RHE 1996 XIV 2 Flynn Giraldez

7/29/2019 RHE 1996 XIV 2 Flynn Giraldez

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CHINA AND THE SPANISH EMPIRED E N N I S O . F L Y N Na nd A R T U R O G I R L D E ZUniversitv of ihc Pacific

RESUMENEn este artculo argumentamos que Ming China desempe un papel fundamentalen el auge y decadencia del Imperio espaol. La demanda china de plata permiti elevados beneficios hasta 1640. El descenso de estos beneficios llev a la reduccin de laproduccin y la Monarqua se enfrent a una grave crisis financiera. La consecuencia

fue una presin fiscal creciente con objeto de compensar la prdida de los ingresos extemos procedentes de Amrica.

ABSTRACTIn this article we arge that Ming China had a fundamental impact on the rise anddecline of the Spanish Empire. China's demand for silver was of such magnitude thatprvate mining profts in the Spanish Empire remained high until about 1640. The decline of these profts led to abandon ptduction. Spain faced a deepenng lnancialcrisis due to the fall of silver's valu. The loss of purchasing power from the Crown's

American enterprise was inevitable and the state's relendess pressure for increased tax-ation within Castile and elsewhere was mandatory in order to compnsate for lost ex-tema l purchasing power.

I. I N T R O D U C T I O N A N D O V E R V I E W 'One cannot he lp but marve l tha t a re la t ive ly smal l count ry such as Spa in ,wi th ha l f the popula t ion of F rance , could have r i sen to become the Wes t ' s

' This essay benefits from many uscful criticisms and suggestions by John M. Headley, AkiraMotomura, Mark Steele, Peter Temin and an anonymous referee, the authors are nonelhclessRniili Jf Hntiria licortmicjAnXlV. Fnmjirra Vt'rarto 1''% S"

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dominant power in thc sixtcenth century, her ignominious collapse during thefirst half of the seventeenth century notwithstanding. The decline of the Span-ish Empire was certainly visible to all by the Treaty of Westphalia in 1648. Noone denles that both the flowering and decay of the Spanish Empire had im-mense impacts on European history, of course, but the extent to which thefoundation of Spain's Empire was rooted in the emergence of powerful globalnot just European and American economic forces has not been fully ap-preciated.

Scholars have long speculated about how relatively-undcrdevelopedSpain could have managed to finance such a worldwide commercial andmilitary enterprise for a century. Some have argued and we agree thatelucidation of the financia! basis of Spain's rise might shed light on the Em-pire's fiscal decline as well. Th ere has been disag reem ent, how ever, ab outwhich aspects of the Empire's financial foundation warrant what relative em-phasis. Elliott (1961), has pointcd out that taxes levied within Castile com-prised perhaps 70 per cent of total Crown revenues; some interpret thisfigure to imply that Imperial finances were mostly dependent upon domesticresources. And there is no question that domestic taxation was onerous forthe average Spaniard: The population of C^astile was taxed more heavilythan any other people in Europe...by 1590 one-third of the average peasant'sincom e in a good year was con sum ed in tax . M oreov er, evide nce suggeststhat increasingly onerous taxation plagued Spanish peasants throughout theperiod of Imperial rise and decline ' . Thus, some scholars tend to place considerable weight on domestic sources of economic support for the Empire(although admitting that external/foreign factors were also important). Othersmaintain that externa!, international factors should receive the heavier weightin terms of financing the Spanish Empire *. In other words, there is fundamental disagreement in the literature as to the extent to which domestic orinternational factors deserve emphasis in explaining the emergence and decline of Imperial Spain.

The attempted contribution of this essay is to add a new wrinkle to the ex-lernal/international side of the debate: Namely, to suggest that Ming Chinaheavily influenced the direction of Spanish, and indeed world, history. Spain'ssolely respons ible for its argume nts and remaining errors. A versin ot ihis fiapcr was prcs cntc dat the Fiftyfifth ann ual m eeting of the Ec ono mic H istory Amon iction in Chicago .^ Parker (1979), p. 188.' Sce Vun (1987, pp. 276-280) lor a rece exam ple involving Tierra de ("ampo s.

' The classic exiernal argumenl is Hainilton (1957), of course, but Flynn (1982), Kamen(1978), and others adopt approaches diflerent from Hamiiton.

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d o mes t i c eco n o my an d h e r E mp i re w e re b o t h i n t i ma t e l y i n t e r t w i n ed , n o t j u s tw i t h t h e eco n o m i es of A m er i ca an d o t h e r E u ro p e an n a t i o n s , b u t w i t h t h eemergence o f t rade a t the g loba l l eve l .

fllt is necessar\' to continu along the lines that start from supra-regionalanalytical concepts, such as urban networks, and move out towards the scarcelyconsidered issue of the external connections of the Spanish economy startingfrom the influence of changcs taking place at the global level, a question whichhas been scarcely looked into '.

Spec i fi ca lly , we a rge tha t the em erg enc e o f a new m on eta ry an d f isca lreg ime wi th in Ming China was the d r iv ing fo rc beh ind g loba l t rade in theear ly -modern per iod . Moreovcr , the r i se and fa l l o f the Span i sh Empi re i s bes tv iewed in the con tex t o f a S ino-cen tered wor ld economy ' ' .

I I . G L O B A L S I L VE R : I N D E P E N D E N ! M O N E YO R M O N E T A R Y - A G G R E G A T E S UB S ET ?

