What factors contributed to the decline of Spain and Italy in the 17th century?
The changing economy of the sixteenth and seventeenth centuries saw a shift in economic power from the Mediterranean to the Atlantic. This essay shall attempt to list the reasons for the decline of the two great Mediterranean powers, Italy and Spain, to try and see why two states that, in the beginning of the 16th century, seemed to be at its peak and the seat of world economic control, by the end of the century languishes and is taken over by Holland and England.
When we talk of the prosperous Italy of the early seventeenth century, we mean Northern and Central Italy specifically; which by the end of the century had become economically backward and depressed. Its industrial structure had almost collapsed, its population was too high for its scarce resources, and its economy had reverted back to primary dependence on agriculture. According to Cipolla, in the seven black decades between 1600 and 1670, the industrial structure of Italy collapsed.
The statistics put forth as examples for the rapid decline in industrial Italy most obviously dealt mostly with its most prosperous industries, its silk and woollen ones. But Cipolla stresses that when we talk of decline, it is mostly in the context of towns, because it is an empirical fact that while industry suffered a rapid decline in the larger cities, there was a certain amount of expansion in rural and semi-urban areas. But however great the increase in these new industrial centres may have been, they certainly were not enough to compensate either in quantity or value of earlier production in larger Italian cities.
It must be remembered that Italy’s economic prosperity of the sixteenth century was dependent mainly on two things: large-scale export of manufactured goods (especially silk and woollen textiles), and worldwide banking and maritime transport. The whole economic structure of the country was “too dependent upon its ability to sell abroad a high proportion of the manufactured materials and the services that it could offer”.
In the second half of the sixteenth century, nations began developing their own banking systems, and industrial and maritime structures. Their services and produce began to compete with that of Italy’s, and soon Italy witnessed a rapid fall in its foreign exports and loss of foreign markets. French silk, and English and Dutch woollens not merely drove out Italians from their domestic markets, but also came to dominate markets of Europe, Africa and the Near East; where earlier the monopoly was Italy’s. The main reason for this shift was simple and consistent for each case: British, French and Dutch products were sold at lower prices.
The question then becomes that why was there such a disparity in prices that Italy lost all her markets? Italian goods were in fact of better quality, and its production process was still tied up in the old guild system which persisted in the production of old-style garments of exemplary quality, but which was out of fashion. Their cost of production was also high due to high rates of taxation and possibly high cost of labour (for which Cipolla says the data is insufficient but leaning towards this conclusion). This was juxtaposed with French, English and Dutch products which were less durable, lighter and of newer textiles. The simple reason why Europe shifted from a durable, good-quality garment to a livelier, fashionable garment that would not last as long, was that Europeans could now afford to buy newer garments every few years instead of one coat to last them a lifetime, and so they tended to turn to the more fashionable, colourful styles offered by the French, English and Dutch as opposed to the “drab, staid” Italians.
At the same time, there were external reasons for the loss of Italy’s markets, such as the Thirty Years’ War in Germany, economic stagnation and decline in Spain, and political trouble in Flanders. This situation affected the Italian economy in different ways. There was a sudden decline in the production and exportation of textiles. Secondly, there was a drastic and prolonged process of disinvestment of capital. And thirdly, there was a move in industry from the traditional centres in towns to new rural and semi-rural centres, this also partly because labour was more readily and cheaply available in these regions, and tax and guild evasion was easier.
The plagues of 1630 and 1657 proved another determining factor. The violent and sudden decline of population would have been the ideal for Italy’s economic difficulties. But the violent decline of population brought about by the plague resulted in a rise of wages and thus put Italian exports into an even more difficult situation. So with all its economic problems, Italy also had to deal with the aggravation of a rapid rise of population following the plague, as it usually happens. Therefore by the end of the seventeenth century, the population of Italy was more or less the same as the beginning of the century. Therefore Italy was now a country both depressed and overpopulated.
Thus, the pivotal point around which all Italian misfortunes occurred was the inability to sustain Italian exports after the beginning of the seventeenth century. The drastic and continuous fall of foreign demand for Italian products and services gave impetus to a long and cumulative deflation.
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Spain was the other nation that could’ve conjecturally become the first industrialized state of Europe but, for various reasons that we shall explore, does not. By the end of 1640, the empire which had dominated the world scene for almost a century seemed to be on the verge of collapse.
