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.


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.


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

  1. Wishy-washy writing, e.g. “We may have exploited natural resources in countries like India” — we DID exploit the natural resources in India, and everywhere else where the Empire took hold.

    And “Great” Britain did not exist for another 200 years. This his-story about is about England.
    Going forward, it would be more honest to call those septred isles the United Kingdom and forget the GB bit — that might assist your students have realistic and honest thinking about their position in the world order, and the need for industry and unity. When passing reforendum on the likes of BREXIT, hopefully your students will remember there are THREE other countries whose concerns need to be considered.

    Teaching history is supposed to be an education in what not to do. It is many chapter of horrors, not to be repeated again if your students can be smart enough to recognize the myriad slipper slopes and come up with alternative responses. Romanticizing the horrors and being apologists for the cruelty of the past won’t help them.

  2. “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.” Not accurate – you might want to look at Henry VIII’s role in building England’s naval technology and dockyards. This nearly bankrupted the country and his motivation was purely defensive!

  3. The origin of gold could be traced using modern X-ray fluoresence etc. spectroscopy, a big project for analytical chemists, a trace amount of metals reveals the location where the gold is processed

  4. Hard to believe this is a serious article… The first image of gold jewellery is from the treasury of el Carambolo, in Sevilla. It’s from Tartessos (3000-2500 years ago) and the gold comes from the area of Sevilla.

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