GOLD AND SILVER: SPAIN AND THE NEW WORLD

Spain and the Americas

Spain's attention, both military and economic, had been largely directed toward the Mediterranean for centuries, and this was still true in the second half of the 15th century while the Portuguese were exploring the coast of West Africa with such success. The southern province of Andalusia was divided between the castles and feudal fiefdoms of the Christian warlords and their Muslim foes who raided and looted one another; each group raided and was raided by the Muslims on the North African coast. The Spanish rulers of Aragon and Castile, unable to control their more powerful subjects, instead issued licenses to their warlords to keep what was conquered: this was cheaper and easier than organizing a coordinated (and expensive) campaign as a nation. The result was that successful warlords like the Duke of Medina Sidonia became very rich on booty and on the slave labor of the Muslims they had conquered, while others who had similar licenses were less successful but no less committed to gaining wealth by looting it.

Spain united into something resembling a nation only after the marriage of King Ferdinand of Aragon and Queen Isabella of Castile. The fall of the last Muslim stronghold of Granada in 1492 seemed more important than the rather unsuccessful Atlantic voyage of one of their Genoese sea captains. Columbus was certainly motivated by the search for gold: his diary mentions gold 114 times and God 26 times. He traded for a little gold on Hispaniola, and the inhabitants traded diseases with his crew and cargo (syphilis for swine fever, apparently) but overall he and his royal sponsors were disappointed in the financial proceeds of his first voyage. It had cost 2 million maravedis, and the proceeds were worth only a few thousand.

On his second voyage, Columbus was able to trade for or seize a little more gold: after a year, he sent back 11,000 maravedis worth. But the voyage had cost 3 million. Aggressive tactics allowed him to collect in two or three years all the gold that it had taken the native people of the West Indies a thousand years to accumulate: but the amounts were small compared with the financial and human cost. Afterwards, gold had to be found by panning, and in the effort the Spanish basically wiped out the indigenous population of the West Indies directly in slave labor, and indirectly by disease and social and agricultural disruption. One after the other, Santo Domingo, Cuba, Puerto Rico, and Jamaica were drained of gold and native inhabitants, and Caribbean gold production fell to zero within 25 years. The amounts of gold were significant but not enormous, a little less than a tonne a year from 1503 to 1530.

Even at this early date, the Spanish monarchy was embarking on an ambitious and expensive foreign policy, sustainable only with the expectation that it would be financed by gold from the New World. King Ferdinand quickly became desperate for more: "Get gold, humanely if you can; but at all hazards, get gold!" he wrote to the New World colonists on July 25, 1511. This was to be the theme of the Spanish monarchy for centuries.

New supplies of precious metals began flowing from the New World after 1513, when Balboa annexed the Panama isthmus for Spain; 1517, when Cortes conquered Mexico; and 1531-34, when Pizarro encountered, then overthrew, the Inca empire. In Mexico, Cortes looted the treasure that the Aztecs had in turn looted from their defeated enemies, and in Peru, Pizarro looted the treasure that the Incas had in turn looted from the Chimu around 1470 AD. New silver mining in Mexico had to wait for the discovery of new strikes, but in Peru the Spanish were able to move fairly quickly to expand existing shallow mines, using the labor of their conquered enemies.

Beginning in 1531, Peruvian bullion shipped to Spain was something like 100 million pieces of gold, and twice as much in silver, over the following forty years. When Pizarro conquered Peru and murdered the Inca emperor in 1533, the ransom that Atahualpa paid in vain was worth 1,326,000 bezants (gold pieces), weighing more than 7000 kg. Even more than that was looted from the Inca capital of Cuzco by the victorious Spanish in 1533­1534. The gold and silver "production" (loot, that is) from Peru in the early 1530s is estimated as follows:

Year GOLD (tonnes) SILVER (t)

1531 0.5 0.2

1532 0.5 0.1

1533 5.6 11.5

1534 3.5 56.5

1535 1.6 27.2

The Spanish Crown was able to control this transfer of New World bullion, probably because the voyage to and from the New World was undertaken only by comparatively few large ships that could be inspected by government officials. By law, all New World silver was delivered to the royal treasury, or to a Crown mint, and this ensured uniform quality and a flow of taxation: the royal treasury took its quinto (20% tax).

Most of the bullion found its way back to Spain, the only practical source of goods for the New World colonies, and most of it was minted into Spanish silver coins, either in Spain, or in the New World. The New World coinage was dominated by the peso, which equalled eight reales: the "pesos of eight" or "pieces of eight" of pirate legend.

Port cities at both ends of the trade flourished. Seville, which had a royal monopoly on the New World trade, was transformed from a provincial port into a major city and political center. The trade out of Seville was financed largely by outsiders, mostly Genoese. Money was available in Spain (the Andalusian warlords were enormously wealthy) but was not invested in the New World trade. Because the Spanish colonists were not yet producing their own staples such as wine, oil, flour, arms, and leather, and had large amounts of loot to pay for them, prices in Castile and Andalusia rose sharply as traders bought up goods to ship out. Oil, wine, and wheat prices tripled between 1511 and 1539. The great vineyards of Jerez, the olive groves of Jaén, and the arms and leather industry of Toledo were established on their present scale during these years.

