles V). Wealth then spread to the rest of Western Europe as a
result of the Spanish balance of payments deficit, or was directly introduced to countries like
Great Britain and France, using piracy to attack the Spanish fleet. This enlarged the monetary
supply and price levels of many European countries.

Background
Most historians look at the end of the Renaissance as the start of the Price Revolution. An era
that was often considered a time of peace for the Western European population, the
Renaissance was a period when Western Europe experienced equilibrium in the price of
commodities and labor. It also was a period when there was a high concentration of wealth in
the hands of a few (the Black Death had wiped out nearly a third of the population a century
before).[3] Additionally, Europe experienced technological advancement in the mining industry,
the stream of currency through debasement from royals, and the emergence of Protestantism.[3]

The severe shortage of precious metals during the late 15th and early 16th centuries eased in
the second half of the 16th century. The Spanish mined American gold and silver at minimal
cost and flooded the European market with an abundance of specie. This influx caused a
relative decrease in the value of these metals in comparison with agricultural and craft
products.[4] Furthermore, depopulation – specifically in southern Spain – resulted in a high rate
of inflation.[4] The failure of the Spanish to control the influx of gold and the price fluctuations of
gold and silver from the American mines, combined with war expenditures, led to three
bankruptcies of the Spanish monarchy by the end of the 16th century.[4]

In the 16th century, prices increased consistently throughout Western Europe, and by the end of
the century prices reached levels three to four times higher than at the beginning. The annual
inflation rate ranged from 1% to 1.5%.[5] Since the monetary system of the 16th century was
based on specie(mostly silver) this inflation rate was significant. The specie-centered monetary
organization had its own price-level stabilization property: rising commodity prices led to a fall in
the purchasing power of the monetary metals, and therefore less incentive to mine them and
more incentive to use them for non-monetary purposes. This stabilizing adjustment of the
money supply led to long-run stability of price levels regardless of permanent shifts in money
demand over time. Therefore, the long-run inflation can only be explained either by the
devaluation of coins or by shifts in the supply of the specie. An increase in the productivity of
mining in Peru led to a fall in the price of metals relative to rising prices for other commodities in
Europe. This process is only remedied if the purchasing power of the metal is equal to its
production costs.[5]

Causes
Influx of gold and silver
From an economic viewpoint the discovery of new silver and gold deposits as well as the
productivity increase in the silver mining industry perpetuated the price revolution. When
precious metals entered Spain, this influx drove up the Spanish price level and caused a
balance of payments deficit. This deficit occurred on account of Spanish demand for foreign
products exceeding exports to foreign markets.[6] The deficit was financed by the metals that
entered these foreign countries and in turn increased their money supply and drove up their
price levels.[6]

The increased importation of specie to Spain started in Central Europe around the beginning of
the sixteenth century. According to Michael North (1994) central European silver output doubled
between 1470 and 1520, and increased even more in the 1520s with the new mine of
Joachimsthal.[7] Also during this time the Spanish and Portuguese brought a large amount of
gold from the New World to Europe. Starting in the 1540s a growing amount of silver was
shipped to Europe from Zacatecas, Guanajuato and Taxco mines in Mexico and the Potosi
mountain in Peru.[7] The production of the Potosi mineincreased greatly in the 1560s after
mercury deposits had been discovered in the Andes, as mercury was necessary to process the
silver.[7] Based on the records of Earl J. Hamilton (1934), the total imports of specie from the
Americas during the 16th century amounted to around 210 million pesos, with 160 million of
these pesos being imported in the second half of the 16th century.[8] The total amount of silver
imported added up to about 3,915 metric tons of silver.[8] However these numbers underestimate
the total amount imported to Spain because Hamilton only counted imports recorded by the
official Casa de Contratacion in Seville, not including the specie shipped directly to Cadiz by the
Dutch and British East India Companies.[9] The influx of these precious metals and the resulting
money supply shocks help explain the price increase in Spain during the 16th century.[citation needed]

European silver production

Some accounts emphasize the role of increased silver production within Europe itself.
According to Nef, the output of silver mines in Bohemia, Germany and Hungary increased
rapidly from c.1460 to c.1510. Production peaked in the 1530s, thereafter slowly declining for
the next thirty years. After 1560, the decline in European silver production was rapid.[10] Flynn
contends that imports of silver from Spanish America is behind this decline in European silver
mining.[11]

