The Phase Structure of Metallic Money: An MPTT Framework for the Spanish Price Revolution

TL;DR

This paper introduces a two-phase Money Phase Transition Theory (MPTT) model to explain the changing relationship between money supply and inflation during the Spanish Price Revolution, highlighting a transition around 1600.

Contribution

It develops a novel two-phase model capturing the shift in monetary transmission, improving understanding of inflation dynamics during the Spanish Price Revolution.

Findings

High-transmission inflationary phase from 1500-1600 with CPI increasing 3.35-fold

Post-1600, money supply increased but CPI rose less, indicating weakened transmission

Transition point around 1600 with a deeper break around 1636 identified by BIC-minimizing break scan

Abstract

The Spanish Price Revolution is usually treated as a classic case in which American bullion inflows expanded the money supply and generated inflation. This view captures the first phase of the episode but fails to explain why the same monetary expansion did not continue to produce proportional price growth after 1600. We develop a two-phase Money Phase Transition Theory (MPTT) model in which the classical monetary relation is recovered before a transition point, while a second-phase correction term modifies the money-price transmission coefficient after the transition. Using annual Spanish CPI and reconstructed money-supply data, we show that 1500-1600 was a high-transmission metallic inflationary phase: CPI increased approximately 3.35-fold while money supply increased approximately 3.73-fold. After 1600, money supply continued to rise, increasing approximately 1.82-fold during 1600-1650, while CPI rose only approximately 1.22-fold. A classical one-phase model fitted on 1500-1600, therefore, overpredicts post-1600 prices when extrapolated forward. The MPTT two-phase model with transition point tau=1600 estimates beta_1=0.949, gamma=-0.812, and beta_2=beta_1+gamma=0.137, indicating a sharp post-transition weakening of monetary transmission. An unrestricted break scan identifies a deeper BIC-minimizing break around 1636. These results suggest that the Spanish Price Revolution was not a single monotonic bullion-inflation process but the rise and exhaustion of high-transmission metallic money inflation.