Th os e o f US t ra ine d f ir st as eco nom is t s , and s econ dar i ly as h i s to r i an s ,usua l ly c la im tha t p rop er app l i ca t ion o f m od er n ec on om ic theor> ' c l a ri fi es im-po r ta n t h i s to r i ca l i s sues . To day ' s bes t theory i s used to in te r p re t pas t eve n t s ;tha t i s, the l a t es t theory log ica l ly p re ce de s app l i ca t ion to a par t i cu la r h i s to r i ca lph en om en on . T he very ex i s t e nce o f ec on om ic h i s to ry as a f ie ld in l a rge par td e p e n d s u p o n t h is can o n t h eo r y fir st, h i s to r i cal ap p l i cau o n s ec o n d arec i p e w h i ch h as i n d eed l ed t o man y ad v an ces i n h i s t o r i ca l u n d e r s t an d i n g . Bu tth ings do no t a lways work ou t so neady . A cen t ra l con ten t ion o f th i s es say i st h a t t h e g en e ra l me t h o d o l o g y o f t o d ay ' s monetary t h eo ry h as u n i n t en t i o n a l l yo b fu s ca t ed t h e ro l e o f p r ec i o u s me t i s i n t h e ea r l y -mo d e rn w o r l d eco n o my .Becau s e o f ma i n s t r eam mo n e t a ry t h eo ry ' s i n co mp a t i b i l i t y w i t h ev en t s o f t h es ix teen th and seven teen th cen tu r ies , we have in fac t been fo rccd to dev i se ana l t e rna t ive theo re t i ca l f rame work '.

One o f the main sources o f confus in in the l i t e ra tu re emerges a t the l eve lo f conven t iona l def in i t ions o f the t e rm money . Monetary theor i s t s today , o f

' Yu n(19 94), p. }17. i f i" Por a non -techn ical overvicw of global trade from th e vantage of the world supp ly ot anddemand lors i lver . see Flvnn and Gir ldez 1995a). j i u u A See Doh erty and I lynn (19891 for a more com plete exp lanation ol the mo del w hich under-lics this essay (indeed, all of our workl.

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course, are engaged in a continuing dialogue regading what is best included/exclud ed from definitions of particular m onetary aggregates. W itho ut enteringdirectly into macroeconomic debates about monetary aggregates at thistime, we wish to simply point out that virtually all monetary theorists todaywould probably agree that gold coins, silver coins, and copper coins shouldbe considered components of even the most restrictive defnition of themoney supply in the context of sixteenth-and seventeenth-century com-merce. All metal coins are labeled cash, itself a subset of today's most restrictive defnition of money (Mi). When confronting the actual historical record of intercontinental trade in the early-modern period, however, even thispractice of conceptual aggregation at the sub-level cash creates confusin.In particular, application of the abstract concept money as an aggregatehas led to misinterpretation of the cause of treasure flows out of Europe andinto Asia.

Convention says that treasure had to flow from Europe to Asia as a re-sult of Europe's trade dficit vis a vis Asia *. I t seems that Europeans bc-came enamored with Asian products such as silks, spices and ceramicswhile Asian demand for European products languished. Dynamic Europeanimports of Asian products , coupled with meager Asian imports of Europeanproducts, implied an overall European trade dficit with the Far East. Main-tenance of Europe's Asian trade dficit required that precious metis flow toAsia from Europe, as a balancing item. Europe's export of precious metis isthus perceived as an effcct, an unavoidable response in compensation forEu ro pe 's trade dficit (the root cause). In econ om ics terminology, the causeof the imbalance emanated from the real-sector; the flow of precious metis from Europe to Asia was a monetary-sector effect. Note that dynam-ism in this picture emanates from demand-side forces within Europe; Europeans were the ones who were receptive to wares from strange lands.Europeans were open and adventuresome. Asian proclivit ies were insularand static. European dynamics caused a trade dficit with Asia. Preciousmetis flowed eastward in compensating response to Europe's trade dficitwith Asia ''.

" For a more complete treatment of the issucs discussed in the next few paragraphs, seeFlynn{1986).' ' Kindiebergcr (1989, pp. 7, 35, 38, 48, 64, 69, 79) considcrs the retrograde Asian proclivityhoarding (of precious metalsl to be a sign of Asian backwardness; he arges that Spanish American treasure ventured to Asia in order to satisf\' the Eastern propensity to hoard. A notable ad-vantage of Kindleberger's thesis is that he at ieast rejecls the conventional tradedeficit (specie-flow) hypothe sis, but it is not clear that K indleber ger's alternative ex plana tion represe nts an

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A cise look at the historical record reveis contradictions within thetrade-deficit scenario just outlined. Precious metis did not in fact flow fromEurope to Asia, although tens of thousands of tons of the specific metal sil-ver did flow through Europe and eventually into China. Rarely taken intoconsidcration, however, is the fact that while prodigious quantities of silverflowed easrward out of Europe, between 1550 and 1650 significant quantitiesof gold were simultaneousiy shipped from China into Europe (as well as intoJapan and America) "J.

So Italy stood at the crossroads where the south-north axis maintained bySpanish policy and the Genoesc asientos mct the east-wcst axis running to theLevant and the Far East, where the golden road from Gcnoa to Antwcrp metthe silver road to the east ".A Spanish official who servcd for three decades in the East Indies, Pedro

de Baeza, actively promoted the trade of Chnese gold for silver from NewSpain or Castilc, writing in a treatisc publishcd in 1609 that a profit of 75 or89 per cent would be made by concentrating on gold purchases. It is ironicthat a huge volume of Asian copper flowed through Amsterdam to some ofEurope's biggest customers European mints on some of the same shipsthat carried Spanish American silver to the East. During the peak years 1672-75, Du tch impo rts of Japan ese co ppe r equalled perha ps half of the calculatedSwedish exports at that time '2, In summary, one specific type of monetarysubstance (silver) flowed Eastward in exchange for two other money substan-ces (gold, then copper) which flowed in the opposite direction (into Europe).What sense does it make to aggregate items into a single category labeledmoney or precious metis when wc know that prodigious quantities ofthe individual components comprising this category were bartered againsteach other for more than a century? The answer is that conceptual combina-overall improvement. See FIynn (1990, pp. 721-724) for criticism of Kindiebcrger's pejorative usa-ge of the notion hoarding.