Quantity theory of money

Main article: Quantity theory of money
The first scholar to make a quantity-theory link between the influx of American "treasure" and
the Price Revolution was supposedly the French philosopher Jean Bodin in his 1568 response
to a 1566 treatise by the Royal Councilor Jean de Malestroit.[12] Malestroit argued that
lower-quality coins were the chief culprit of price influx—similar to the periodic inflations of the
14th and 15th centuries. Bodin dismissed this argument, contending that the growing influx of
silver from the Spanish Americas was the primary cause of price inflation.[12] Championed for the
quantity theory of money, Bodin was able to demonstrate that the inflation of prices in France
was due far more to Spanish-American influx than to any change in coin debasement.[13]

Earl Hamilton, a contemporary price revolution theorist, found that no Spanish writer of the 16th
century had voiced opinions similar to those of Jean Bodin despite having conducted meticulous
research into Spanish treatises, letters, and other documents. This, however, was not true; less
well known is an even earlier Spanish publication in a treatise from 1556 by the cleric Martín de
Azpilcueta of the Salamanca School, which made virtually the same claim about the role of
Spanish-American silver in the rise of prices.[14] Martín de Azpilcueta, Jean de Malestroit, Jean
Bodin, and early debate about the history of the price revolution in many was the reason
historians, philosophers, and economists tried to formulate their own explanations to the price
revolution.

Debasement
See also: The Great Debasement
Regardless, Malestroit did put forth several valid claims about the price revolution that continue
to hold up today, particularly his argument explaining the different price indexes and why the
Spanish prices rose the least and the Brabantine the most. Spain, unlike most other European
countries of this era, underwent no debasements of the gold and silver coinages during most of
the period, but that all changed in 1599, when the new Spanish king Philip III(1598–1621)
introduced the purely copper "vellon" coinage.[3]

Following Henry VIII of England and his infamous "Great Debasement" programme that began
1526, the Spanish King Philip III tried to cement his Spanish legacy through changes in coinage
strategy. Previously, Spanish Kings (at least from 1471) issued a largely copper fractional
coinage called blancas, with a nominal money-of-account value of 0.5 maravedí, but with a very
small amount of silver to convince the public that it was indeed precious-metal "money".[12] The
blanca issued in 1471 had a silver fineness of 10 grains or 3.47% (weighing 1.107 g).[3] In 1497,
that fineness was reduced to 7 grains (2.43% fine); in 1552, to 5.5 grains (1.909% fine); in 1566,
to 4 grains (1.39% fine). By the start of the 17th century, inflation took hold of Spain as the gap
between nominal and silver-based prices dramatically shifted. The purely copper coinage had
done its damage to Spain. The difference between the silver- and vellon-based price indexes in
Spain showed that the purely copper coinage other European countries used made up a much
smaller proportion of the total coined money supply (something the Spanish Kings had
overlooked and Malestroit was able to pinpoint).[3]

Black Death
Main article: Black Death
Demographic factors also contributed to upward pressure on prices with the resurgence of
European population growth after the century of depopulation following the Black Death
(1347–1353).[15] The price of food rose during the years of the plague, and then began to fall as
the population of nations decreased.[8][16] At the same time prices of manufactured goods rose
because of a displacement of supply.[17] As the nations began to recover and repopulate after
the Black Death, the increase in population placed greater demands on agriculture. Later on,
increased population placed greater demands on an agricultural area that had contracted
significantly after the 1340s, or had been converted from arable to less intensive
livestockproduction.[citation needed]

However, population growth and recovery in countries such as England are not consistent with
inflation during the early stages of the price revolution. In 1520 at the beginning of the price
revolution England's population was roughly 2.5 million people.[8] This is about half of the
English population of 5 million in 1300.[8] Critics of the population argument raise the question
that if England at the beginning stages of the price revolution was very unpopulated, how could
any renewed growth from such a low level immediately spark inflation? It can be argued that
population growth led to a price increase in the agrarian sector because of an increase demand
for food. Marginal lands that were not very fertile and far away from markets were unable to
adopt the technological developments to offset the lower returns of farming. In turn this led to a
higher marginal cost to farming and resulted in a price increase for grains and other agricultural
goods that surpassed the price increase for non-agrarian commodities during the 16th and
beginning of the 17th century.[8] The resurgence of population after the plague is linked with the
demand-pull explanation of the price revolution. This "demand-pull" theory states that an
increase in the demand for money and the growth of economic activity produced the rise in
prices and a pressure to increase the supply of money.[18]

