OCR Specification focus:
‘The economic impact of the New World on Spanish trade and the economy; domestic trade, industry and agriculture’
The discovery and colonisation of the New World reshaped Spain’s economy, fuelling wealth, trade, and social change. However, this expansion also exposed structural weaknesses within domestic trade and industry.
The Economic Impact of the New World
The Influx of Bullion
From the 1490s, shipments of gold and especially silver began arriving from the New World. The richest discoveries came from the early sixteenth century, particularly with the exploitation of mines such as Potosí (Bolivia) and Zacatecas (Mexico).
Vast quantities of bullion underpinned the monarchy’s military and diplomatic power in Europe.
Spain became the financial centre of Europe, with Seville acting as the gateway to New World wealth.
However, this influx created long-term problems:
Inflation rose steeply (often termed the “Price Revolution”), reducing the real value of wages and harming peasants.
Spain’s reliance on American bullion discouraged the development of domestic industry.
Price Revolution: A sustained period of inflation in sixteenth-century Europe, largely attributed to the influx of precious metals from the Americas into Spain.
Trade and the Casa de Contratación
The Casa de Contratación (House of Trade), founded in Seville in 1503, regulated all trade with the New World.
The Casa de la Contratación (House of Trade) in Seville, the administrative hub for the Indies trade from 1503. From here, officials oversaw registration, taxation, and pilotage for Carrera de Indias traffic, central to Spain’s regulated imperial economy. Architectural detail is shown for contextualisation; it is a real-world visual rather than a diagram. Source
All goods and bullion were shipped via Seville, creating a monopoly port system.
The flota system (convoy of ships) was developed to protect treasure fleets from pirates and privateers.
Seville became the hub of Spain’s global trade network, attracting merchants from across Europe.
Despite these advantages, Spanish merchants often lacked capacity to exploit trade themselves. Foreign merchants from Italy, the Netherlands, and later Germany became increasingly dominant in Seville, drawing much of the profit away from Spain.
Changes in Economic Structures
The American trade introduced new products and demands:
Imports such as sugar, cocoa, and tobacco became valuable commodities.
Large-scale shipping created demand for shipbuilding and coastal industries.
The Crown gained immense revenue through taxation, especially the quinto real (royal fifth), a 20% levy on all bullion mined.
Yet this prosperity was uneven. Much of the bullion quickly passed to foreign bankers such as the Fuggers and Welsers, used to service royal debts from war.
Domestic Trade
Regional Patterns
Spanish domestic trade remained fragmented:
Castile had a relatively strong wool trade, centred on the Mesta (sheep-grazing guild).
Principal vías pecuarias across the Iberian Peninsula, including the Cañada Real Leonesa, Soriana, Segoviana, Conquense/Murciana, de la Plata, and the Valenciana network. The map visualises the infrastructure enabling transhumance, a core driver of Castile’s merino wool exports and internal trade. Source
Aragon, Catalonia, and Valencia had weaker economies, and many eastern ports lost importance due to the focus on Seville.
Internal communications were poor, with difficult terrain and inadequate roads restricting commercial integration.
Mesta: A powerful Castilian sheep-owners’ guild which dominated the wool industry and held significant economic and political privileges.
Customs Barriers
Spain was not fully unified economically. Numerous customs barriers divided Castile and Aragon, hindering free trade within the Iberian Peninsula. The monarchy did not remove these, meaning that domestic commerce could not compete with the lucrative overseas markets.
Weakness of Domestic Markets
The domestic market struggled to keep pace with the demands of empire:
Spain imported manufactured goods from northern Europe, especially cloth, arms, and luxury items.
Agricultural surpluses were limited; Spain suffered from low productivity and periodic famine.
Urban growth, particularly in Seville, placed additional pressure on food supply.
Industry and Agriculture
Industrial Limitations
Spanish industry was underdeveloped compared with northern Europe.
The textile industry in Castile declined in the sixteenth century, unable to compete with imports.
Mining was limited domestically; iron and coal resources were underused.
The American silver supply made investment in Spanish manufacturing less attractive, as bullion could purchase goods from abroad more easily.
Agricultural Challenges
Agriculture remained the backbone of the Spanish economy but faced deep structural weaknesses:
Landholding patterns were highly unequal, with vast latifundia estates controlled by nobles and the Church.