'" Contemporaries were completclv awarc of the swap of silver for Chnese gold, an exampjc"f which is con tainc d in the following citaiion by von Gl ah n (forthcom ing, Ch apte r 4, p. 217):According to the testimonv of a lapanese envoy at Macao, rccorde d in a Jesuit work publishedthere in 1590, great quan tities of gold flowed ou t of Chin a to Jap an an d oth er oversea s markets.Flynn (1986, pp. 39-42) discusses the exchange of European silver for Chnese gold between1^50 and 1650 in an article which offers thcoretical suppori for the Rcardo-style argument oi(.h aud hu ri (1978, pp. 156-177; 1986), w ho used dverg ent bim etallc ratios to explain th e mtern a-lional flows of specific metis." Bran del(197 2), p. 499.' C;iamann (1981). p 174.

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tion of gold, silver, and copper obfuscates the rationale behind the export/im-port of individual metis. In addition, the practice of aggregating metis withsuch dissimilar histories has unintentionally precluded discovery of the under-lying basis for East-West trade in the sixteenth and scventeenth centuries.

Understanding intercontinental trade during this period requires a micro-econom ic (as opp osed to macroeconom ic) approach to precious metis history.Each metal must be analyzed in terms of its own specific demand and supplycon ditions; wh ich is to say, mic roecon om ic analysis is requ ired '*. The centraldem and -sidc que stion is: W hy did the specific com mo dity, silver, out of amultitude of potentially exportable products, dominate the eastward leg ofWestern trade with Asia during the early-modern period? The answer hasbeen accessible in the literature on the monetary and fiscal histor\' of MingCh ina '*, bu t recog nition of dem and -side dyna mics re qu ires re-conceptualiza-tion of China's silver history in the context of global economic developments.

A global perspective reveis two dominant regions of silver production,Spanish America and Japan. Conservative, offcial estimates indcate that Span-ish America (Mxico and Per) alone produced about 150,000 tons of silverbetween 1500 and 1800 ", perhaps exceeding 80 per cent of the entire world'spro du ctio n ove r that time span ". De spite Am erica's do m ina nc e in silver pro-duction over three centuries, Japan may have been the primary e xp on er of sil-ver to China during the late-sixteenth and eariy-seventeenth century period,shipping perhaps 200 tons per year at times, but falling off dramatically in thesecond half of the seventeenth century '". Since all of the great silver mines inboth hemispheres ultimately sold to the Chnese marketplace, t s natural toask why China persistently absorbed tens of thousands of tons of silver fromthroughout the world over the entire early-modern period?

" It is not possiblc to apply standard micro econ om ic deman d-sup ply analysis to ou r pro-blem, however, because inventory supply and invcntory demand are required in this case(rather than production supply and consumption demand). For mathematical derivation ofthe inventory demand function underlying the graphical presentation of this essay, see the appen-dix in Doherty and FIynn (1989).'^ Discussion of the conversin of Chinese monetary and fiscal systems to silver can befound in AtweII (1977, p. 4; 1982, pp. 79, 83), Boxer (1970, p. 461), Chuan (1969, p. 2), Fairbank(1992, p. 135), Ger net (1982, p. 415), Ham ashita (1988, pp. 18, 23). For an outstand ing accountof Chinese monetary history (including a hundred pages on the history of monetary thought inChina), see von Glahn (forthcoming).

i> Barr ett(19 90), p. 237 ." Cross(1983), p. 397.' ' According to the calculations ol Barrett (1990, p. 225), Japan may have pro duc ed about30 % of the wo rld's silver in the sixteenth ce ntury and arou nd 16 % in the seventeenth century;

also Innes (1980), chapter VI.

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There is no motivation to produce a commodity, of course, in the absenceof customers willing to buy it. By far the world's dominant end-customer torsilver was China, yet the almost total neglect of China's pivotal role on the de-mand side of the world silver market is perhaps the most striking featurc ofthe litc ratur e "*. An extensive p ape r-money system existed in China by thellth century, half a millennium ahead of similar developments in Europe. Ashas happ ene d so many times thr ou gh out Chn ese h istory '" and elsewh ere,Ming rulers succumbed to the temptation to finance government projects viaexcess issuance of paper monies: As a result, a promissory note with a nominalvalu of one liang (one thousand copper coins) fell to less than one-thousandthof a liang (less than on e co pp er coin) by the ycar 1445 ^". Military exp ensesconstituted perhaps the most persistent drain on Ming revenues, but projectssuch as the movement of the capital to Beijing and geographical expeditionswere also expensive. What cheaper short-run solution than to simply printpaper money?

Unchecked issuance of paper money led to hyper-inflation and the valuof Chnese paper money fell (predictably) toward its cost of production; inothe r w ords , it becam e nearly wo rthless. Ch ina's paper-m oney system had col-lapsed totally by the m iddle of the fifteenth centu ry ^i. Business com mu nitiescannot function efficiently without a relatively stable monetary standard, ofcourse, and Chnese merchants came to choose silver as the de fado monetarystandard. Silverization of the monetary system slowly spread from the vi-brant coastal trading reas of South China to the rest of the Ming Empire.Over time, the bulk of the merchant-sector portion of China's monetary system converted to a silver standard. Copper-based monies continued in use foreveryday purchases by common people, but business transactions evolved toward payment in silver. It is of major significance that, concurrent with the silverization of it's monetary system, China's fiscal system also gradually converted to a silver standard. At first local, then regional government entitiesbegan specifying that taxes be paid in silver. The Ming Dynasty initially re-sisted both the monetary and the fiscal silverization of China, but as it be-

'" Atwell (1977; 1982; 1986; 1988) has long emphasized the substantial effect of American sil-ver on the Chin ese econo mv . Flynn and Gir ldez (1994; 1995a) offer the com piem entary argument that Chinese demand for silver caused the birth of both Pacific Rim trade and world tradein 1571.'' Confronted with the exorbitant cosls of maintaining huge standing armies, the [twelfth-cemury] Southern Song government turned to paper currency as an expedient alternative to coi

nage. (von G lahn, 1996, forthcoming , p. 80).' " Gernet(1982 ) , p . 415." Yang 11952), p. 67.

