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Economic thinking at the start of the twentieth century believed that Empires were essential for the benefit of large economies. Their markets and natural resources were essential for European economies. This was the orthodoxy in government circles in Spain. The defeat of Spain in the war of 1898 meant that the country lost access to natural resources such as sugar in Cuba and large markets, such as those in the Philippines. The loss of its colonies caused a great degree of economic dislocation and many companies and individuals became bankrupt. Many leading families among the nobility were ruined and lost vast estates in Cuba and the Philippines. This lead to the emergence of a new business class in Madrid and elsewhere who were more progressive and supported the liberalization of the economy. However, the influence of big landowners still thwarted the reform of the economy. However, the loss of Cuba, the Philippines, and other colonies benefited the country by causing capital to return and to be invested in domestic industries. This helped the country to industrialize, especially in the Basque Country and in Catalonia. Previously, Spanish capitalists had invested large sums in the country’s colonies and these were now diverted to local projects. This helped to modernize the Spanish economy and it was no longer as reliant on agriculture. The medium to long-term impact of the defeat in 1898 was on balance, a positive one <ref> Harrison, Joseph. An economic history of modern Spain (Manchester, Manchester University Press, 1978), p. 213</ref>.
====Cultural Impact on Spain====
The war freed Spain from the shackles of an imperialist ideology. For many centuries it sought to define itself in terms of an Imperial power and this has resulted in political system and society that was resistant to change and even modernity. Spanish public opinion was shocked by the fact that the local people in the colonies had openly supported the US. They had believed that the Spanish Empire was loved by the subject people <ref> Philips, William D., Jr., and Carla Rahn Phillips. A Concise History of Spain ( U of Berkeley Press, California, 2010) </ref>. Many long-held illusions were destroyed during the war in 1898. The defeat by the Americans allowed Spain to look into the future for the first time and consider, its place in the world and its development. With the end of its Empire in the Caribbean and in the Pacific, many in the country believed that it now needed to modernize and to become a truly European nation. The defeat of Spain by the US encouraged many to seek to change the country to deal with its social, political and cultural crisis. This energized many to propose alternatives for the country and offer solutions to its malaise. This was very apparent in the arts. The "Generation of '98" is the name given to a group of Spanish writers, essayists, philosophers and poets that were profoundly affected by the military defeat inflicted by the US. They sought to develop a new literature and art forms as part of the regeneration of Spain <ref>H. Ramsden, "The Spanish 'Generation of 1898': The History of a Concept", Bulletin of the John Rylands University Library of Manchester, 1974, Vol. 56 Issue 2, pp 443-462 </ref>. They rejected the traditional genres and ideas and they transformed Spanish literature and the arts. The "Generation of '98" helped to create a cultural golden age, and they greatly influenced writers in Europe and Latin America.