Assessing the overall impact of the

Assessing the overall impact of the Dutch disease on the Spanish economy is a
subtler task. One could argue that trade represented a sufficiently small part of
Spain
s national income and that its effects on the economy as a whole can safely
be ignored. While this may be true from a static perspective, it ignores the dynamic
effects of specialization on economic growth. In the early modern age, what little
growth economies experienced was probably coming from their expanding trade.
Traded goods industries (and trade itself) fostered the specialization and division
of labor that could lead to productivity increases and human capital accumulation,
as the rise to prominence of the Low Countries exemplifies. The calibration of the
model suggests that traded goods output could have been reduced by between 10
and 20% for a period of over 25 years; such a shift in production could hardly have
been beneficial once the economy had to adjust to its post-boom reality.
It is worth remembering that the Dutch disease is not the only mechanism through
which American silver might have become a curse for Spain. Natural resource windfalls
have been shown to encourage rent seeking, and to discourage the accumulation
of human capital. Both these phenomena can persist long after the natural resources
are exhausted, becoming a lasting negative legacy spurred by a short-term blessing.
While here I have focused exclusively on the trade and exchange rate effects of the natural
resource windfall, there is surely a much richer picture to be painted on the subject
of fiscal and institutional consequences of the silver discoveries.
Scholars and conventional wisdom alike have long set the death of Philip II in
1598 as the beginning of Spain
s long decline. Contemporary writers, however, were
well aware that something in the inner workings of the empire had been wrong since
much earlier. Writing in 1600, Gonzalez de Cellorigo looked at what he saw as the
main reason for the already apparent downturn in the fate of the kingdom: ‘‘Our
Spain has set her eyes so strongly on the business of the Indies, from where she obtains
gold and silver, that she has forsaken the care of her own kingdoms; and if she
could indeed command all the gold and silver that her nationals keep discovering in
the new world, this would not render her as rich and powerful as she would have
otherwise been