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ca rne inc reas ing ly c l ea r tha t the s i lve r movement cou ld no t be s topped , re s i s -t ance by the cen t ra l au thor i ty waned . Over t ime , more and more Ming t axeswere commuted to s i lver payments . S i lver iza t ion of the Ming f isca l system cul-mina ted in the so-ca l l ed S ing le -Whip Tax Reform da t ing f rom the 1570s ,the most s igni f cant innovat ion in f i sca l pol icy during the ent i re Ming andQ i n g p e r i o d s ^^ . The S ing le -Whip conso l ida ted scores o f p rev ious ly inde penden! t axes in t e a s ing le l evy ; moreover , t h i s s ing le t ax was payable exc lu-sively in s i lver , even for peasants . S ince China conta ined an est imated one-quarter of vi 'or ld popula t ion (wel l over 100 mil l ion people) , conversin of i t sm on etar y an d f iscal system to a s i lver s tand ard was bo un d to hav e a globa l im-p a c t o f h i s t o r i e p r o p o r t i o n s . I f w e c o m b i n e Ch i n a w i t h n u m e r o u s t r i b u t a r yS ta te s pa r t i c ipa t ing in th i s s i lve r movement , pe rhaps one - th i rd o r even 40 pe rcen t o f the wor ld ' s pop ula ce had co nv er t ed to a s i lve r mone ta ry-and- f i sca lfounda t ion ^ ' :

To sum up, the entire tribute and interregional trade zone had its ownstructural rules which excrcised a systematic control through silver circulationand with the Chincsc tribute at the center. This system, encompassing East andSouthcast Asia was articulated with neighboring tradc zones like those of India,the Islamic regin and Europe.

The payment of t r ibute in s i lver impl ied that the major t rading routes ofAsia were heavi ly impacted by the f low of bul l ion toward Bei j ing. In the caseof Korcan t r ibu te , fo r example , [apese s i lve r expor t s v ia Tsush ima andKorea m a tch ed chron olog ica l ly w i th the sch edu le o f t r ibu te paym ents f romK or ea t o imp eri al C hi na *.

Not surpr is ingly, such a massive shi f t in the demand for s i lver caused i t svalu to soar . Using bimeta l l ic ra t ios as an indicator , s i lver ' s va lu wi thinCh i n a j u m p e d t o a b o u t d o u b l e t h e le v i s p r e v a l e n t i n A m e r i c a , J a p a n , E u r o p e ,and much of the rest of the world ^ ' :

! Moloughney and Xia (1989), p. 55; for the Single Whip, st-t Liang (1970); Huang (1974),provides a more detailed account. It look a long time to fully implement the singie-whip tax re-torm. Ming treasury income rose from 2.3 million taels of silver in 1570, to 4.4 million taels in1577. to 6 million taels in 1618, abo ut 9 million in 1630, 12.2 million in 1631, 20 million in 1639,and 23 m illion in 1642: This con tinu al increa se is in part a retlec iion of the shift from a graintax to a silver tax with the gradual implementation ol ihc Single Whip Retorms. (MoloughneyandX ia(198 9), p . 67.)

" Hamashita(1988), p. 18.^i Tashiro (1989),/id/w.^' Chu an (1969, p. 2) ofters a direct com parison between China an d Spain: From 1592 to theearly 17th ccntury gold u'as exchanged for silver in ('anin at the rate ol 1:5.5 to 1:7, whilc in


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The gold/silvcr ratio in China had drifted sHghtly downward from its his-torical peak of l;4-5, achieved in the late 14th century, to 1:6 by the early six-tecnth century.. In contrast, the gold/silver ratio hovered around 1:11-12 in Eu-rope, 1:10 in Persia, and 1:8 in India, (von Glahn, forthcoming, Chapter 4,p. 214.)

Since silver was durable and had a relatively high value-to-weight ratio,the divergen! valu of silver in China vis-a-vis the rest of the world createdenormous opportunities for profitable trade. Here was a classic case of arbi-trage opportunity: One had merely to purchase in markets where silver wascheap (e.g Mxico City, Amsterdam, Nagasaki) and sel! it in markets offering ahigher price. Since China offered double the rest-of-the-world price for silver,the wh ite metal gravitated ineluctabiy to that regin of the globe. Figure 1 de-picts silver's divergent valu in China compared with the rest of the world.

China w as such a giant vacuum cleaner or suction pu m p for silverihomba aspirante), in Godinho's colorful terms, that it took the importation ofmany tens of tho usa nd s of tons of Jap ane se an d Am erican silver into Chin a forabout a century in order to finally depress silver's market valu in China downto the level prevalent in the rest of the world (thereby also eliminating silver-gold arbitrage profits). It seems that the main arbitrage phase of the silver tradeended around 1640, by which time bimetallic ratios around the world hadconverged ^^ Figure 2 represents the augmented silver stocks of China and therest of the wo rld a roun d 1640. The C hnese econom y co ntinued to attract sig-niHcant (but reduced) quantities of silver during the second half of the seven-teenth century, during what might be characterized the non-arbitrage phaseor this silver trade ^'. China remained a major player in world trade during theater, non-arbitrage phase, but its global impact during the post-1640 phasewas not as dominant as it had been during the pre-1640 arbitrage phase.^pain the exchange rate was 1:12.5 to 1:14, thus indicating that the valu of silver was twice asn'gh in China as in Spain. Rich ard von Gl ahn (forthcoming, Ch apte r 4, p. 218) cites Pe dro deBacza's contemporary observations; Describing the market at Cantn in the 1590s, he statedthat goid commonly traded in China at a ratio of 1:5.5 with silver, and even whcn gold was mostdcar the gold/silver ratio did not surpass 1:7.5, in contrast to the prevailing ratio of 1:12.5 inSpain.