Peasants were often burdened with high rents and lacked incentive to invest in improvement.
Agricultural techniques remained traditional and inefficient.
Latifundia: Large landed estates, often worked by tenant farmers or labourers, common in southern Spain. They tended to prioritise extensive farming rather than innovation or productivity.
Impact of New World Imports on Agriculture
The introduction of new crops, such as maize and potatoes, eventually helped support population growth, though their impact in Spain during Isabella and Ferdinand’s reign was limited compared to later centuries.
Tension Between Wool and Grain Production
The Mesta’s privileges led to tensions between sheep grazing and arable farming. Expansion of pasture for wool exports often reduced land available for crops, contributing to periodic food shortages.
Overall Effects of New World Wealth on Spain’s Economy
The New World transformed Spain into a global power, but its economic foundations remained fragile:
The monarchy depended heavily on bullion flows to finance war and diplomacy.
Domestic trade and industry failed to develop to the same degree, leaving Spain reliant on imports.
Agriculture lagged behind demand, worsening the effects of inflation.
In short, while the New World created unprecedented opportunities for wealth, Spain’s domestic economic structures — trade, industry, and agriculture — revealed profound weaknesses that shaped its future trajectory.
FAQ
Seville technically controlled the monopoly of New World trade, but Spanish merchants lacked capital and networks to dominate commerce.
Foreign merchants — especially Italians from Genoa and merchants from the Netherlands and Germany — provided essential credit, expertise, and shipping services.
This meant much of the bullion and profit passed out of Spain almost immediately, limiting the internal economic benefit despite the apparent wealth of Seville.
The Spanish Crown used the quinto real (royal fifth tax) and the Casa de Contratación to register all bullion and ensure the Crown’s share.
Convoys known as the flota system were introduced to reduce smuggling and protect treasure fleets from attack.
Despite these efforts, illegal trade and corruption were widespread, and large quantities of silver were siphoned off before reaching the treasury.
Urban centres like Seville grew rapidly, but agricultural methods remained traditional. Productivity was low, and land use favoured pasture for the wool trade.
Large estates (latifundia) prioritised extensive farming with little innovation, while peasants had few resources to improve yields.
This mismatch meant frequent shortages and reliance on costly imports to sustain population growth in cities.
Spain was not economically unified; numerous internal customs barriers slowed trade between Castile and Aragon.
Goods had to be taxed and inspected at multiple points, raising costs.
Delays discouraged merchants from pursuing wider markets.
Regional economies remained inward-looking, reinforcing Spain’s dependence on overseas wealth rather than integrated domestic growth.
Inflation eroded the purchasing power of wages, hitting peasants and urban workers hardest, as food and rent consumed larger shares of income.
Nobles and landowners with fixed incomes struggled too, as their revenues lost real value.
Merchants and moneylenders often fared better, as they could adjust prices or profit from rising demand, creating social tension within Spain’s rigid hierarchy.
Practice Questions
Question 1 (2 marks):
Name two products introduced into Spain from the New World during the reign of Ferdinand and Isabella.
Mark scheme:
1 mark for each correctly identified product (up to 2 marks).
Acceptable answers include: sugar, cocoa, tobacco, maize, potatoes.
Do not accept bullion/metals (gold, silver), as the question specifies “products”.
Question 2 (6 marks):
Explain two effects of the influx of New World silver on the Spanish economy.
Mark scheme:
Up to 3 marks for each explained effect (maximum 6 marks).
Points may include (with marks awarded for accurate explanation, not just identification):
Inflation/Price Revolution (1 mark for identification, +1–2 marks for explanation of impact on wages, peasants, or economic structures).
Crown’s revenue through the quinto real (1 mark for identification, +1–2 marks for explanation of how it financed wars/diplomacy or reliance on bullion).
Undermining of domestic industry (1 mark for identification, +1–2 marks for explanation of reliance on imports and reduced incentive to invest in Spanish production).
Increased dependence on foreign bankers (1 mark for identification, +1–2 marks for explanation of debt repayment and wealth flowing abroad).
Maximum 2 developed points required for full marks.
Answers that identify only effects without explanation: maximum 2 marks.
