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> The problem was that the conquest of the New World left Spain with a lot more money, but not that much more wealth, if you follow me. ELI5, please!
by mcc1ane 10mo ago
> The problem was that the conquest of the New World left Spain with a lot more money, but not that much more wealth, if you follow me.
ELI5, please!
- wongarsu 10mo agoThey spent a lot of resources (some tangible, some less tangible) and ended up getting a roughly equivalent amount of money out if it
- adastra22 10mo agoMoney is the thing you use to buy things. Wealth is having those things. Only in an ideal world are the two the same. The world is not ideal.
- PessimalDecimal 10mo agoBut why couldn't they, e.g. buy other people's thing in exchange for their gold? IOW, why is the relevant fact that _Spain_ didn't have much more wealth despite having more gold? Other people in other countries valued (and still value) gold too.
- usefulcat 10mo agoThey could and they did. That meant that Spain ended up importing more and exporting less, which would have been bad for Spanish businesses. There’s a lot more to “wealth” than just having a bunch of stuff. Especially in the long term, since most “stuff” will wear out or otherwise decay over time.
- derf_ 10mo agoYou can, but then those people have more money, and you have less. The money supply is much smaller than the supply of goods and services, because the same money circulates repeatedly. So simply doubling your money can tilt things a little more your way, but does not make the situation completely lopsided, because you can only spend the extra money once. Also, to quote Jastram [0], "In spite of the romanticism of the Spanish Main and treasure ships, the supply of gold from the New World was just a trickle by later standards. Less than 1% of what was to be 1930 world production was produced in each of the years from 1500 to 1520." Over the next 80 years, it never got much above 1.3%. [0] Roy W. Jastram, The Golden Constant (1977), pg. 41.
- Ekaros 10mo agoThink of difference between buying bunch of cars from someone making cars. Instead of buying the factory making cars. Or maybe currently RAM. You found pile of money somewhere. You buy big amount of RAM. RAM prices go up, you do not care you have money. In a few years DDR6 comes out. The RAM you bought is not that expensive anymore. You do not really have either money or something currently expensive. Wealth is owning the land, the machines, the buildings, the knowledge(more so now). Being rich is owning lot of what can buy those things. But if you keep spending liquid wealth, eventually it is gone and you are not wealthy anymore.
- analog31 10mo agoThat may be true, but a modern money system could get you pretty close to that ideal, where the main difference is the friction of transactions. It's close to ideal for a loaf of bread, or a bag of nails. I can hop on my bike and turn my money into either of those things in a few minutes. Turning money into a house is further from that ideal of course.
- HPsquared 10mo agoYou can't eat gold.
- gtdhvy 10mo ago[flagged]
- nkrisc 10mo agoFine: you can't physiologically sustain yourself on a diet of gold alone. Gold is not a nutritionally complete diet. If all you have to eat is gold, you will soon be dead.
- catlikesshrimp 10mo agoMidas didn't eat gold, and that's all he could have had. https://en.wikipedia.org/wiki/Midas#Golden_Touch https://en.wikipedia.org/wiki/Midas#Golden_Touch
- cenamus 10mo agoYou also can't eat money, but I imagine it's pretty useful if you're hungry
- lazide 10mo agoIf all the sudden someone airdrops a hundred tons of $100 bills into your area, you are going to have a hard time buying food with just the $20 in your wallet. That is what is being discussed.
- esafak 10mo agoBullion imports caused inflation; the money supply increased without corresponding increases in the production of goods and services. https://en.wikipedia.org/wiki/Price_revolution https://en.wikipedia.org/wiki/Price_revolution
- kristianp 10mo agoWhat an interesting topic. One of the further reading links is to a paper that claims the inflation started earlier in the 1500s, due in part to the rise of German silver mining: https://web.archive.org/web/20110706211346/http://repec.economics.utoronto.ca/files/UT-ECIPA-MUNRO-99-02.pdf https://web.archive.org/web/20110706211346/http://repec.econ... It would be interesting to learn about the technological developments Spain failed to make compared to some of their European neighbours. Merchant banking is one of them.
- goodcanadian 10mo agoAs a sibling comment said, gold was effectively money. Having more money, without having more products to buy, effectively triggered massive inflation. Prices went up, but the actual supply of goods and services didn't change much. The Spanish economy suffered massive inflation, as did Europe in general to a lessor extent.
