He would have been remarkable if he had understood it or the impact of Spain's silver windfall. Although some far-sighted scholars had noticed the inflationary consequences, European economic thinkers were only starting to progress from crude bullionism to a more sophisticated mercantilism that prized profitable trade over mere accumulation for its own sake.

Though prices had been rising for most of the century (even before the arrival of Peru's bounty), Europe had never experienced anything like the "price revolution": past monetary woes had owed more to the currency debasement you mention, so it wasn't irrational to imagine abundant silver and a strong currency (which Spain maintained for three centuries, bequeathing us the dollar and yuan) as a guarantor of stability, prosperity and sound state finances, without foreseeing the impact of greatly increased minting.

And of course he wasn't alone, other rulers being just as keen to acquire the new wealth and profit from its coining. Mayhew estimates (Population, money supply, and the velocity of circulation in England, Economic History Review 48:2, 1995) that money supply even in the astute Elizabeth's sober England rose by 140% in just forty years, nearly tripling again under her two successors. Glassman & Redish find a similar doubling in France in 1560-1600 (New estimates of the money stock in France 1493-1680, Journal of Economic History 45:1, 1985).

So I wouldn't be too harsh. These were unprecedented times when the more familiar problem was not enough genuine silver in circulation rather than too much. I suspect many thoroughly modern governments would welcome the opportunity to spend their way out of economic and fiscal difficulties just as easily.

Phillip II did not debase the coinage, and limiting the amount of silver (and the key issue is silver, more than gold) flowing into Spain would have come directly out of his own revenues. From his perspective, that would have been an awfully expensive way to stop inflation, even if he had understood perfectly.

The idea that you can decrease the "intrinsic" metallic value of a coin but keep its face value the same, thus creating additional revenue for the mint, is pretty obvious. But you can believe that, and thus have an idea of inflation, and still maintain the idea that a currency's "intrinsic" value is somehow fixed; a silver coin can be worth less if there's less sliver in it, but the value of silver itself stays the same. As you say, this is a *decrease* in the amount of base metal causing a decline in the value of the currency, and easy to understand.

It is a subtler point that the value of silver itself can change. This wasn't entirely unknown at the time, if nothing else because silver's value changed quite regularly relative to gold, and mint ratios had to be adjusted accordingly. But it is more conceptually difficult to think of that as having systemic effects on everything else, what we would now call the price level. This is then an *increase* in the amount of base metal causing a decline in the value of the currency, and much harder to understand.

Perhaps just as relevantly, the idea of the government of a country as playing a macroeconomic role is quite new. Nobody was a Keynesian in the 16th century, and insofar as rulers has an obligation, it was to maintain a stable coinage. This, Phillip II did, though his successors did not. The broader links to the supply of base metals determining the quantity of money and the price level had been theorised to some extent a generation earlier by the School of Salamanca, but this was a scholarly debate about the nature and morality of economics, not a guide to governance.