In the Americas, the importance of bullion from Peru after 1533 meant that almost half of all trade between Seville and the Americas passed across the isthmus of Panama, which had been depopulated in the usual Spanish fashion by then. Slaves had to be imported to act as bearers of everything that passed between Panama on the Pacific and Nombre de Dios on the Atlantic.

DECADE Value (million pesos) GOLD (tonnes) SILVER (t)

1503­1510 1.18 5.0 0

1511­1520 2.18 9.2 0

1521­1530 1.17 4.9 0

1531­1540 5.58 14.5 86

1541­1550 10.46 25.0 178

1551­1560 17.86 42.6 303

1561-1570 25.34 11.5 943

1571­1580 29.15 9.4 1119

1581­1590 53.20 12.1 2103

1591­1600 69.60 19.5 2708

The importance of Peru is seen by comparing the last two tables: all the gold coming from the Americas in the 1530s came from Peru because every other source had been worked out, or rather, the labor force that had been producing it was "worked out" literally to death. The Spanish regarded the Indian slave labor force as free, and in the end this threatened to prevent further exploitation of the New World when all the looting was over, and new production depended on mining.

A tonne of gold was worth about 10­12 tonnes of silver, so that gold represented over half the value of the bullion until the 1560s. The early peak in gold production marks the development of gold mines in Colombia, behind Cartagena.

New World Silver

The silver mines of Mexico lay to the north of Mexico City, in what was essentially a frontier region inhabited by hostile and competent Indian guerillas. The mines were operating by 1545. A major piece of good luck for the Spanish occurred in 1556 and 1557. In a major transfer of technology, a German named Lomann and a Spanish merchant, Bartolomé de Medina, took to the New World the technique of mercury amalgamation for concentrating gold and silver: they had probably learned it in the Saxon mining districts, or from a Saxon miner brought to Spain.

The method, modified for Mexican conditions and called in Mexico the patio process, was very quickly used throughout the Spanish New World. Lubricated by water, the silver (or gold) ore was ground in circular stone mills worked by mules until it was a wet paste. The paste was spread out in the shade (in a patio) and sprinkled with mercury, salt, and copper sulfate, and men or mules walked over it, sometimes for weeks, until it was thoroughly mixed. It was then washed through, and the remaining amalgam was squeezed and then heated to drive off the mercury and leave behind the gold and silver. The patio process allowed lower grades of ore to be worked, and dramatically improved the yield from silver and gold mines. Most of the production from the New World was silver, but the process was used for gold too. Where both metals occurred together, the resultant mixture of the two was called "doré", and usually doré bricks were shipped, with the gold and silver being separated later during the final refining.

The silver and gold producers of Mexico could be controlled and monitored by a Spanish government monopoly on the supply of mercury, which at that time came exclusively from the great Almadén mine in Spain. Naturally, there was an illicit trade in non-government mercury, but it never allowed more than about 10% of silver to be diverted from official channels.

The flow of gold from the New World to Spain in the 1520s and 1530s had been handsome by any standards, but it was mostly composed of loot. The introduction of the patio process to New World mining brought an immediate increase in shipments of silver in particular. Large new mines opened at Zacatecas and other places in Mexico, beginning in the late 1550s. The process spread to Peru and especially to Potosí, in Alto Peru, in what is now Bolivia, in the early 1570s.

Potosí and the Mita

Potosí lay at over 4000 m altitude (13,000 feet), and everything needed at the mines, including food, timber, and iron, had to be transported in. Only the local Indians had the physiology to work effectively at these altitudes. The journey from Lima alone took ten weeks. Even though a supply of mercury was found in Peru, it lay eight weeks' travel away from Potosí. Silver had been discovered at Potosí in 1545, as the ready supply of loot from the Inca Empire dried up. At first some of the richest veins were worked by leases to the local Indians, who used traditional and rather crude methods for the next twenty years. Fuel was always short for the inefficient furnaces, and the early rich veins were worked out quickly. As the ore quality dropped, the Incan methods were no longer rewarding, and major changes had to be made.

In 1569 a new Viceroy, Francisco de Toledo, was sent to Peru to organize and discipline the region, especially the mining industry. In the early 1570s he introduced the mercury amalgamation process to Potosí, opened mercury mining in Peru itself, and organized and extended the mita, the system of drafted labor that the Incas had used in their empire. The mita as conceived by King Philip envisaged the payment wages for volunteer workers in and around Potosí. But Philip made it very clear to Toledo that silver production was paramount. In what was apparently a Hapsburg policy, it was normal for the King to give contradictory instructions, let the Viceroy make the decisions, and then blame or praise him according to the success of the decision!

The mercury amalgamation process required fine grinding and washing of the ore, and major reservoirs and canals were built in the dry hills and valleys round Potosí to provide year-round water for ore washing and for waterwheels that drove stamping mills. Production began to rise dramatically from 1573 onward, but the silver mines were now high-capital ventures that only large owners could construct. This essentially put the smaller-scale Indian miners out of business.

