The Inflationary Episode of 1603 in Light of the Austrian Economic Theory

Cristóbal Matarán ()
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Cristóbal Matarán: Department of Business and Business Analytics, School of Economics, Business and Communication, Universidad Europea de Madrid, 28670 Madrid, Spain

IJFS, 2025, vol. 13, issue 2, 1-23

Abstract: This paper examines the inflationary episode of 1603 in Spain through the lens of Austrian Economic Theory. The study focuses on the effects of monetary expansion caused by the influx of precious metals from the Americas and its impact on real wages and raw material prices. Through the analysis of historical data and the application of statistical methods, this study identifies key relationships between monetary inflows, price levels, and income distribution. The findings indicate that the rapid expansion of the money supply triggered inflation, disproportionately impacting various sectors of society. Using the Cantillon Effect as a framework, the study explains how monetary expansion led to uneven wealth redistribution and production distortions. Additionally, the Austrian Business Cycle Theory highlights the consequences of artificial monetary growth, including the misallocation of resources and reduced purchasing power for wage earners. This study employs historical data from Edward J. Hamilton and other sources, utilizing normalization techniques and regression models to empirically examine the economic dynamics of this period. By bridging theoretical insights with empirical analysis, this paper contributes to a deeper understanding of early modern inflationary processes and offers lessons applicable to contemporary economic challenges.

Keywords: Austrian business cycle theory; Austrian school; monetary and financial reform; monetary and financial leading indicators (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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