Urbanization
Some accounts emphasize the role of urbanization.[citation needed] Urbanization contributed to
increased trade between Europe's regions, which made prices more responsive to distant
changes in demand, and provided a network for the flow of silver from Spain through western
and central Europe.[6]Urbanization is often connected with the increased velocity of money
theory because the frequency of transactions increases as urban centers grow relative to rural
areas. For example, in England, many lands held as common lands were enclosed so that only
the landlord could graze his animals. This forced his former tenants either to pay an increased
rent, or to leave their own farms. An increase in the number of people unable to afford their
farms led to migration into the cities in search of employment. This in turn led to an increase in
the velocity of monetary transactions, but was frustrated by the high demand and inelastic
supply of food.[6]

Population and agricultural growth

If the influx of Spanish silver was not the initial cause of the European Price Revolution then the
best explanation for the Price Revolution is population growth. This theory developed under Earl
Hamilton argues that prices were not driven by specie (which, at most, sets a floor to prices) but
by the actions of monopolists (or governments) whose positions in this period were enhanced
by the steady population growth in Western Europe (The resurgence of population after the
plague is linked to the "demand-pull" explanation of the price revolution, which states that an
increase in the demand for money and the growth of economic activity produced the rise in
prices and a pressure to increase the supply of money.[19]

The significant increase of European population in the period 1460–1620 meant that there were
now more people to be fed, clothed, and housed raising the demand for goods of all kinds.
Agricultural products then became crucial to the European market. Producers were unable to
respond to the rising demand as new and less fertile land were cultivated. Essentially, marginal
costs were increasing and per-capita yields were shrinking, while demand continued to rise. The
price of agricultural commodities, especially grain, rose sooner and faster than those of other
goods, and the inflation of agricultural prices eventually caused a general increase in price level
in all industries. Until the mid-17th century, the number of mouths to feed outran the capacity of
agriculture to supply basic foodstuffs, causing the vast majority of people to live in a constant
state of hunger.[20] Until food production could catch up with the increasing population, prices,
especially those of the staple food, bread, continued to rise.[20] Hamilton's theory pointed to
evidence of agricultural price growth, slow nonagricultural price growth and poor timing (of the
specie outflow to the East) as tangible evidence of the failure to fix prices and feed the growing
populace. Hamilton also pointed to monopolistic and other non-competitive techniques as the
typical pricing behavior for European products and factor markets of the period.

Effects
Spain
External debt
Rising costs to sustain Habsburg war efforts eventually led to a severe rise of the Spanish public
debt, of which German and Italian bankers were the creditors. The Habsburg Charles V, Holy
Roman Emperor was also King of Spain and borrowed enormous amounts of money from the
Fuggers, the Welsers, and Genoese banking families, in order to be elected Emperor and
sustain, for over 35 years, the Imperial foreign policy. To repay such loans, he relied primarily on
the vast stream of bullion provided by Spanish America. In the 1520s and 1530s, ships full of
Aztec and Inca treasures arrived from Mexico and Peru to the courts of Charles V as homage of
Hernán Cortés and Francisco Pizarro. Those treasures were usually minted into coins in Seville
and transferred to German bankers in Antwerp, a port city of the Burgundian Low Countries
where major agencies of the Fugger and Welser were located. This allowed Antwerp to become
the center of the international economy and accelerated the capitalist transition of the Low
Countries. Certain golden objects have survived in descriptions: for example, some were
displayed in Brussels to the German artist Albrecht Dürer who wrote: "In all my life, I have seen
nothing that rejoiced my heart so much as these things". French corsaires were constantly
disrupting this trade: notably, the treasure of the Aztec emperor Cuauhtémoc was captured by
the French corsair Jean Fleury.

