The Spanish Empire's Path to Economic Decline Under Absolutism

Key Insight

While England moved towards more inclusive institutions, Spain's path diverged, with the strengthening of absolutism leading to profound economic decline. Formed in 1492 through the merger of Castile and Aragon, and later expanding into a multicontinental empire under rulers like Charles V, Spain was initially among Europe's most economically successful regions. However, the discovery of vast precious metal reserves in the Americas, such as silver from Guanajuato, Zacatecas, and Potosí (with the monarchy claiming a 'royal fifth'), paradoxically fueled the consolidation of absolutist power rather than fostering broad-based economic development.

This absolutism created highly extractive economic institutions and widespread insecurity of property rights. Early acts included the expropriation of approximately 200,000 Jews in 1492 and the expulsion of Moriscos between 1609 and 1614, forcing them to sell assets cheaply and forbidding them from taking gold or silver out of the country. Spanish monarchs, including Philip II, frequently defaulted on state debts, leading to the ruin of powerful banking families (e.g., in 1557, 1560, 1575, and multiple times thereafter until 1662). International trade with the Americas was monopolized by a Seville guild, ensuring royal revenue but stifling the emergence of a broad merchant class and independent commercial activity, unlike in England.

The Spanish Cortes, a representative body, primarily represented only 18 major cities, lacking the broad base and legislative power of its English counterpart. Charles V crushed the Comunero Rebellion in 1520, which had sought greater powers for the Cortes, and the monarchy systematically eroded its rights over taxation; after 1664, the Cortes did not meet for nearly 150 years. The monarchy further undermined effective governance by selling offices, engaging in tax farming, and even selling immunity from justice. Consequently, throughout the 17th century, Spain experienced widespread economic decline, with its urban population halving and incomes falling, firmly entrenching its economic backwardness.