For global convergence of bimetallic ratios see, for cxample. Atwcll (1982, p. 82), Kobata11965, pp. 254-55), Yamamura and Kamiki (1983, p. 352).'' The post-1640 non-arbitrage phase of the East-West silver trade is discussed in Flynn

1991). It should be poimed out that an episode of arbitrage arse once again in the late seven-tecnth century, when disruptions of the coastal trade by the Qing caused ovcrvaluatlon of silveronce again (as rcflected by divergent bimetallic ratios). (von Glahn, forthcoming) Even thoughepisodes of divergent bimetallic ratios like this do occur after 1640, we find it convenient tothmk of the post-1640 portion of the sevcnteenth centur>' as a non-arbitrage phase overall.

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F I G U R E 1Silver'% price in China and eheivhere

SilverSupp ly Silver SilverSupp ly

(a) Rest of the w or id (b) China ^- 'si lver

F I G U R E 2Augm entedsilver stocks hy 1640

(a) Rest of the worid Q s i l ve r

^S i l ve r\

(b )

Si lverSupp ly

China

S '

^si lver

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Note the ironic cause-effect switch resulting from adoption of a micro-econom ic approach to an individual money. Disequilibrium in the silver mar-ket becomcs the cause of global trade. Precious metis flows are no longer per-ceived in terms of the passive, reactive role attributed by the traditionalEuropean trade-deficit interpretation. Moreover, the misleading practice ofcouching monetary flows in East-West terms is laid bare, unless somcone isprepared to assert that silver-producing Japan was already westernized priorto the beginning of the Tokug awa period (1600)! Th e traditional view placest-uropean spending habits at the causal forcfront since excess European im-ports are supposed to have provoked the trade dficit while our interpretation relegates Europeans to the role of middlemen. The supply side of theworld silver market was dominated by Spanish America and Japan. Chinadominated on the demand side. It is true that Europeans played an importantrole as mediators between the supply-sides (Japan and Spanish America) andChma's end-market on the demand side, but this does not iustif\' elevation ofc-uropeans to the status of prime movers ^''.

The Pacific leg of silver's journey to China via the Acapulco-Manila Gal-leons is also at odds with the traditional trade-deficit interpretation of worldmonetary flows. At least 50 metric tons of silver passed via Manila to Chinaannually throughout the seventeenth century approximately the same ton-nage of silver shipped annually out of Europe by the Portuguese Estado doIndia, the English East India Company, and the Dutch East India Companycombined * yet as far as we know nobody is willing to arge that America'svoracious appetite for Asian products precipitated an American trade dficitwith Asia, which in lurn necessitated a massive drain of American treasureovcr the Pacific. ^X'hy would trade-deficit logic be applicable to the Europeanleg of East-West trad e, bu t not to the Pacific leg? O u r utiiity-based micro-economic argument, on the other hand, applies equally to all regions and par-ties participating in the global trading system, a system itself driven by dise

cme claim that we over-empha.size Chnese demand for silver at the expense of silver de-land within India. Reform of Mughal India's tax system in the late 16ih century also involved

the su bstitu tion of silver as the ba sic unit of dem an d a nd acco unt (Perlin. 1993, p. 1541, a sys-em which spread southward through India during the seventeenth century; Chaud huri (1986, p.

also discusses the silverization of tax systems in India as well as China. The bimetallic ratioscited above (von Glahn, forthcoming, Ch. 4, p. 214) indicate that silver's market valu in China*as high relative to its valu in India, however, a trend which supports Chaudhuri's (1978, p.

1) con tcntion that India w as a net exp ortc r of silver to China. O n t he othe r han d, our inient isnot to deny that India may have been a major end-market for silver between 1550 and 1650.wever, the evidence seems to indicate that Chnese demand for silver was more significantan that of India; otherwise, why was silver more valuable in China?FIynn and Girl dez (1994), p. 83.i i 9


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quilibrium in the world silver market. Far from the passive-reactive role at-tributed by the traditional trade-deficit argument, we view silver as a crucialdriving forc underlying the emergence of global trade '".Unlike conventional microeconomic demand and supply functions, theutility-based demand function in Figures 1 and 2 refer to inventory stocks, thequantities of silver people desire to hold at every price; vertical stock supplyin the market represents the existing inventory stock of silver at a point intime. The reason it took so many generations for the valu of silver to ap-proach equilibrium globally (up to around 1640) is that the mass of inventorystocks itself continued to grow. The filling of a swimming pool provides a use-ful analogy: When the pool is nearly empty, the volume of water in the pool(the stock) can be doubled in minutes; when the pool is already half full, how-ever, it may take hours (or even days at mximum flow) to double water stor-age. In other words, the percentage impact of a given rate of water intake,other things equal, depends upon the initial volume of water storage. In thecase of the silverization of China, tons of silver were imported on a continuingbasis, yet the ever-growing silver stock was so large that these imports, al-though large in absolute terms, comprised a decreasing percentage addition toexisting stocks. China's silver stocks grew only gradually (in percentage terms)despite historie inflows of silver from both hemispheres.

It is not widely recognized in the Western literature that China experi-enced price inflation more or less comparable with the Price Revolution ofEurope and the rest of the world, particularly after 1571 when massive vol-umes of silver began to pour into China via Manila and Nagasaki ". Cartierexplicitly States that his price calculations involved conversin of observedprices (expressed in terms of bronze coins) into silver-content prices; inother words, he used bronze-silver exchange rates within China to estmatewhat rice prices (actually recorded in terms of bronze coins) would have beenif rice prices had been expressed in silver terms. The shipment of vast volumesof silver from around the globe depressed silver's valu, so naturally theChnese had to surrender progressively more units of silver in exchange for

'" Of course, producs exponed in exchange for silver deserve as much attention as silver itself Flynn and Girldez (1996a) use estimates of Amerita-bound Chnese silk exports throughManila to supporl Chuan's (1969) contention that silver exports from Acapulco did not fall offduring the seventeenth ccntury, as Chaunu (1960, p. 250) had claimed. America-bound silk exports maintained throughout the 17th century, at the same 2 million peso per year rate estimatedby Chuan for the reciprocal China-bound silver galleons. Chaunu's estimates were based on offi-cial almojarifazgo tax records, which ignored (by definition) the increasingly dominant method ofexporting American silver smuggling." Car t ie r (1981 ) .pp. 454-66.320


