Money Supply In The Time Of Gold

If I can simplify things a bit, the basic argument of the gold standard types (I don’t want to say “goldbugs” because that sounds like a slur) is that things were better when nations adhered to the gold standard and the money supply wouldn’t drastically change. Increasing the money supply made a mess of things and didn’t really spur growth – growth in the past century has been a fiat currency illusion. But there has already been a huge increase in the money supply under the gold standard once in the past that seems to have been a very helpful economic event.

When the Spanish and other Europeans conquered North America, smallpox and so on conveniently wiped out all the natives, leaving lots of gold and silver essentially for the taking. This would have been the equivalent of the Spanish king printing more money. Yes the Spanish had to go to the trouble of transporting the gold, but they had to exchange nothing for it. Ronald Wright lays it out in A Short History of Progress:

“The Aztec and Inca treasures were only a down payment on all the gold and silver that would flow across the Atlantic for centuries. Karl Marx was among the first economists to see that, financially, the Industrial Revolution begins with Atahuallpa’s gold. ‘An indispensable condition for the establishment of a manufacturing industry,’ he said in 1847, ‘was the accumulation of capital facilitated by the discovery of America and the importation of its precious metals.’ The Genoese and German bankers who underwrote Spain’s empire were awash in bullion looking for something to do. Much found its way to northern Europe, financing shipbuilding, gun foundries, and other imperial ventures. Much also went to European wars – and wars between peers are mothers of invention.”

Maybe I’m missing something, but this huge influx of capital looks a lot like just printing more money, and it appears to have worked very well in spurring economic and technological growth.