What happened to the Spanish Gold from the Incas?

I’m currently reading A History of the World by Andrew Marr (it’s a good read so far). There’s an interesting chapter about the consequence of Spain gaining a large quantity of gold and silver from the Incas during the Sixteenth Century. Almost overnight, Spain became very rich taking home unprecedented quantities of gold and silver. These were stolen from the Incas and the mines that the Spanish came to control.

The gold was used by the Spanish monarchy to pay off its debts and also to fund its ‘religious’ wars. Therefore, gold started to trickle out to other European countries who benefited from the Spanish wealth.

The Spanish also were able to purchase an unprecedented quantity of imported goods from around the world – including Europe and China.

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Impact of inflow of Gold on Spanish economy

For me, the most interesting thing is the theory that the sudden influx of gold actually contributed to Spain’s relative decline and low living standards in future centuries. How could an influx of gold cause this?

One theory suggests that – because the Spanish had so much gold, they could easily buy commodities from other countries without producing them itself. Because consumer goods could easily be bought, there was little incentive to produce goods and undertake the necessary investment and develop the technology to produce goods. Therefore, it is argued this ‘easy wealth’ was a factor in limiting economic development.

In macro terms, we could see Sixteenth-Century Spain has a country with a very large trade deficit – financed by capital inflows (stolen gold). But, this is an unbalanced economy – consumption enables high current living standards, but when the gold dried up, Spanish business and industry had been left behind other European nations. Nations without a windfall of gold had a much greater drive to create wealth rather than just consume it.

Therefore, the sudden inflow of gold was not good for the long-term development of the Spanish economy. But, partly explains why the Spanish economy came to lag behind the rest of Europe until the post-war period.

Great Britain, by contrast, arguably, gained just about the right amount of gold. National hero Francis Drake was really just a pirate. He attacked Spanish ships and took some of the gold. (It is estimated about 10% of Spanish gold was lost to piracy). Francis Drake gave a good portion of his stolen gold to Queen Elizabeth I – who used this windfall to pay off the UK national debt. (so, I suppose piracy is one way to deal with a national debt).

However, Great Britain never gained enough of the Latin American gold to become just a nation of consumers. The prospect of gold actually motivated a rapid expansion in naval technology. It was around this time, that Britain’s navy and shipbuilding capacity increased rapidly. This sowed the seeds of Britain’s future Empire. But, it was an Empire which was at least partly based on industry and production. We may have exploited natural resources in countries like India, but we also had the incentive to manufacture goods – and this motivation contributed to the industrial revolution.

It is an irony of history that had Great Britain received a huge windfall of gold, the industrial revolution may not have started in Great Britain – because the incentive for business to take risks and develop industry would not have been as strong. Therefore, be careful what you wish for!

Modern equivalents?

You could argue the windfall from oil could have a similar effect if the oil revenues are used just for consumption. Oil producing countries comparative advantage comes from producing oil. For a country like Saudi Arabia and Qatar, oil enables a high consumption, low tax economy. But, to some extent, it discourages any alternative forms of investment and business development. When oil runs out, oil producers could find themselves left behind (unless they can foresee this and diversify in anticipation of oil ending)

Inflow of Gold and inflation

Another feature of the gold rush into Spain was that it was probably a cause for the high inflation of the Sixteenth Century. Economist Earl Hamilton argues that prices in Spain rose 300 percent between 1500 and 1600. Part of this reason was the rapid increase in money (then silver and gold) chasing a fixed amount of goods. The consequence was that Spanish exports became uncompetitive in Europe. Instead, the wealthy Spanish imported goods from abroad.

But, what happened to the Spanish gold?

Basically, it slowly spread around the world. As the Spanish bought goods. It is also worth noting, although it was huge sums for the time,  it was still a fraction of today’s annual gold production.

From 1500-1600, total gold production is estimated at 36 tons. From 1900 to 1976 it was estimated at 76,428 tons.

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18 thoughts on “What happened to the Spanish Gold from the Incas?

  1. Interesting article. I wonder if there were similar consequences to Portugal with the influx of gold from Brazil? Do you think the amount of gold in both cases would be comparable?

    1. To my knowledge, Brazil did not have large quantities of gold. Wealth there came from agriculture. In contrast, in both the Spanish colonies of Peru and Mexico there were old established civilizations and large supplies of gold. As well, Argentina had silver, and Chile copper.

  2. Why hasn’t any talked about the $7 trillion dollars of gold and silver coins and bouyon that Spain retrieved from the Smithonian in Janurary of 2010 when they won the case against the scavanger hunter?? Hello?!

  3. In Jan. 2010 Spain legally won their case against treasure/bounty sea hunter, through the Smithonian. The scavanger hunter found a Spainish ship filled with gold and silver coins and thousands of pounds of bouyon bars, estimated by the courts to worth $7 trillioin dollars, just narrowly out of the sea boundaries of Spain. The log retrieved stated that the Spanish gold/silver was headed to the Queen of England to support the British in their war against the founding fore-fathers of the soon to be United States of America. How come no one is talking about it? This is my second try to comment on your Spanish gold article.

    1. I find that very interesting, shouldnt it been given to the Queen if those were the intentions of Spain then?
      What will they do with that 7T$ of gold and silver? Hmmm

      1. Given it to the Queen? Are you insane , they should Give it back to the American people-Amerindians – it was take from them with sweat, blood and rape.
        The Americas should be billing Spain/ Ingland/ France/ Portugal/German-Dutch crowns for every single once of gold taken by these thieves!

      2. No ship of the 15th or 16th century was large enough to heal a cargo of $7 trillion in gold and silver, even a small fleet of that era could not haul this massive weigh.

    2. No. The Odyssey find is worth $500M, not $7T. All the gold ever mined is only worth $8.5T. Smoking weed is fine. Commenting when so is problematic for the rest of us.

      1. Well said.

        And another thing –

        “they should Give it back to the…”

        Who shouldn’t give back to who ? Should I bill the Romans for their deeds in 100AD ? Should East Asia bill the Han ? Should the other Amer-indians bill the Aztec ? Should Mexico divide it’s DNA and have the conquistador half pay the Aztec portion so that they can pay out to the tribes the Aztec murdered and plundered ?

        I owe nothing to no-one for ‘man’s’ inhumanity to man’ in the past. If one believes reparations are owed – one needs to study all of history and prehistory. All of it.

      2. Wade

        Thank you, I am glad that someone yook the time to do the math on this absurd statement. As I also commented, no ship of the day was capable of ferrying or hauling $7 trillion of gold, silver or anything else, even multiple ships would not be sufficient.

  4. Please keep in mind that this gold was melted down religious plates. An entire civilization’s culture was melted down.

    1. Quite true- this is what greed and stupidity does to people and it has been happening since the dawn of civilization as well, so lett’s not only point the finger of barbarianism at the Spanish, the Romans, Egyptians, Greeks, Persians, Chinese etc- have all melted down the booty from their conquests.

  5. By international maritime law, any recovery party/entity is still entitled to a reasonable ‘salvage right(s)’, regardless of who owns the treasure, lest no one would take the financial risk of retriving any sunken treasure.

  6. The seven trillion of dollars worth in todays todays money,the alegation of no roon the ship to transport the gold at that era is not true

  7. A very inaccurate account of how the Great Britain was actually benefitted by gold and money from colonies. It’s portrayed here as though the British got such less gold and other resources (“Just the right amount” it seems?!) that they couldn’t get into the culture of over spending without manufacturing. Please do read about the extent of losses the colonies specially India incurred due to the unwanted British rule. And please read the actual account of it not the fabricated one that is propagated in British education systems and media.

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