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CHIN A AN D THK SPANISH F.MPIRE

rice and other products; this is, of course, the defnition o (silver-content) priceinflation ". Price trends would havc looked entirely different had Cartier insteadelected to convert Chnese rice prices into, say, gold-content, copper-content,lead-content, or cowrie-based prices. Silver-content price inflation was a globalphenomenon in the early-modern period, in other words, but when prices deno-minated in non-silver terms are under scrutiny, trends in such non-silver pricesdepended upon supply and demand conditions for whatever particular substan-ce(s) comprised the intrinsic content of the specific money in question.

n i . SILVER PROFITS AND THE SPANISH EMPIREThe domestic backwardness of early-modern Spain closer in many ways

to that of an Eastcrn European state like Poland, exporting raw materials andrnporting luxury products, than to econoinies of West European states "renders its imperial global achievements all the more fascinating. With a domes-tic economy clearly incapable of financing the sprawling Iberian Empire, the al-ternative is to look beyond domestic borders for an external financial founda-tion: Early modern Spain did not have a unified economy, and the most usefulway in which we can try to understand its evolution is to recognize that it was abackward country with poor resources, dependent on external markets and external supplies ^\ The Spanish American silver mining industry was a crucialcomponent of the fiscal foundation of Empire: Spanish imperialism was fin-anced out of the resources of America and of a Castile which had itself receivedregular injections of silver from the silver-mines of the New World ".

Discovery of history's richest silver mine at Potosi (in present-day Bolivia)'n 1545 (in conjunction with other important mine discoveries in Per andMxico) was an evcnt of far-reaching consequences for the Spanish Empire. Bythe time registered American treasure arrived on Spanish soil at Sevillc, the


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D E N M S O FI.YNN and ARTL'RO CilRAI.DFZ

ing the early years of the mining boom because the market valu of silver wasso high relative to the cost of producing it that large profts were stillpossible for private-sector participants even after the Crown had skimmed 27.5per cent off the top. Figure 3 offers a conceptual picture of Crown and privateprofts. At any point in time, silver's market price (P") was determined by inter-section of silver's stock supply (S) and stock demand (D). Any excess of P"over silver's cost of production (COP") is economic proft per unit of silver, bydefnition. The hope of obtaining a share of these profts was the motivatingfactor, of course, for the conversin of desoate, three-mile-high Potosi intoon e of history's most spectacular bo om tow ns. Althou gh two-and-a-half-months' distance by pack animal from Lima (a thousand miles), the populationof Potosi rose from zero in 1545 to an estimated 160,000 by 1605, nearly thesize of Paris or London *'. Since the Spanish Crown controlled the lion's sharc

F I G U R E 3Spantsh american silver profts

COP*

SilverSupply

Si lverDemand

Q,ii

two-fifths (40 %l, considerably more than Ham ilion's estmate of 27.5 %. Perhap s ou r conceptua lexample should use 40 % as the Crow n take rather than 27.5 %, bu t intentional imprecisinunderscores awareness of the abstract nature of our argument.

" Vilar (1976, p. 131). For pop ulatio n figures for Londo n, Paris, and every other m ajor Euro-pean city, see de Vries (1984, Appendix II.

m


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CHINA AND THK SPANISH EMPIRK

o f t h e p ro d i g i o u s s i l v e r p ro f i t s , t h e Em p i re ' s ex p an s i n an d m a i n t en an ce we rec ru c ia l ly d e p e n d en t u p e n v i g o ro u s s i lv e r p ro d u c t i o n .

Too much a t ten t ion has been pa id to the quan t i ty o f s i lver en te r ing Spa in .Th e i m p o n an t t h i n g was n o t s o m u ch t h e q u an t i t y o f s i l v e r s ecu red b y t h eS p an i s h C ro wn , b u t i t s p u rch as i n g p o wer . Th e s t a t em en t t h a t S p an i s h o r Eu -rop ean p r ices in s i lver -con ten t t e rm s rose th ree -o r four-fo ld d ur i ng the long s ix teen th cen tu ry s imply mcans tha t s i lver co ins fe l l in va lu to one-t h i rd o r o n e - fo u r t h o f t h e i r p rev i o u s l ev e l. C o m p ar i n g O o w n s il v er i m p o r t sdu r ing the in te rva l 1591-1595 wi th im por t s fo r the in te rva l 1596-1600 , fo re x a m p l e . H a m i l t o n f o u n d t h a t O o w n s il ve r i m p o r t s increased by 9 .5 per cent ,rrom 10.023 mil l ion pesos to 10.974 mil l ion pesos . Since Spanish prices ( in s i l -ver - con ten t t e rms) s imu l taneou s ly rose 12 .85 per cen t be tw ee n these tw o per i-o d s , how eve r , in f la t ion -ad jus ted O o w n rece ip t s fe ll by over 3 per cen t *** T h eCr ow n rece ived rough ly 10 per cen t mo re s ilver, in o th er wo rds , bu t eachpiecc of s i lver receiv ed h ad los t 13 pe r cen t of i ts pu rch as ing po w er. T heCr ow n had co l lec te d a lmos t a mi l l ion mo re pesos in nom ina l t e rm s dur ing the1596-1600 in te rva l , wh i le the to ta l pu rchas ing power o f tha t g rea te r quan t i tyO silver fell by m or e th an a qu ar te r of a m illion pe so s ''*.

Dec l ine in the purchas ing power o f Crown s i lver con t inued in to the f i r s thal l of the seventeenth century , a t a t ime when the quant i ty of off ic ial , taxables i lver impo r t s a l so dec l ined *". A n to n io D om ng ue z O r t iz re por t s tha t th i s wasdevastat ing in terms of the f iscal v iabi l i ty of the Royal Treasury "":

Having mentionetl the violcnt causes for the dccreasc in the arrival otprecious metis, wc shoukl makc referente to other causes whith are Icss appar-cnt but more imponant betausc thcy are continuous and profound. One whichis not usuaily mentioned, although it is among the most imponant, is the decline in buying power of silver; the enormous amounts of this metal that had ar-rived in Europe had satiated, to some extent, the tremcndous scarcily that atthe beginning of the Modern Age had been felt in precious metis.

