Economy as Empire: Dutch Disease and the Decline of Imperial Spain

17 Pages Posted: 9 Jul 2019

See all articles by Michael Schearer

Michael Schearer

Liberty University, Department of History

Date Written: July 5, 2019


The marriage of Ferdinand of Aragon and Isabella of Castile in 1469 began the process of the eventual unification of Spain. Over the ensuing decades, Spain finally conquered the Muslims at Granada in 1492 and completed the Reconquista. Spain then began a period of imperial expansion with Christopher Columbus’s first voyage later that year. Beginning in the late 15th century and through the middle of the 17th century, Spain was the world’s dominant economic and military empire. But a series of factors combined to exert severe pressure on the empire and ultimately led to its decline beginning in the 1640s. While historians continue to debate the specific causes, a review of the Spanish historiography makes clear that economic forces have always been among the most important.

The "Dutch Disease" was the name given by The Economist in 1977 and later developed by economists to the relationship between the discovery of massive deposits of natural gas in the Netherlands in the 1960s and the subsequent negative impact on the industrial sector of the country. It has also been described as a “resource curse” or a “paradox of plenty.” Since then, the Dutch Disease model has been applied to several historical circumstances, including the Spanish Empire of the 16th century. And while some historians have appraised the decline of Spain in terms of the Dutch Disease, there is a gap in the scholarly work regarding how this relationship impacted the protectionist and mercantilist economic policies unique to the Spanish economy.

This paper seeks to fill that gap by examining the role of the large influx of American gold and silver into the Spanish economy and specifically its impact on Spain's manufacturing and agricultural base, with an emphasis on the contemporaneous writings of the School of Salamanca (often referred to as the Spanish Scholastics) and the arbitristas. The discovery of massive quantities of gold and silver in Spanish America caused a significant increase in the Spanish money supply. This in turn led to a rise in prices, known as the Spanish Price Revolution, and made the Spanish manufacturing industry less competitive on the global market. Finally, the effects of the Dutch Disease amplified the structural deficiencies in the Spanish economy: first, the special privileges granted to the Mesta, a collection of Spanish sheep ranchers; and second, demographic hollowing caused by the expulsion of so many Jews and Moriscos, which had the impact of removing many artisans, traders, and merchants that were the lifeblood of the Spanish economy.

Keywords: spain, spanish decline, Reconquista, arbitrista, school of salamanca, columbus, 1492, mesta, imperial, dutch disease

JEL Classification: N13, N43, N53, N93, P42, P44, P48, H21, O10

Suggested Citation

Schearer, Michael, Economy as Empire: Dutch Disease and the Decline of Imperial Spain (July 5, 2019). Available at SSRN: or

Michael Schearer (Contact Author)

Liberty University, Department of History ( email )

Lynchburg, VA
United States

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