- ijk 10mo agoIt's interesting that mining gold and silver is similar to printing more money; we usually think of inflation as represented by debasing coinage but there's been a few circumstances where flooding the local economy with precious metals is the same effect.
- nradov 10mo agoWe sometimes see similar localized effects when wealthy foreign governments and NGOs go into poor countries to "help" with foreign aid and investment. When done correctly this can boost the local economy in a sustainable way, kind of priming the pump. But often it just dumps a lot of cash in, causing price inflation as the supply of goods and services fails to keep pace with the supply of money.
- colechristensen 10mo agoOutside influence heavily distorts local economies and needs to be done extremely carefully or you end up making a few people rich and starving everybody else.
- WillAdams 10mo agoHeifer International presents a good face on doing this by introducing livestock, providing education to the new owners, and imparting an in-kind donation requirement so as to perpetuate and spread the gains.
- 10mo ago
- throwup238 10mo agoSpain’s colonies funneled huge amounts of gold and silver into the European economies without a complementary increase in productivity to absorb it, causing massive inflation. A ship for transatlantic shipping might have first cost 100,000 maravedí to build and equip before the treasure fleet expeditions, but afterwards with so much gold flowing into the economy and lots of competition for a limited ship building industry, the costs would inflate to 1 million maravedí (number roughly from memory). Same with the canons and shot, animals and sailor salaries, and so on. Meanwhile, shipbuilders with all their newfound money are competing for blacksmiths, the outfitters are competing for livestock and horses, and so on. This puts lots of pressure on the rest of society which might need the iron for farming tools and the livestock to survive the winter, which they can no longer afford since the conquistadors and their merchants can pay a lot more in gold. In the end the maravedí accounts look bigger but represent the same amount of physical goods or labor. Repeat this process across the whole economy and it throws everything into chaos. Some people here and there get rich, but economy wide it’s a total wash. Any wealth created for the state mostly just went into paying for wars because the inflation worked its way up through salaries.
- ares623 10mo agohold up a minute
- financetechbro 10mo agoWe’re sadly living through the same thing right now
- username135 10mo agoTime is a flat circle
- kristianp 10mo agoLegends fade to myth, and even myth is long forgotten when the Age that gave it birth comes again.
- conception 10mo agoActual EL5 - Stregga Nona but with money.
- Herring 10mo agoIt's just investing vs extracting/exploitation. Both can get you rich, but one is short-term and the other is long-term. Consider what that means for sustainability and the future.
- rr808 10mo agoToday - if you give everyone $10 million dollars there isn't enough production for everyone to buy what they want - you just get inflation. Its probably worse for the economy as people stop working.
- cherryteastain 10mo agoAdam Smith's Wealth of Nations explores the topic in depth
- hecanjog 10mo ago[flagged]
- delbronski 10mo agoSmugness level 110. It is a good question. Get over yourself please.
- hecanjog 10mo agoFair enough, but I disagree that it's a good question. "Explain it to me like I'm 5" (not even written out in words, just the abbreviation we all know) is not a curious place to come from, it is a desire for the quickest path to the end/payoff.
- Loughla 10mo agoEli5 is a common way of asking for clarification. That's all.
- hecanjog 10mo agoIt's common, I know what it means. It communicated its intent properly, I think. It's surprising to me that a venture capital finance site would need to clarify the difference between value and wealth, and I would be interested in hearing questions about this, but "ELI5" doesn't even meet the basic criteria for being a question. It asks no questions.
- zdragnar 10mo agoNot to mention one could easily search Google for "wealth versus value" and get tons of explanations in a few seconds. People just like having things handed to them I guess.
- busyant 10mo agoI think you're taking the comment too literally. I took it to mean something like, "I won't understand an abstruse Ph.D.-level explanation of what happened. I need an explanation geared toward the layperson." In fact, I think that's closer to the essence of ELI5--as opposed to literally explaining something at the 5 year old level. I suppose you can quibble about using the initialism, ELI, but only if you're advocating for people who might be unfamiliar with its use. Otherwise, I don't understand your complaint.
- vondur 10mo agoThey spent it on war. The Spaniards were fighting the Ottoman Empire and the Relgious Wars brought on by the Protestant Reformation. Funny enough their main enemy for the religious wars was France, who was also Catholic. The Spaniards also went bankrupt multiple times too.
- AniseAbyss 10mo ago[dead]