M ark S t ce l e h a s d o cu m en t ed t h e s y s t em a t i c i m p ac t o f s i l v e r ' s d ec l i n i n gv a l u o t h e rw i s e k n o w n a s s i l v e r -co n t en t p r i ce i n fl a ti o n o n t h e r ed u c edpurc has ing pow er o f Cr ow n re ven ues . T he famo us ad -va lo rem (sa les) t ax , the

i" ^' ' Ha m ilto n (1934), p. 3-4 an p. 40 3.* Flynn (19821, p. 142.Decline in official, taxable silver imports does not necessarily imply that total silver im-Ports declined. Smuggling of silver increased over time, a trend documented so heavily by Mori-"eau (1981) and others that Kamen (1983, p. 293) calis it a now established fact that bullion im-P"ns rose in the later seventeenth century.Domnguez Ortiz (1960), p. 284.

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alcabala, w a s c o n v e r t e d t o a f i x e d - p a y m e n t encabezamiento in 15 23; by 1534two- th i rds o f the t ax was pa id u nd er t h i s new sys t em. Ch ar l es I was t here bys tuck wi th fi xed pa ym en t s fo r a qua r t e r - c en tu ry du r in g wh ich t ime the genera llevel of pr ice s in Cast i le ros e by 60 per c en t ^ . T he b an kru ptc y of 1557 re-su l t ed , an even t wh ich S t ee l e r egards as r enego t i a t i on o f t e rms o f t he deb tra ther t han a t rue bankrup tcy . The second encabezamiento of 1560 40 p ercen t h igh er than the f irs t can be v iew ed as a sor t of m d ium - term solu t ionto the problem of si lver 's fal l ing valu, but again i t remain f ixed for many yearswhi l e p r i ce i n f l a t i on con t inued to ea t away a t Crown revenues . The third en-cabezamiento was ins t i tu te d in 1575, du r in g a year of real fi scal bank rup tcy , bu ttha t amoun t was chopped some 30 per cen t i n an ag reemen t wi th t he Cor t esin 1577. Phi l ip I I ' s rev en ue s from al l sou rces d id t r ip le du r in g the sec on d hal fo f t he s ix t een th cen tu ry , wh i l e p r i ces on ly doub led , bu t t he cos t s o f war con t i nu ed to ou t s t r i p g row th in r ev enu e sou rces . Th e Cr ow n ' s fi nanc ia ! d i l em m acon t inued wel l i n to ( and worsened du r ing ) t he seven teen th cen tu ry " :

To bridge the dficit caused by Habsburg imperialism the government wascompelled to borrow on a grand scale. In 1557, at Philip II's accession, the Cas-tiiian national d eb t stood at thirty-six million ducats ; in 1598, wh en the kingdied, it stood at eighty-fivc million. Two years after Philip IV's accession, in1623, the total public debt had risen to 112 million ducats equivalent of atleast ten years' revenue; two years after his death, in 1667, the debt stood at 180million. This five-fold increase in a little over a ce ntury was cau sed in largemeasure by Spain's insistence on heavy military spending in the Low Countries:the periods of fastest increase in the debt corresponded with the periods ofgreatest cxpendlture in the Nctherlands.

Ev en at the ape x of the inf lux of Am eric an t rea sur e ( the 1590s) , C row n ex-p e n d i t u r e s e x c e e d e d n o t o n l y t h e C r o w n ' s p o r t i o n of t h e A m e r i c a n t r e a s u r eimpor tcd , but the to tal inf lux of t reasure to Spain (both publ ic and pr ivate) ^^.By the reign of Ph i l ip IV, Cast i le ' s "cr i s is" an d de ca de nc e ap pe ar to be noton ly (o r no t so much) t he consequences o f over t axa t ion , bu t a l so t he co ro l -lar ies of a pol i t ical sys tem whose social impl icat ions generated an adminis t ra-t ive app ara tus i ncapa b le o f dea l i ng wi th t he eno rm ou s cos t s o f an em pi remuch more d i f f icu l t to defend than that of anv o ther s ta te " .

'^ Steele (1986), pp. N6-47." Park er (1979), pp. 188-89; similar nu mb ers for Crow n de bt can be found in Braud el (1972,vol. 1, p. 53 ). Cast illo (1963, p. 52), and Koenig sberger (1958, p. 312).'' Vilar(197-4), p . 20 3." Yun (1994 ), p. 311.

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CHINA A ND T H t SPANISII EMPIRF.

Unavoidable structural difficulties plagued Spain's America-based econ-omy. Decline in silver's market valu not only reduced Treasury purchasingpower, it also led to the elimination of mine profits for the prvate sector. A re-duction in silver's price from, say, P* to P** in Figure 4, other things equal,would reduce available per-unit profit. The Crown was intent to maintain its27.5 per cent share of registered silver output even increasing it, ifpossible but it is important to remember that 27.5 per cent of gross valudoes not equal 27.5 per cent of total economic profit. The Crown's proportionof economic profit grew over time because available per-unit economic profit(ie. public and prvate combined) was shrinking.

F I G U R E 4Fallng per-un it profit

"Si lver

P*

p .