Spain was considered at its height under Philip II; with the reign of Philip III comes the decline of Spain. And while the reign of Philip IV seemed to show some signs of resuscitation, the inexplicable recovery of that period, according to Elliot, is “no more than a hallucination”.
It is not easy to reconcile this simple explanation of early seventeenth century history with the increasing knowledge we have of conditions in France. We know now it was not as if France’s victory was inevitable, as France itself did not seem to be too steady on its feet. The traditional view nevertheless persists that France’s population of 16 million was much greater than Spain’s 7 or 8, and that the weight of numbers was bound to be a telling factor. But Elliot counters that it isn’t about the numbers, but the number of men that can be mobilized by a state, and of credit. And these factors are the sole prerogative of a large state, so to base France’s victory on demographic factors is misleading. France’s victory was inevitable, quite simply, because Spain was in a state of decline.
Earl J Hamilton’s seminal work on the decline of Spain lists the classical reasons: “progressive decline in the character of the rulers’, mortmain and vagabondage, contempt for manual labour, monetary chaos, excessive taxation, power of the Church, and folly of the government. These so-called “factors” for the decline of Spain can in fact be traced to contemporary seventeenth century texts—to the treatises of the economic writers or arbitristas, who themselves used to the word “decline” to describe the nature of Spain’s economy.
Flynn is in agreement with the basic structure of Hamilton’s argument, that Spanish society had become addicted to the influx of American treasure; the peninsula could not survive the withdrawal associated with drastically reduced imports of precious metals in the 1620s and 1630s. The initial wave of bullion arriving in Europe resulted from gold mining and confiscation of art objects. In the second half of the sixteenth century, silver became the dominant American export. Not only were the Mexican and Peruvian mines “incomparably fertile,” the mercury amalgam mining process further reduced the cost of producing American silver.
American output of bullion increased the world supply of silver and drove its market value downward. Value eventually dropped below the cost of producing it in a growing number of European mines. A century later, silver’s market value plummeted inexorably to its American cost of production. When market value withered to production cost, no economic profits remained for merchant or Crown and, opines Flynn, the Spanish empire collapsed upon itself.
In an article which both summarizes and criticizes the “decline” literature, Henry Kamen points to two basic sources of confusion in the literature: an unwarranted identification of Castile with Spain, and a crucial failure to distinguish between Spain and its empire.
The decline of Spain can, in the first place, be regarded as part of that general setback to economic advance which mid seventeenth-century Europe is said to have experienced, although the Spanish regression may prove to have been more intense or to have lasted longer. Secondly, it describes the end of the period of Spanish hegemony in Europe and the relegation of Spain to the rank of the second-rate powers. This implies deterioration in Spain’s military and naval strength, at least in relation to that of other states, and a decrease in its ability to mobilize the manpower and credit required to maintain its traditional primacy in Europe.
To analyze the decline of Spanish power, it is important to try and locate the foundation of the power in an earlier age. Even in the time of Philip IV, the basis of Spanish power remained the same: the resources of the Crown of Castile. Therefore, the decline of Spain can best be studied by studying the decline of Castile. Elliot identifies three foundations of Castile’s sixteenth-century primacy: its population, its productivity, and its overseas wealth. Spain’s population was small compared with other European countries, however, and Elliott alludes to “a marked deterioration in the living standards of the masses of the Castilian population during the first half of the [sixteenth] century” and to Castile’s economy as “closer in many ways to that of an Eastern European state like Poland, exporting raw materials and importing luxury products, than to economies of West European states.”
In terms of population, by the 1630s, Olivares seemed to be craving manpower. The explanation of this increased difficulty in recruiting Castilian soldiers may be found to lie primarily in changed military conditions. Philip IV had more men under arms than Philip II, and the demand on Castile was correspondingly greater; better chances of earning good wages or of obtaining charity at home may have diminished the attractions of military service abroad. There was also a marked drift of population from the countryside to the towns, most of which grew considerably between 1530 and 1594; and there was also, during the course of the century, a continuous migration from North Castile the most dynamic part of the country under Ferdinand and Isabella into central Castile and Andalusia.
Although the traditional view has been questioned, it cannot be avoided that the plague of 1599-1600 marks the turning point in the demographic history of Castile. This crisis was exacerbated by the expulsion of the Moriscos ten years after the plague. The present picture of the Castilian population, therefore, suggests a rapid increase slackening off towards the end of the sixteenth century, and then a catastrophic loss at the very end of the century, followed by the further loss of 9o, ooo inhabitants through the expulsion of the Moriscos.