In the 1570s the mita workers (mitayos) were treated no worse than their contemporaries in Europe: they were paid low but regular wages, and there were opportunities to make extra money. The old Inca piles of mine tailings could profitably be recrushed and reprocessed for silver. At the new production level, Potosí silver flowing from Spain via Italy into central Europe essentially put the old German silver mines out of business. Because costs at Potosí were so high, the silver ores had to be very rich and silver shipments had to be enormous to outcompete the silver mines of central Europe, but they were. In 1592, its best year, Potosí shipped out 201 tonnes of silver.

As the mines became deeper and ore grades continued to deteriorate, the mine owners (mostly Basques) found that they had to deploy more and more mitayos at deeper and deeper levels to maintain silver production. Free Indians (mingas) did choose to work in the mines and refineries, but they had skills that kept them from the truly dangerous unskilled jobs. Toledo made it very clear to the King that he could only have silver if he allowed the mita to become more of a draft labor force. (The King carefully never replied to Toledo's letters, but in 1589, after the defeat of the Spanish Armada, he agreed to the forced mita that had already been operating for decades.)

Profit margins shrank, and with the King of Spain turning a blind eye, the mitayos were treated more and more like slaves than the wage-earners they were supposed to be. Mining conditions at Potosí were described in the 1590s by Father José de Acosta, who was appalled at the abuses he saw. Mitayos made up only about 25% of the Indians working in or for the mining industry, and less than 10% of the Indians working in Potosí, but they suffered the worst conditions. In other words, it was not the shortage of labor, but the unwillingness of the Indians to take dangerous jobs for low pay that underlay the need for the mita. Without the mita, Potosí would have become a ghost town.

The Indian population was dropping in the region, partly from epidemic diseases to which they had low resistance. But at least some of the drop represented massive migration out of the region as the Indians and their village chieftains voted with their feet, leaving the Potosí mita region for areas where they would find better jobs in plantations and in other cities, in a labor market that was increasingly scarce. Some of the polemics levelled against conditions in the Potosí mines came from non-mining interests who were themselves desperate for labor and wanted the Potosí mita abolished. In some areas, the local clergy turned a blind eye to the baptism of boys with girls' names so that they would not be called for the mita. It was only when the Viceroy sent out officials to check on alarming birth statistics that showed a dominance of female children that this clever evasion was uncovered.

The Santa Barbara mercury mine at Huancavelica was vital to the Potosí mines: it was simply too far to export mercury from Spain, across Panama, to Peru. Instead, trains of llamas carried the flasks up to Potosí. Like Potosí, the Santa Barbara mine lies over 4000 m above sealevel (13,000 feet), so physical labor is extraordinarily difficult even in the open air. Conditions down the mine were terrible: it was said that 3 years in the mines would ruin a man's health. It was impossible even to work 8-hour shifts: they were always in practice more like 4 hours. Requiem masses were held in villages when the contingents of forced labor set off for Huancavelica. The mines produced two-thirds of the mercury used in the New World: the other third was shipped from Spain to Mexico. A greater tonnage of mercury was carried to Potosí than the tonnage of silver that left Peru, so that the mercury trade represented a major commitment of resources.

Potosí was very much a frontier town, like so many later and better-documented gold and silver centers. In 1600 it had 14 dance-halls, a theater, 36 gambling-houses staffed by 700­800 professional gamblers, 360 bars, and 120 licensed prostitutes (which seems an extraordinarily low number compared with the number of bars and gamblers). Silver was spent freely at very high prices for silks and satins, fine clothes, gold braid, ivory, gems, swords, diamonds, perfumes, spices, and slaves, all imported from Spain, and bought from Europe and the East. As in the California gold rush of 1849, staples also brought amazing prices. An egg cost half an ounce of silver, and a liter of wine cost 1 kilogram of silver. Merchants made enormous profits at all stages, just as they did and have done in all such boom-town situations. Like all booms, however, it was short-lived. By 1595 the Viceroy wrote to the King that Potosí was now so depleted that money would be better invested in new mining areas. By the early 1600s many silver mine owners were running close to break-even, and despite the exploitation of the mitayos, the best times had gone.

Treasure and Pirates

The first of the Aztec royal treasures that Cortés looted were sent off across the Atlantic in 1521. In one of the ironic twists of history, they never reached Madrid. The treasure, including gold and silver jewelry, pearls, jade, and three live jaguars, were intercepted and looted by a flotilla of French privateers led by an Italian variously named Jean Fleury, Giovanni da Verrazano, Juan Florentino, or El Francés (because he sailed with French financing). Thus the first real treasure of the New World arrived at the royal court in Paris: half a tonne of gold, 300 kilograms of pearls, and an emerald as large as a man's fist. Although Fleury's ships were legally warships acting for the King of France during wartime, the Spanish promptly executed him as a pirate as soon as they captured him in 1527. But his chief lieutenant Jean Ango bought a magnificant manor house on his share of the loot.

