All that Glitters: Precious Metals, Rent Seeking and the Decline of Spain

Abstract

The windfall acquisition of precious metals from American mines and the military revolution of the Early Modern age allowed the Spanish monarchs to command large amounts of credit andpursue an expansive imperial policy unlike that of any other Early Modern nation; when the costof the Empire increased and mineral rents fell, the Crown auctioned off privileges and tax exemptions to fund its military efforts. I document how the silver windfall was linked to thecredit expansion and the undertaking of imperial policy. I then develop a model that shows howsuch a policy led Spain down a rent-seeking spiral, and accounts for the persistence of high rent seeking and slow growth even after the imperial policy was abandoned.Early Modern Spain, Rent Seeking, Natural Resource Shocks, Taxation, Privileges, Public Debt, Institutional Lock-in