At the same time, Castile’s national wealth, on which the Habsburgs relied for the bulk of their revenues, also shows signs of depletion. The sharp upswing in prices during Charles V’s reign may be attributed to a rising scale of aristocratic expenditure, to the dramatic growth of Charles V’s debts, which he financed by the distribution of juros, or credit bonds, and to a vastly increased demand: for food from Castile’s growing population, in North Europe for Castilian wool, and for wine and oil and textiles, and for almost all the necessities of life, from the new American market.
If it is accepted that the reign of Charles V represents a period of economic expansion for Castile, the first clear signs of a check to this expansion appear in I548. In that year, the Crown forbade the export of Castilian manufactures, even to the New World, and to permit the import of foreign goods. The consequences of the new anti-mercantilism were exactly as might have been expected, and six years later, the prohibition on exports was lifted. The brief episode had a bad impact on the Spanish industry. During the reign of Philip II foreign merchants succeeded in “forcing wider open the door that they had suddenly found so obligingly ajar in the 1550s”, and Castile’s industries proved unable to resist the pressure.
According to Hamilton, in Spain, unlike France and England, wages kept pace with prices, and that therefore Spain lacked the stimulus to industrial growth which comes from a lag between wages and prices in an age of price revolution. But it has in fact been shown that there was a marked deterioration in the living standards of the mass of the Castilian population during the first half of the century. Such a deterioration, combined with the high level of Castilian prices in relation to those of other European states, would go a long way towards explaining the peculiar structure of Castile’s economy by the end of the century: an economy closer to that of an East European state like Poland, exporting basic raw materials and importing luxury products, than to the economies of West European states. In so far as industries survived in Castile they tended to be luxury industries, catering for the needs of the wealthy few and subject to growing foreign competition.
Castile’s industrial development therefore was hampered not just by the Crown’s fiscal policies and by unfavourable investment conditions, but also by the lack of a sufficiently large home market. This lack of a market for cheap manufactures points to an economy in which food prices are too high to leave the labourer and wage-earner with anything more than the bare minimum.
Castile, in common with other South European states, became heavily dependent on grain supplies from northern and eastern Europe. Castilian agriculture was simply incapable of meeting the national demand for food. What is not clear is whether agriculture was expanding, but not expanding fast enough to keep pace with the population, or whether agricultural production for the home market was actually falling off in the later sixteenth century.
The “injection of new life into the Castilian economy” in the early seventeenth century would have required personal enterprise, a willingness and ability to invest in agrarian and industrial projects, and to make use of the most recent technical advances. None of these – neither enterprise, nor investment, nor technical knowledge proved to be forthcoming. Wealth in sixteenth century Castile was being invested in buildings and jewellery, as also in censos, or personal loans, and in juros, or government bonds. Sixteenth-century Castile saw the development of a highly elaborate credit system.
To this unwillingness to engage one’s money in risky entrepreneurial undertakings, there must also be added Castile’s increasing technological backwardness, as an explanation of its failure to stage an economic recovery. At a time when science and technology was receiving renewed interest throughout Europe, in Spain, there was a separation from mainstream European development.
The period between 1590 and 1620, then, sees a rapid erosion of two of the principal foundations of Castile’s sixteenth-century primacy, and consequently of Spain’s imperial power: a decline both in Castile’s demographic vitality and in its productivity and wealth. There was also a drastic reduction in the value of Castile’s possessions overseas.
Olivares tried to compensate for the disastrous drop in the purchasing power of Castilian money by raising the level of taxation in Castile and inventing fiscal devices to extract money from the privileged and the exempt. While this fiscal policy, when applied to the Castilian nobles, caused mere discontent, it proved to be self-defeating when adopted towards what remained of the Castilian merchant community, proving fatal to the town’s commercial life. The crumbling of the elaborate credit structure of Seville and the collapse of Seville’s trading system with the New World between 1639 and 1641 was the “price that Olivares had to pay for his cavalier treatment of Spanish merchants.”
Some have argued that it was primarily the Netherlands that supported the Empire. It is argued that the revolt and eventual independence of the northern Low Countries depleted Castilian coffers because revenues from the Low Countries “in some years were ten times greater than any other single source, including remittances from the Indies.” According to Flynn, receipts from the Netherlands were large but Crown expenditures there were larger; therefore, the Low Countries on net were a financial burden, not a source of wealth.