The Habsburg dynasty ruled Spain during the 16th and 17th centuries, the Golden Age, when Spain was the most powerful country in the Europe. King Charles I who inherited the throne went on a spending spree financing wars of power across Europe, trying to undermine the power of France, defending Catholicism in Europe and defending Europe against the Ottoman Empire. He financed his interests with public debt and with resources from the American colonies.
In order to finance its debt and Charles political ambitions Spain had to exploit natural resources from its colonies especially gold and silver. Mining became the most important economic activity during the colony in Peru; after all the gold and silver was looted from Inca temples and palaces they started looking for sources of minerals. They discovered a silver mine in Potosi, Bolivia and gold mines in Peru providing hard currency to the Spanish monarchy. It is believed that during the 16th century Spain held the equivalent of US$1.5 trillion (in 1990 terms) in gold and silver from the American colonies which contributed to inflation in Spain in the last decades of the 16th century.
The majority of the population continued working in the same areas as before the conquest, yet many new economic activities were developed during the colony. In the manufacturing sector, the textile industry became the most important activity employing mostly women. Textiles were manufactured in workshops known as “obrajes” in Huamanga, Cusco, Conchucos, Cajamarca and Quito.
Spanish settlers created the hacienda where native Peruvians and African slaves worked the land and raised cattle. Agriculture and cattle raising changed during the colony, the creation of the hacienda increased productivity and profitability making the owners of haciendas the new bourgeois class in Peru. The arrival of the Spanish brought new agricultural products such as rice, grapes, sugar and wheat among others and animals such as chicken, cow, donkey, sheep and horse.
During the Inca Empire all economic transactions were by exchange or reciprocity and in order to facilitate trade the Spanish introduced the currency in Peru making its first appearance between 1568 and 1570. The Crown imposed a trade monopoly in its colonies, meaning that trade was only allowed between Spain and a viceroyalty, trade was not permitted among viceroyalties.
The encomienda system
As the governor of Peru, Pizarro employed the encomienda system of labor to build up the colonial economy. The encomienda is a forced labor system implemented by the Spanish Crown in which a person, usually a conquistador, was granted a number of local natives to be converted to the Catholic faith and to be taught the Spanish language. In return, the natives would pay tribute through their work, similar to the mita tribute system used by the Incas. Though workers were not slaves, as they were not own by a European settler, they usually worked under harsh and slave-like conditions especially in mining. This system created a new small wealthy class that controlled the land, economy, politics and other areas of power whereas the native Peruvians remained illiterate, powerless and exploited.
Pizarro used this scheme to his advantage granting land to his friends and soldiers and the use of the encomienda to their own benefit. Later, the encomienda was replaced by the repartimiento to eliminate the abuses to native Peruvians. Under the repartimiento a group of natives were allocated by a local official, however it did not change their situation as labor conditions remained the same.