As silver and gold began to flow back to Spain from the New World, their treasure ships attracted the attention of more and more privateers and pirates, and entrepreneurs began to look for ways to intercept the official Spanish royal monopoly on trade with the New World. Contemporary documents suggest that embezzlement was a persistent problem, both during the voyage and after arrival in Seville.

King Francis I of France declared officially in 1531 that he would not accept the Pope's decision that the New World belonged to the Spanish, clearing the way for further French privateering and piracy. "I would like to see the clause in Adam's will that excludes me from a share in the world!" said His Majesty in royal dudgeon.

The flow of money across the Atlantic tripled from the 1540s to the 1580s. Large treasure fleets began their regular voyages from Nombre de Dios to Seville, with maximum amounts between 1580 and 1600. The New World bullion, of course, funded all the Potosí trade, and all the construction and development in the Americas, as well as financing the Spanish adventures in Europe. At least some of the treasure remained in the New World. But any bullion that could found its way to Europe or to the Far East, simply because it was worth more there than it was in the Americas, or because it was used to buy imported European goods at inflated prices. Tomás de Mercado, writing in 1571, believed that the high prices ruined "both Spain and the Indies" as the prices attracted commodities and the bullion flowed out to pay for them. Although there were fluctuations in bullion supply, the fact is that the New World supplied at least 75% of the world's total output of gold and silver from 1500 to 1800. The economic and strategic effects on world history were enormous.

The Spanish occupied Manila in 1571, and it quickly became a major international trading center. The Spanish in the Philippines behaved very differently than they did in the New World. They remained mostly as merchants in Manila, leaving the rest of the islands to be pacified and administered mainly by the Catholic Church. In Manila, Spanish and Chinese merchants made fortunes as Spanish (New World) silver was traded for spices, silks, ivory, pearls, jade, gold, jewels, and other luxury goods, most of them from China. The Chinese trade flourished late in the 16th century, so much that the streets of Manila could be paved with granite cobblestones brought from China as ballast in Chinese and Spanish ships.

Every Spanish citizen in Manila had the right to ship goods on the great galleons, which often left Manila for Mexico dangerously overloaded. As early as 1582, Philip II was trying to impose some sort of government control to stop the hemorrhage of bullion to the Philippines and China. In 1591 he even issued an order prohibiting most of the trade altogether, and in 1593 he decreed that the flow of silver across the Pacific should be restricted to only two ships a year, institutionalized in the two annual "Manila galleons." Although the decrees of distant Madrid were ignored, they certainly focussed the attention of the brotherhood of pirates on the Manila galleons.

Piracy in the Atlantic had been a major problem for the Spanish ever since Fleury's capture of Cortes' loot in 1521. The Spanish had to institute a convoy system for the treasure ships, which added to their costs. In general, the convoy system worked well. The large Spanish treasure fleets were generally too well guarded to be endangered by freelance pirates, but were vulnerable to semi-official raiding expeditions that had tacit or open government support.

The French were the most dangerous foes of the Spanish early in the 16th century, with the Protestant (Huguenot) captains from La Rochelle figuring prominently. The English became more effective raiders later in the century, with their new fast ships and their new iron cannon. As an Englishman, I was raised to regard Sir Francis Drake as a national hero, whereas the Spanish did and do regard him as the fearsome "El Dragón", the sea-serpent, a bloodthirsty heretic pirate.

The English were the most effective raiders on the "Spanish Main" late the 16th century. It began with English attempts to break into trade with the Spanish New World, which was forbidden by Spanish law. In 1564-1565, John Hawkins made a great profit on a slave-trading voyage that included episodes of violence. (Queen Elizabeth was a partner in the voyage, and made a profit of about 50% on it). A later Hawkins expedition with his nephew, Francis Drake, ended in open fightning, and Hawkins and Drake were lucky to survive with their lives. Drake now turned to piracy, with the Queen turning a blind eye to his activities.

In 1572-1573, Drake raided the mule train that carried gold and silver across Panama. His men could not carry the silver (15 tons of it), so he had to make do with the 100,000 pesos in gold. He lay low for a few years, until 1577, then surprised the Spanish by a daring voyage round South America to raid the comparatively unfortified West Coast. Here he captured the Spanish treasure galleon on its way from Peru to Panama, taking 26 tons of silver. Drake decided to return to England westward, and it was at this time that he sailed north to California to re-fit his last remaining ship before the long voyage home. Drake was only the third captain to circumnavigate the globe. On his triumphant return in 1580 came the historic scene in which Queen Elizabeth knighted Drake on the deck of his ship, calling him affectionately "her pirate" (after all, she made a profit of 4600% on her investment).

Drake's piracy (or heroics, depending on one's point of view) helped to irritate the Spanish into launching the Armada against England, though that was not the primary motivation, as we shall see later. After the failure of the Spanish Armada, Sir Walter Raleigh raided Cadiz in 1596, seizing 20 million ducats. Nevertheless, even these English raids in strength could only hit and run, and it's likely that 85-90% of the bullion leaving the Americas safely reached the Spanish economy. The cost of defending the bullion trade, however, was high, and has to be included in the Spanish cost of producing the gold and silver.

