An increase in the productivity of mining in Peru led to a fall in the price of metals relative to rising prices for other commodities in Europe. Therefore, the long-run inflation can only be explained either by the devaluation of coins or by shifts in the supply of the specie. This stabilizing adjustment of the money supply led to long-run stability of price levels regardless of permanent shifts in money demand over time. The specie-centered monetary organization had its own price-level stabilization property: rising commodity prices led to a fall in the purchasing power of the monetary metals, and therefore less incentive to mine them and more incentive to use them for non-monetary purposes. Since the monetary system of the 16th century was based on specie (mostly silver) this inflation rate was significant. The annual inflation rate ranged from 1% to 1.5%. In the 16th century, prices increased consistently throughout Western Europe, and by the end of the century prices reached levels three to four times higher than at the beginning. The failure of the Spanish to control the influx of gold and the price fluctuations of gold and silver from the American mines, combined with war expenditures, led to three bankruptcies of the Spanish monarchy by the end of the 16th century. Furthermore, depopulation – specifically in southern Spain – resulted in a high rate of inflation. This influx caused a relative decrease in the value of these metals in comparison with agricultural and craft products. The Spanish mined American gold and silver at minimal cost and flooded the European market with an abundance of specie. The severe shortage of precious metals during the late 15th and early 16th centuries eased in the second half of the 16th century. Additionally, Europe experienced technological advancement in the mining industry, the stream of currency through debasement from royals, and the emergence of Protestantism. It also was a period when there was a high concentration of wealth in the hands of a few (the Black Death had wiped out nearly a third of the population a century before). An era often considered a time of peace for the Western European population, the Renaissance was a period when Western Europe experienced equilibrium in the price of commodities and labor. Most historians look at the end of the Renaissance as the start of the Price Revolution. According to this theory, too many people with too much money chased too few goods. Combined with this influx of gold and silver, population growth and urbanization perpetuated the price revolution. This enlarged the monetary supply and price levels of many European countries. Wealth then spread to the rest of Western Europe as a result of the Spanish balance of payments deficit, or was directly introduced to countries like Great Britain and France, using piracy to attack the Spanish fleet. ![]() Specie flowed through Spain increasing its prices and those of allied European countries (e.g., the imperial territories of Charles V). Generally it is thought that this high inflation was caused by the large influx of gold and silver from the Spanish treasure fleet from the New World including Mexico, Peru, Bolivia and the rest of the Spanish Empire. This level of inflation amounts to 1.2% per year compounded, a relatively low inflation rate for modern-day standards, but rather high given the monetary policy in place in the 16th century. Prices rose on average roughly sixfold over 150 years. The Price Revolution, sometimes known as the Spanish Price Revolution, was a series of economic events that occurred between the second half of the 15th century and the first half of the 17th century, and most specifically linked to the high rate of inflation that occurred during this period across Western Europe.
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