Excerpted from The Fourth Economy: Inventing Western Civilization
The Spanish Inquisition
Put people in a terrible position.
I don’t even like to think about it.
Well sometimes, I like to think about it.
- Randy Newman
After the discovery of the new world, Spain should have gained an insurmountable advantage over all the rest of the West. At its peak, the Spanish Empire ruled about 13% of the earth, a swath of land exceeded up until then only by the Mongols, whose expansion had been stopped by the first use of gunpowder in a cannon during the mid-thirteenth century. Instead, France and England surpassed Spain in economic development. Spain even lost a prolonged war against the tiny Netherlands. It was not just a brute measure of land that mattered to progress in the first economy. Social invention and revolution were essential.
As trade grew in importance, so did diversity. If everyone is the same, has the same things, there is no value in trading. As people and economies become more distinct, trade becomes even more valuable. In the midst of this first economy, Isabella and Ferdinand tried to make Spain pure. They did it by subordinating their emerging nation-state to religion. This was to prove economically disastrous, but not in their lifetime.
Isabella (1451-1504) and Ferdinand (1452-1516) rightfully realized that Europe was not just getting exposure to new products with the emergent global trade. Europe was losing its cultural purity as the network of Jews, Muslims, and Asians who formed the trade network along the orient exposed Europeans to strange beliefs and practices. One response was to draw best practices from these new people. Spain tried instead to reject them.
After conquering Granada - the last Muslim territory in what is now Spain - these Catholic Monarchs gave Jews and Muslims the choice to convert or leave. This could have made the economy collapse, since so many Jews filled the role of financiers, chief public officers, and artisans but a seeming miracle saved them.
Ferdinand decided to finance Columbus’s venture. Ferdinand had purchased a copy of Ptolemy’s Geography and confirmed what Columbus told them about how short a route he might find to the Indies. (Ptolemy had made a little miscalculation in his estimate of the circumference of the earth, persuading readers that the distance from Europe to Asia by heading west was about as far as the distance from Europe to America. Columbus died believing that he had found this route. He never realized he had instead found a new world.) The decision to finance Columbus’s venture was part of their decision not to rely on so many nonbelievers. They knew that they needed economic breakthroughs to replace the infidels who formed such a big part of the economy.
“They announced an official policy of homogeneity of cultural practices, dress and religion, and the ruthless suppression of local custom, ritual, and belief. In spite of the fact that the growing prosperity of Spain, as of other European nations, depended on vigorous and heterogeneous trade throughout the known world, and in spite of the fact that the artisanal skills which supported lucrative industries like carpet manufacture, ceramics or brocade-weaving were tightly associated with specific ethnic and religious groupings, the victorious Spanish regime declared ethnic and doctrinal purity as the foundations of the stability of the new state.” 
Their bold moved paid off. In 1521, Cortes conquered Mexico and by 1533, Pissarro had conquered Peru. The Americas provided a staggering amount of gold and silver. Between 1516 and 1520, Spain’s average yearly income in gold was 200,000 pesos; between 1551 and 1555 it was nearly 2,000,000. “By 1650, 16,000 tons of silver had come to Europe, to say nothing of 180 tons of gold objects."
It would be hard to turn this treasure into economic stagnation but, in their pursuit of purity, Spain did.
Further, the flow of gold seemed to distort Spain’s economy. No agricultural advances were made during the prosperity of Charles’s reign; with a monopoly on selling supplies to the New World, there was no pressure to improve methods. Commercial techniques in the sixteenth century remained basically unchanged from those imported by Italian merchants during medieval times. Following a century of falling prices, Spain suffered unprecedented inflation. Currency was gold and silver and both poured in from the New World. From 1501 to 1550, prices more than doubled; by the end of the century, they had quadrupled. With prices rising so much faster in Spain than in the rest of Europe, Spain’s products soon could not compete with foreign goods. The Genoese “flooded the country with cheap manufactured products, designed especially for the Indies, to the serious detriment of local industry.”
Spain used its income to buy goods rather than develop its own productive capacity, leading the Venetian ambassador to write, “The gold that comes from the Indies does on Spain as rain does on a roof—it pours on her and it flows away.”
Worst of all, Spain moved in the opposite direction of England and France. Rather than subordinate the church to the state, it brutally asserted church power. As the rest of the West was gradually lurching towards something akin to religious freedom, Ferdinand and Isabella launched the infamous Spanish Inquisition.
While the English were gradually accepting freedom of thought, the Spanish were insisting on purity of thought. While the Spanish were out conquering the people in the new world, the English were giving more freedoms to the people in their own. Freeman rose to prominence in England, increasingly taking the place of serfs as farmers. Spain made slaves of Mexicans and Peruvians, forcing them to work in mines in brutal conditions that shortened their lives by decades.
It seems odd to contrast English farmers to Spanish conquistadors. Yet it was something as prosaic as farming that fueled England’s economic progress, bringing it to a point that it could challenge the supremacy of an empire that had so much of the newly discovered Americas even as its emperor ruled a large portion of Europe. Leading what could be called a “food- producing revolution,” English farmers were a key reason that “In the eighteenth century European agriculture was already capable of obtaining about two and a half times the yield on its seed normal in the Middle Ages. . . .By 1750 the best English agriculture was the best in the world. The most advanced techniques were practiced and the integration of agriculture with a commercial market economy had gone furthest in England, whose lead was to be maintained for another century or so."
When the Spanish established colonies in foreign lands, they were exploiting and extracting. When the British began colonizing later, they were actually bringing with them a blend of technological and social inventions that made land more productive. To this day, former British colonies generally outperform former colonies of France and Spain. In Africa, former British colony Ghana has per capita GDP about 4X higher than the former French colony Democratic Republic of Congo. In North America, per capita incomes in Canada are about 5X higher than in Mexico, a country that had formerly been under Spanish and French rule. In Southeast Asia, Singapore has per capita income that is about 20X higher than the Philippines, where Spain left a legacy of medieval Catholic family planning. As with a family, past generations largely define prosperity or poverty. History does not stay in the past. It even defines the options you have for tomorrow.
The mix of social and technological inventions that made land more productive – as transformative as they were – proved to be mere prelude to the big revolutions of the industrial economy.
 Lisa Jardine, Worldly Goods: A New History of the Renaissance (New York:
W.W. Norton & Company, 1996), 86–88.
 Gertrude von Schwarzenfeld, Charles V: Father of Europe (Chicago: Henry Regnery Company, 1957), 261–62.
 Roberts, The Penguin History of the World, 620.
 Vicens, An Economic History of Spain, 336–37.
 Carlo M. Cipolla, Guns, Sails, and Empires: Technological Innovation and the Early Phases of European Expansion, 1400–1700 (Manhattan, Kans.: Sunflower University Press, 1965, Sixth Printing 2002), 36.
 Roberts, The Penguin History of the World , 679.