After Elizabeth's death in 1603, King James refused to issue any more privateering licenses to English captains, but the Dutchman Piet Heyn captured the entire Spanish treasure fleet off Cuba in 1628. His return was even more flamboyant than Drake's: it took five days for the loot to be loaded on 1000 mule carts that followed his coach on a triumphal procession through the streets of Amsterdam. Heyn was immediately given a short-lived appointment as Admiral of the Dutch fleet (he died soon after his great exploit, ironically while fighting pirates raiding the Dutch shores). Perhaps more significantly, it allowed the Dutch West India Company, for whom he was sailing at the time, to declare a 50% dividend to its shareholders that year, and helped finance the continuing war effort against the Spanish. However, hostilities generally died down soon after, and the piracy industry became a localized one, involving mainly the buccaneers that were based on small islands in the West Indies, and owed allegiance to no one. The island of Tortuga and Port Royal, Jamaica, are famous pirate haunts. But it was not until the "golden age" of piracy in the 18th century that the flow of Spanish bullion from the New World was again threatened seriously by pirates who were tacit agents of England or France.

The Bankruptcy of the Kings of Spain

All the money reaching Spain in the 16th century did not solve the chronic national problem of bankruptcy. Spain was chronically short of vital supplies: it could not feed itself, and had to import wheat; and it needed strategic goods such as sailcloth for its fleet. The French observer Jean Bodin, writing in 1578, noted that the Spanish were using the New World wealth to buy grain, cloth, paper, books, wood, jewelry, and spices from France, paying high prices for them because they could not produce them at home. In other words, the Spanish were using their wealth to subsidize an increasingly heavy imbalance of trade, and in doing so were leading a price inflation that was passed on to their customer nations: Italy more than France. Everything was dearer in Spain and Italy than in France, and higher in Spain than in Italy, reported Bodin. French workers were being attracted into Spain by wages three times those they could earn at home.

The new credit system of banking that had evolved in the late 15th century was used not just by merchants but by royal houses. In one of the most momentous deals of all time, the Fuggers altered history by lending money to Charles I of Spain in 1519. He and King Francis I of France were candidates for election as Holy Roman Emperor, part of the competition between the Hapsburg family and the Valois family for the hegemony of Western Europe. The election turned specifically and explicitly on bribery of the Electors. Francis I could not raise a loan, and had only his cash in hand. But the Fuggers of Augsburg raised a loan of 850,000 florins for Charles I, who was able to buy the election and became Emperor Charles V. The loan, of course, was to be paid back by the gold from the New World: Cortes had just conquered the Aztecs and looted Mexico City. Charles' success in the election meant that he, and Spain, were sucked into Central European politics, which turned out to be an economic, political, and military quagmire from which Spain had neither the sense nor the courage to withdraw until it was sucked under. In financing his adventures, Charles was never able to clear the Fuggers' debt, there was never enough money to spend on Spanish domestic affairs, and the squandering of Spanish loot from the New World began even before it arrived.

Charles' loans from his election as Emperor until his abdication in 1556 were enormous.

YEARS LOANS TOTAL with interest

1520­1532 5,380,000 ducats 6,327,000 ducats

1533­1542 5,438,000 6,594,000

1543­1551 8,398,000 10,738,000

1552­1556 9,644,000 14,352,000

Altogether, Charles was borrowing nearly half a million ducats a year at first, rising to nearly two million ducats a year by the end of his reign. As his credit rating worsened and his unpaid debt mounted, the interest rates rose: the interest paid rose from 17% to 48% of the sums he owed. Hapsburg Spanish kings continually needed money for armies and fleets. Silver and gold flowed legally and illegally out of Spain as fast as it was shipped in from the New World, and by the 1550s the Spanish government was so short of money and credit that it was looking for precious metal prospects within Spain itself. In 1551, for example, Saxon miners and smelters were brought to Spain to re-open the Roman silver mines near Seville, in the same year that 800,000 ducats' worth of New World silver were shipped to Antwerp to pay for artillery and gunpowder.

Altogether, Charles borrowed 37 million ducats, and although he received 35 million ducats of bullion as his share of the New World loot in the same years, it becomes clear that even the vast income from the Americas could not satisfy his extravagant foreign adventures. Almost all the loans were advanced from foreign bankers, first in Germany and then in Flanders and Genoa. The King had to resort to forced loans, requisitions, and much heavier taxation at home to balance his budget.

