American Precious Metals and Their Consequences for Early Modern Europe

Abstract

Over the early modern period and beyond, massive amounts of silver and gold were found and mined in the Americas. In this paper, I review the consequences for the European economies. Some second-order receiver countries such as England benefited in both the short and long run. First-order receivers such as Spain and Portugal also benefited in the short-run, but their continued exposure to the arrival of massive quantities of precious metals eventually led to loss of competitiveness and an institutional resource curse.

Understanding money using historical evidence

“…This offers an insight into how money supply evolved across centuries, even though assumptions as those described above always need to be kept in mind, and data for some countries are more reliable than others. Nevertheless, it clearly emerges that money drastically expanded in the middle of the 16th century, when vast amounts of silver were imported by Spain from its colonies, dwarfing the amounts available to Europe before then (see also Palma, 2020a). Through trade and conquest, silver and gold made its way to other European countries in subsequent decades and centuries, increasing the money stock in particular of England, the Dutch Republic, and France.…”

“…Over the early modern period and beyond, much silver and gold was produced in the Americas (Palma, 2020a). The accidental variability of silver and gold resources was exploited by Palma (2022) to study the real effects of money in early modern Europe.…”

Goldilocks: American Precious Metals and the Rise of the West

“…Why did first-stage receiver Spain, with direct colonial control over American precious metals, grew considerably less than West Europe's second-stage receivers? Existing research has focused on the detrimental impact of American precious metals on first-stage receiver price competitiveness and political institutions (Palma, 2020;Henriques and Palma, 2020). In this section we explore a novel reason for why Spain failed to benefit from the American precious metal windfall as much as some second-stage receivers did: the exposure to big maritime disaster losses that triggered severe financial crises with persistent output costs.…”

“…Our paper also contributes to the literature on the Little Divergence between Europe's Northwest and South. Existing research highlights the resource curse brought about by first-stage receivers rich endowment with precious metals (Palma, 2020;Kedrosky and Palma, 2021;Charotti, Palma, and Pereira dos Santos, 2022). This resource curse exerted its detrimental effect on Iberian economic development in two ways.…”

Municipal Finances and Institutions in Portugal: The Case of Coimbra City Council (1557-1836)

“…Inflation led to a loss of competitiveness in the export sector. The arrival of precious metals had a positive impact on the Portuguese and Spanish economies in the short and medium term, but negative in the long term (Palma 2020, pp. 363-376).…”