Published On: Tue, Jun 27th, 2017

Puerto Rico, Port of Riches and inflation

Jacob Gelt DekkerBoudewijn Hendricks, alias Balduino Enrico (ca. 1625), former Burgomaster of Edam, became one of the Great Corsairs of the Dutch West Indies Company.

Puerto Rico’s gold deposits in ten rivers and the Sierra Luquillo were a temptation not to be resisted.  So Boudewijn Hendricks attacked San Juan and besieged Fort San Felipe del Morro and La Fortaleza.

Boudewijn may have gotten his information from Pieter Schouten (ca.1622) of Vlissingen, another Dutch Corsair, and privateer,  employed by the  WIC.  He Collected extensive information to establish WIC-trading posts in the West Indies.

The rumor mill about gold and riches on the island started ever since Conquistador, Ponce de Leon (ca 1506)  took the first samples of gold from the river ‘Manatuabon’ (likely Maunabo River). During the first few decades of Puerto Rico’s occupation by the Spanish, the gold produced was over $4 million in Spanish currency.

The Spanish preoccupation with gold and silver, which flowed in massive amounts from the  New World, caused the Spanish Price Revolution from 1450-1650, a massive inflation that ruined most of Spain’s economy and empire.

The abundance of precious metals as currency caused dramatic inflation. The 'higher prices' for goods and wares was an inverse reflection of the loss of purchasing power of the money (gold) in circulation. Demand-pull from the rapidly growing European population may also have played a role in the Price Revolution.

To make it even worse, in the first twelve years of Philip III's reign (1598-1621), Low Countries' Wars alone cost over 40 million Ducats. A Ducat is a small gold coin weighing about 3.5 grams. By 1607, the government had a debt of almost 23 million Ducats and had assigned away all its revenue for four years ahead.

In history, only the Mali gold inflation is of comparison. An economic disaster was caused by Mansa Musa(c. 1280 - c. 1337), king of the Mali Empire.  During his reign Mali may have been the largest producer of gold in the world, at a point of exceptional demand.  Musa made his Haji to Mecca, between 1324-1325, taking with him 60,000 men, including 12,000 slaves who each carried 4 lb (1.8 kg) of gold bars and heralds dressed in silks who bore gold staffs, organized horses, and handled bags.

The caravan included 80 camels which each carried 50-300 lb (23-136 kg) of gold dust. Musa gave the gold to the poor he met along his route. Musa not only gave to the cities he passed on the way to Mecca, including Cairo and Medina to build mosques but also traded gold for souvenirs.

But Musa's generous actions devastated the economy of the regions through which he passed. In the cities of Cairo, Medina, and Mecca, the sudden influx of gold devalued the metal for the next decade. Prices on goods and wares hugely inflated.

Using gold or silver as currency does not improve productivity and wealth in any community. It is the idea-fix of the "pot-of-gold" and winning the Jackpot, a fallacy.

Wealth is created by improved productivity, not by increase of currency, like Venezuela and Zimbabwe, with super inflation of 1,000% per year, are finding out. They should have studied the Spanish Price Revolution.

By Jacob Gelt Dekker
Columnist for Curaçao Chronicle

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