The situation got no better after Philip II became King in 1556. In fact, Spain was practically bankrupt by 1557, and the new king defaulted on existing loans. This temporarily ruined the Fuggers, who withdrew from dealings with Spain. With no credit available, there was serious danger that the Spanish armies would simply disband for want of money. In June 1558, a shipload of money reached Antwerp just in time to pay German infantry and cavalry, even though 500,000 crowns had arrived three months before. The King now began borrowing from Genoese bankers, who already financed much of Spanish trade and now began to lend money to the King. By 1573 it was estimated that there were agents from 100 Genoese banking houses at the Spanish court, and the standard bitter joke of the time was that wealth was born in the Indies, died in Spain, and was buried in Genoa. The Venetian ambassador described a Spanish saying that the metal from the Indies was like rain: it fell on Spain like rain on a roof‹and then flowed away. The Spaniard Cortes wrote at the end of the 16th century: "Although our kingdom could be the richest in the world for the abundance of gold and silver that have come into it and continue to come in from the Indies, it ends up as the poorest because it serves as a bridge across which gold and silver pass to other kingdoms that are our enemies."

The strategic problem for the Hapsburgs was that they were operating around the edges of a central and compact French kingdom. Arms, men, and money had to be shipped from Spain to the Netherlands along the English Channel, flanked on each side by actively hostile or grudgingly neutral shores. In 1566 the Dutch rebelled against Spanish misrule, and matters became very serious in the Netherlands. When the brutal Duke of Alva was sent to try to put down the Dutch once and for all, the English were drawn in, at least unofficially. Alva did not sail from Spain by the northern route in 1567, but sailed to Genoa and then marched to the Netherlands overland: perhaps the English and Dutch had already made the northern route too risky. In March 1568 Alva lost an overland shipment of 150,000 crowns when the Count Palatinate of the Rhineland confiscated it from its Genoese guard. The Spanish tried to send a convoy through the English Channel, but the English looted it, and to add insult to injury, melted down the silver to mint new English coins. After that, money was shipped rarely, and only in large, well-armed fleets (Armadas). The northern route was effectively closed for years after 1572: that year Philip II, temporarily at peace with France, was petitioning his "brother the Most Christian King" to give his permission and safe conduct to ship 500,000 ducats to Alva. This route, with all its laborious slowness, was used for only a few years, with hundreds of thousands of ducats flowing through France, some of it naturally being "lost" along the way.

King Philip II went bankrupt in 1575, and his unpaid troops in the Netherlands mutinied and sacked the city of Antwerp at the end of 1576. In 1577 the king borrowed 5 million more ducats from Genoese bankers, and the result was that from 1578 the Spanish supply route for money went back to Alva's route through Genoa, for shipment to Italian bankers who in turn shipped money to Alva in the Netherlands. The soldiers in the Netherlands always demanded gold coins in payment, because they could carry them more easily than silver; so the Genoese exchanged silver for gold when they had to. Perhaps 6 million ducats or crowns a year were shipped from Spain to ports in Italy from 1584 to 1600, for example: one convoy transported 2,200,000 crowns in June 1598. Probably the Great Armada that finally sailed so ineffectively against England in 1588 was an expression of frustration over the strategic stranglehold that required this expensive roundabout supply route to the Netherlands.

Between 1580 and 1626, the Spanish government spent more money in the Netherlands than it did in Spain, totalling something like 2500 tonnes of silver and gold. But since the money was shipped through the Mediterranean and central Europe, rather than the northern route, it financed Mediterranean trade rather than North Atlantic trade. The port of Antwerp declined along with many other ports on the Atlantic seaboard, while those of the western Mediterranean thrived. Italy in general, and Genoa in particular, became the financial center of the Mediterranean: often the Italian mints made ducats from silver ingots. The Italians at this time had a favorable balance of trade with the rest of Europe, which gave them the money to trade effectively with Africa and the Middle East.

Possibly 447 million pesos were imported into Spain between 1503 and 1660: 117 million for the King, and 330 million for private owners. The private owners were often themselves financed by the great bankers of Genoa and Germany, which is where the money was sent. Spanish merchants, like the Crown, did not benefit from the New World riches. In 1600 the prosperous merchants in Seville were Genoese and Flemish, and the prosperous merchants in Manila were Chinese.

The New World money, therefore, was not used to finance Spanish trade, industry, or public works. It was poured away on military campaigns that were in the end unsuccessful, though they brought Spain to the dominant military position in Western Europe for a century. The money went abroad: the Spanish used the money from the New World to export misery and national wealth, instead of investing in industry and trade. In the end the money was wasted. The Spanish could not even invade England despite the size of the Armada; they failed to crush the Dutch in a long, bitter, brutal war, and they did no better in the various Hapsburg adventures against the French. The bullion was shipped out as fast as it arrived, and the Spanish kings became efficient international distributors of misery rather than generators of wealth for their own people. The legacy of Philip II, who died in 1598, was a nation with a large income, no money, and a massive national debt.

The Italians, on the other hand, were able to use their position as bankers and traders on the roundabout route for silver from Spain to the Netherlands to accumulate enough silver to trade with the Middle East. It was a strange, and temporary, dynamic imbalance, which was maintained for so long (until the late 17th century) by the continuing supply of New World silver, and the political and religious intransigence of the Spanish. (One can only wonder cynically about the motivations of a series of Italian Popes encouraging the Spanish to continue their brutal campaigns against the "heretic" Dutch rebels!)

The Decline of Spain

The bullion supply from the New World remained extremely large for another thirty years, but diminished after 1623. A series of military defeats followed, in wars against Portugal and France.

