1493_ Uncovering the New World Columbus Created - Charles C. Mann [20]
The costs are staggering. At the height of the Vietnam War, the United States fielded about 500,000 soldiers. If the U.S. had wanted to send out the same proportion of its men that Spain did in its war with the Dutch, according to Dennis Flynn, an economic historian at the University of the Pacific, it would have had to send 2.5 million. “Even though all this silver was coming in from Bolivia, Spain didn’t have enough money to pay its army in the Netherlands,” he told me. “So the men mutinied constantly. I did a count once—there were forty-five mutinies between 1572 and 1607. And that was just one of Spain’s wars.”
To pay for its foreign adventures, the court borrowed from foreign bankers; the king felt free to incur debts because he believed they would be covered by future shipments of American treasure, and bankers felt free to lend for the same reason. Alas, everything cost more than the monarch hoped. Debt piled up hugely—ten or even fifteen times annual revenues. Nonetheless the court continued to view its economic policy in the optative mood; few wanted to believe that the good times would end. The inevitable, repeated result: bankruptcy. Spain defaulted on its debts in 1557, 1576, 1596, 1607, and 1627. After each bankruptcy, the king borrowed more money. Lenders would provide it—after all, they could charge high interest rates (Spain paid up to 40 percent, compounded annually). For obvious reasons the high interest rates made the next bankruptcy more likely. Still the process continued—everyone believed the silver would keep pouring into Seville. Now, in 1642, so much silver has been produced that its value is falling even as the mines slacken. The richest nation in the world is hurtling toward financial Armageddon. Europe is complexly interconnected; Spain’s economic collapse is dragging down its neighbors.
The silver trade was not the only cause of this tumult—religious conflict, royal hubris, and struggles among classes all were important—but it was an essential part. The flood of precious metal unleashed by Cortés so vastly increased Spain’s money supply that its small financial sector could not contain it. It was as if a billionaire suddenly deposited a fortune into a tiny country bank—the bank would immediately redeposit the cash into other, bigger institutions that could do something with it. American silver overflowed from Spain like water from a bathtub and washed into bank vaults in Italy, the Netherlands, and the Holy Roman Empire. Payments for Spanish military adventures filled coffers across the continent.
Economics 101 predicts what will happen in these circumstances. New money chases after the same old goods and services. Prices rise in a classic inflationary spiral. In what historians call a “price revolution,” the cost of living more than doubled across Europe in the last half of the sixteenth century, tripling in some places, and then rose some more. Because wages did not keep pace, the poor were immiserated; they could not afford their daily bread. Uprisings of the starving exploded across the continent, seemingly in every corner and all at once. (Researchers have called it the “general crisis” of the seventeenth century.)
Hope for the peasantry was provided by American crops, which by 1642 have ridden the silver route across the Atlantic. As the plane sweeps over Europe, it descends low enough for passengers to view the marks of the Columbian Exchange: plots of American maize in Italy, carpets of American beans in Spain, fields crowded with the shining, upturned visages of American sunflowers in France. Big tobacco leaves soak up sunlight on Dutch farms; tobacco is so common in Catholic Europe that Pope Urban VIII has this year denounced its use (in Protestant England, it is endorsed even by the nation’s most notorious