Silver arrived in large amounts, whereas gold was rarer to be found. In 1528, Charles V carved
out a colony in Venezuela for his German bankers, hoping to discover the legendary golden city
of El Dorado. In 1546, the project came to an end and the German colony was disbanded. In the
1540s and 1550s, the discovery of silver mines in the Americas (such as Potosí, Zacatecas,
Taxco, Guanajuato, Sombrerete) increased the flows of precious metals. Overall, 15 million
ducats' worth of bullion reached the Imperial treasury during Charles's reign. This contributed to
the higher inflation known as the Spanish price revolution: prices doubled in the first half of the
16th century. The rising costs of war had dramatic consequences on Habsburg finances: one
campaign in the 1550s costed as much as one war in the 1520s. Charles V was forced to
borrow even more and at higher interest rates, which grew from 17% to 48%.

Despite opposition from the Cortes Generales, Charles V managed to impose this vicious circle
that progressively weakened the Spanish finances. Furthermore, in the last years of his reign,
Charles V could not be economically supported by his non-Spanish possessions: he exempted
the Low Countries from taxation after the Revolt of Ghent in 1540, Germany was in the middle
of the Schmalkaldic Wars, and the budget surplus of Italian states was wiped out by the Italian
Wars. This ultimately put the financial burden of the Holy Roman Empire on the Spanish
kingdoms and led to the bankruptcy of Spain. Unable to sustain his projects financially, Charles
V abdicated in 1556 and retired to a monastery in 1558. Sovereign default was declared in
1557.[21] [22][23]

Landowners
Conditions in 16th century Europe support the view that the separation of constantly rising
prices and fixed rents destroyed landowners. But this did not apply to Spain, where rent was not
fixed and the power of landowners allowed them to raise rent and replace their tenants based
on the tenants' ability to meet payments.[24]

On the other hand, the price revolution brought impoverishment to those who lived on fixed
income and small rents, as their earning could not keep pace with Spanish prices. Small
landowners of the hidalgo class, the lower clergy, government officials, and many others all
found their standard of living reduced as commodity prices rose beyond their means. The
situation of the peasants is less clear, for it is difficult to reconcile agricultural prosperity and the
great rural emigration to the towns, which in turn makes it difficult to explain the alleged
extension of cultivation in Spain. But one thing is certain—wages lagged behind prices.

Sellers and traders

But landowners and the rich were not the only ones gaining from the price revolution. Anyone
with something to sell or trade could reap the benefits of inflation, particularly manufacturers and
merchants. However in the second half of the century, when the conditions of the Price
Revolution got worse and relentless inflation began to make Spanish enterprise less competitive
in the international and colonial market, not all merchants and manufactures found life
enjoyable. Only the more powerful merchants were able to survive foreign competition and in
doing so prospered boundlessly. Enormous fortunes were made in the Indies trade (whose
expansion was related directly to the rise of prices) and this encouraged more investment and
profitable returns. Profitable returns were distributed beyond the merchant houses of Seville to
entrepreneurs in other parts of Spain, as the American market took the oil and wine of
Andalusia, the wool of Castile, the metallurgical products and ships of the Basque country.[24] To
at least the end of the 16th century there was still money to be made in Spain for selected
merchants and manufactures.

The Crown
The Crown, like its ally the aristocracy, was less crippled by the price revolution than the
majority of its subjects. Certainly the cost of administration, and of paying, feeding, and
equipping its armed forces, rose for the Crown just as the cost of goods did for the private
consumer; unlike other countries, Spain was willing to spend at a higher level to maintain their
status as a world power.[24] However, the aristocracy in contrast lost less of its savings than the
Crown. The aristocracy could raise rents to increase revenue and not face the full
consequences of the Price Revolution. The aristocracy allowed prices to remain high, while
inflation alleviated the burden of loans, which became a substantial part of their income.[24]

Republic of Genoa
Unlike many other states of the period, the Republic of Genoa gambled the majority of its
economic interest on the Spanish monarchy—bankers invested their money in the crown and
farmers of Spanish revenue, while Genoa's merchants and nobles settled in Spain (Madrid,
Seville, Kingdom of Naples and Sicily) marrying local nobility and monopolizing majority of the
trade. As long as New Spain was sending silver and gold to the consulado de mercaderesin
Seville, Genoa could flourish. Genoa became a large credit market as the capital of Italian cities
was all drained towards Genoa.[25]

Long term decline of inflation

The inflation of c. 1520–1640 eventually petered out with the end of the initial rush of New World
bullion, though prices remained around or slightly below the levels of the first half of the 17th
century until the onset of new inflationary pressures in the latter decades of the 18th
century.[citation needed]