DECADE GOLD (tonnes) SILVER (tonnes)

1581­1590 12.1 2103

1591­1600 19.5 2708

1601­1610 11.7 2214

1611­1620 8.9 2192

1621­1630 3.9 2145

1631­1640 1.2 1397

1641­1650 1.5 1056

1651­1660 0.5 443

By 1650 there was hardly any silver coinage to be found in Spain: merchants who needed it to make payments abroad had to pay a premium (in domestic copper coins) in order to buy it. The situation got steadily worse until about 1680: the horses in the royal stables had to be killed because there was no money to buy them fodder. By now each Spanish province was pursuing its own attempts at economic revival, since the central government had proved to be monumentally incompetent. Louis XIV of France seized the opportunity for further aggrandisement by invading the Spanish Netherlands, and although this was humiliating for Spain, at least the country was finally rid of one of the ulcers that had drained it for close to two centuries: ironically, France was temporarily bankrupted by Louis' wars.

Although Spain never recovered its former military position, it did become more prosperous during the later 18th century. From 1770, great new silver mines in Mexico shipped quantities of bullion that were on much the same scale as those from Potosí 200 years before. But the effects on European economies were much less drastic: trade and industry were flourishing, and the injection of new money was relatively less dramatic.

The Portuguese in Asia

We have seen how the Portuguese gained temporary footholds on the gold trade from West Africa. Once they were involved in the gold-for-spice trade directly using West African gold in India, they came across the trade that was then being operated by the Arabs down the coast of East Africa. They wrested the trade from the Arabs as best they could. Under the dynamic and brutal Alfonso de Albuquerque they took Goa in 1510, Malacca in 1511, and Hormuz, at the mouth of the Persian Gulf, in 1515. (As the King wrote, "possession gives us good title.") The Portuguese now shipped African gold to Goa, where it was minted into coins and used to buy spices. The primary coinage of the Moghul empire of Akbar was based on the silver rupee (minted mostly from melting down Spanish pesos and reales that found their way from Europe), but a lot of trade was in various gold coins. The trade grew enormously after the Portuguese beat off a Turkish attack in 1580, and probably reached 500 kg a year in the 1580s, 700 kg a year in the 1610s, and 1500 kg in the 1660s. Only the profits were returned to Portugal, as the fortunes of individual entrepreneurs, and, of course, none of the gold reached Europe.

The Portuguese broke into a new region when they seized Malacca in 1511. This was a vital center, because cotton cloth produced in India was traded there for gold that was shipped in from all over the Far East, but mainly from the islands that are now Indonesia. Even farther east, China had plenty of silk and gold, but paid a high price for silver. (China had had a paper currency between the 12th and 15th century, but this had broken down, and silver ingots were widely used by the 16th century.) Japan had more silver, and the Portuguese taught them how to extract silver by lead cupellation in 1591. By 1600 Japan was producing about 2 tonnes of silver a year, much of it exported to China. This was a very large trade at the time‹the fabulous South American mines were shipping only about twice as much silver to Europe. The Spanish took some of the Chinese silver trade from their base in Manila: the famous "Manila galleons" took New World silver to the Philippines, where it was traded for Chinese luxury goods, especially silk and porcelain.

Altogether, between 1500 and 1600 the flow of silver from Europe to Asia to pay for goods increased from about 20 tonnes/year to about 65 tonnes/year. In 1500 European production almost equalled the outflow; in other words, Europe was importing as much as it could afford from the East. By 1600, the trade imbalance was very real, but was paid for, directly or indirectly, from the Spanish silver mines in the New World. The goods imported into Europe were silk, tea, and porcelain, all paid for in reals or pesos.

Silver and the Fall of the Ming Dynasty

The Ming dynasty was founded in 1368 as the Chinese gained independence from the fading power of the Mongol Emperors that had ruled China from their power base to the north. By the third Ming Emperor, nationalism was no longer enough to weld the country together, and the new Emperor Ch'eng-tsu tried to stabilize the currency on a silver basis, beginning in 1402-3. Chinese silver mines had never been very productive, but there was a short-lived boom period for silver mining that resulted in a stable economy by the 1430s. It was in this period that the Ming sent out enormous fleets to explore the Indian Ocean, but the net result was that the Ming turned rather xenophobic.

Chinese silver production was declining by the 1430s, and the nation was silver-hungry by the time that dramatic new supplies began coming in from Japan around 1530, just before the arrival of the Europeans. From the 1530s to the 1570s, Japan was China's major source of silver. Massive amounts flowed into China, mainly in exchange for silk, but gold and jewels were also exported, and china and porcelain were often used as valuable ballast. At first, the silver trade with Japan was illegal, as the Ming Emperors tried to impose state control over it, but certainly in the 1540s there was a flourishing smuggling trade along most of the Chinese coast. When the Ming made a determined effort to stop smuggling around 1540 they realized that there were literally hundreds of smuggling boats operating out of illicit ports. Because of the illegality of much of this trade, it is practically impossible to find details of amounts.

In 1542 or 1543 the first Portuguese ships found their way into the China Sea, and they quickly became middlemen between the Japanese and Chinese. Around 1567 the Ming made several policy changes that transformed their economy. Externally, they relaxed the official rules on foreign trade, and the Portuguese became officially approved middlemen rather than tacitly accepted ones, especially from their trading base in Cidada do Nome de Deus, or, more simply, Macao. The Japanese allowed the Portuguese to create a trading center in Nagasaki in 1571. The silver trade increased even more. The English traveller Ralph Fitch said that in the 1580s the Portuguese went from Macao to Japan loaded with white silk, gold, porcelain, and musk, and returned with nothing but silver. They used a great carrack, the largest type of ship built by Europeans at the time. The Portuguese themselves simply called it the "Great Ship." Under Royal licence, and under the personal command of the Captain-General of Macao, the Great Ship made one round-trip voyage a year, normally returning with about 8.5 tonnes of silver, which the Portuguese used in China to great advantage. Overall, an average of perhaps 16-25 tonnes of silver a year was moving from Japan to China between 1560 and 1600. At this time Japan was described in Europe as the "Silver Islands," and the Portuguese profits in the silver trade were much envied by other European nations.

Internally, the Ming radically simplified their tax structure, making it easier to administer, and easier to pay in silver. The "Single Whip" taxation scheme and a freer flow of silver within the economy helped to foster an economic boom, to the great benefit of cities such as Canton, Nanking, Soochow, and so on.

By the end of the 16th century, mining technology improved in Japan, and the internal struggles for power were finally settled under Hideyoshi and the first Tokugawa shogun Ieyasu. Both these men made immense personal fortunes by dominating the silver-for-silk trade at the Japanese end, and the trade increased markedly into the early 17th century. As other European traders became involved too, exports of Japanese silver into China may have reached as much as 75­95 tonnes/year.

The Spanish were perfectly aware of this trade. The dramatic increase of silver production at Potosí dates from the introduction of the patio process and the mita labor system in the 1570s, and this is the period during which the Spanish were laboriously subduing some of the Philippines. They arrived in Manila in 1571, and immediately began trade with Chinese merchants, once again exchanging New World silver for silks, gold, and porcelain (they also traded for spices, but within the Philippines). As early as 1573 two Spanish galleons sailed from Manila to Acapulco with cargoes of silk and porcelain, and a galleon seized by the English raider Thomas Cavendish in 1587 was carrying silks worth 30 tonnes of silver. It's clear, then, that the Spanish dramatically added to the supply of silver reaching Ming China, beginning in the 1570s and probably increasing dramatically after that.

In addition, at least some of the Spanish New World silver that crossed the Atlantic to Seville ended up in China. Some of that silver was smuggled into Portugal, and ended up in carracks going round South Africa to Goa, then Malacca, and finally to Macao. Between 3 and 15 tonnes of silver a year probably went from Goa to Macao and then into China. Other Spanish silver found its way legally to London or Amsterdam, where it was used to finance trade by English and Dutch traders to India, the East Indies, and China.

Ming China was transformed after the economic reforms of the 1560s and the resultant boom of the later 1500s. Unfortunately, the prosperity was dependent on the export of luxury goods for silver, and that dependence was the downfall of the Ming dynasty.

Around 1610 the supply of silver began to drop off, partly because of the arrival of large numbers of Dutch and English pirates and traders. As the Spanish Crown became more and more desperate for silver in Spain, there were official attempts to slow the Manila trade in the 1630s; in 1636 there was a purge on corruption (including silver smuggling) in Acapulco, and relations between the Spanish and Chinese in Manila deteriorated. In 1639 the Tokugawa rulers of Japan forced the Portuguese out of Nagasaki because of their blatant attempts to spread Christianity. The Portuguese were losing their bases in the Indian Ocean to the Dutch, and the Japanese had gambled that the Dutch could keep the silver/silk trade going. In the event the flow of Japanese silver to China was slowed. Around New Year 1640, the Spanish massacred thousands of Chinese in Manila, and the Spanish trade with China almost ceased for a while. In 1642 the Portuguese stopped trading between Macao and Manila while Portugal itself rebelled against Spanish rule.

All these factors were devastating to the Ming. Since 1618 they had been facing military pressure from the Manchus on their northern border, and had raised taxes 7 times in 18 years. The sharp drop in silver supplies crippled the Emperor's ability to man and equip the Ming armies, and the northern provinces were gradually lost to rebel warlords and to the Manchus. In the end the Manchus were powerful enough to conquer the Ming heartland of southern China, and established a new dynasty that lasted for nearly 300 years.

That's easy to write, but the internal devastation that overtook the Chinese people as the Manchu conquered the Ming province by province was appalling. The turmoil lasted from the 1620s to the 1670s, and almost all cities and regions in China suffered at least one binghuo, or "soldier calamity." Cities like Yangzhou that resisted the Manchu were deliberately ravaged for days at a time by the victors, with massacres on a scale that horrified even 17th century observers.

Page last updated April 1999.

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