COP*

\SilverS u p p l y

Crown (profit 1

S'

} N \\ \\Prvateprof i t

In other words, the Crown suffered because of the declining purchasingpower of its silver receipts, but prvate operators were doubly suffering be-cause their proportion of per-unit profit fell plus what they did get was falling'" purchasing power (just as it was for the Crown).At some point in time, the price of silver must have fallen to the point that't exceeded cost of production by precisely 27.5 per cent (then, later, by lessthan 27.5 per cent). When silver's price exceeded cost of production by pre-

325


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DE NNIS O, F l .VNN and ART IJKO Ci lRAL DE Z

cisely 27.5 per cent, the Crown's 27.5 per cent in taxes (of gross valu) wouldhave equalled 100 per cent of the economic proft yielded by the New Worldmining industry. With no residual profit left over for prvate operators, subse-quent reduction in silver's price had to have forced private-sector participantsto either smuggle (i.e. avoid Crown taxes) or cease mine activity. Increasinglyrampant smuggling over time is predicted by our model. The archives andsecondary literature are in fact full of anecdotal evidence suggesting increasedsmuggling over time, a practice which only exacerbated the Crown's financialnightmare. One example of the prevalence of smuggling in the seventeenthcentury is provided by Fiynn and Girldez (1996a), who use estimates of thevale ot Chnese silk swapped for American silver via the Manila Galleons insupport ot the growth-in-smuggling hypothesis throughout the seventeenthcen tury "'. In resp ons e to (required ) increa se in smuggling, the C row n event-ually reduced its own quinto (normally defined as a 20 per cent severance tax)to 10 per cent and sometimes less.

In addition to silver's falling valu, rising mining costs also quickened theerosin of overall mining profits. Per-unit production costs rose as mines weredeepened; deeper shafts were of course more susceptible to flooding, and my-riad other production difficultics arse as veins played out. Concerted (sometimes frantic) effort was devoted to implementation of new, cost-reducing production technologics in American mines, .sometimes with spcctacular success;still, costs ultimately crept as rcadily available ore became more scarce overtime ''. Thus, both the Crown and private operators were caught in a double

'" The volume of silk on Manila galleons hcadcd tor America supports Chuan's (1969) con-tention that 2 million pesos wortti of silver iraverscd rhc Pacific throughout the I7lh century.Although lePaske (1983, p. -434) and Barrett (1990, p 2-49) respectively offer adm ittedly conser-vaiivc estmales ol 517.000 and 660.000 pesos in q/Z/c/a//'r passing over the Pacific annuallyduring this period. both admit thai an unknowabit volume ol silver was smugglcd. That thePhilippines siphoned ol large sums o( silver Irom the New World cannot be denied, hutmeas uring its flow is virtually imp ossible. (TePa ske, 1983 , p. -437) Acco rding to Cross (1983, p.4121, an averagc ol 2-3 million pesos (53,000 kg to 79,000 kg pur silver) was sent wilh officialsanclion from Per to Mxico beiw een 1580 and 1610; while Borah (1954, pp. 88 , 123) argesthat inclusin of the contraband tradc at that time raises the total to more than 100,000 kg annually (i.e. more than 4 million pesos). Thcrc was no reason to ship silver Irom Pcru to Mxico,other than to forward it on to Asia via the Manila galleons, so this constitutes additional evidence that millions of pesos in silver flowed annually over the Pacific during the 17ih century.(Contraband silver aist) prevailed over the Atlantic routes during the seventeenth century. According to Moutoukias (1991, p. 339), undeclared treasure comprised two-thirds of the trade outol Amcrica's back door down the Atlantic side of the Andes (1630-1640), rising to as much as90 % ol silver exports beiween 1650-1659. For a summary of smuggled American silver via a va-rieiy of routes, sce FIynn and Girldez (1996b, Section II).

' For dlscussion of the constant battie between rising mine production costs and costsavinginno varion s, see Jara (1966) and Szaszdi (1975).

}2 6


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CHINA AND THK SPAMSH EMIMRE

squeeze; product price fell and the cost of producing silver rose as time mar-ched on (as depicted in Figure 5). The question w as: W he n w ould price andcost converge? Fortunately for the Crown, the enormity of demand-side torcesemanating from China postponed complete elimination of above-normal silverprofits until somewhere around 1640. That is, even with the advantage ofaugmented Chnese demand, the decline in silver's world price continued (al-beit at a reduced rate) until about 1640, having reduced both Crown purchas-ng power and overall mining profitability in the process. Figure 6, borrowedtrom Richard von Glahn, summarizes the elimination of differences in bimetal-hc ratios around the world by about 1640.

It is interesting to note the years Adam Smith, an early proponent of acost-of-production thinking about price inflation, felt represented the end ofthe Price Revolution: Between 1630 and 1640, or about 1636, the effcct ofthe discovery of the mines of America in reducing the valu of silver, appearsto have been completed, and the valu of that metal seems never to have sunklower in proportion to that of corn than it was about that time "*. The descent t silver's price to its cost of production had eliminated mine profits;valu would not fall further until either fresh mine discoveries or implementa-tion of new mining tcchnologies. Stabilization of silver's valu, in other words,"Tiplied the end of the Price Revolution. Stable and even deflationary (silver-content) price levis, in fact, characterized the last two-thirds of the seven-'eenth century throughout the world. Our contention is that Imperial Spain'sdeepening financial crisis was connected to the protracted fall of silver's valu;American mine profits were slowly squeezed out, an inevitabiiity which wasorestalled but not eliminated by the prodigious Chnese demand for sil-

ver. At the dawn of the seventeenth century, the Spanish Crown found itself in3n untenable financial position. On the cost side, global political and militaryexpenses continued to rise in the face of climbing interest payments on a hugeaccumulated national debt. The Crown's struggle to service existing debt wascertainly no secret to International bankers who were stung by repeated Haps-"urg renegotiation, and sometimes repudiation, of debt. The Crown repeatedlyn 't its credit limit while the purchasing power of Crown revenues continued toall; m any case, a growing proportion of New World remittances had already

been pledged by the Crown. The bankers who facilitated war finance, theasentistas, were deeply affected by the scarcity of resources and many fortunes were lost. The silver carried by the fleets from 1638 through 1639, forexample, was not enough to pay the asentistas and in 1640, the gravest for

Smith (1776), p. 192.


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UtNNIS O Fr.VNN and ARTURO CIRAl.DFZ

FIGURE 5Price-cost convergence

Price,cost

Silver priceCost of product ion

T ime

FIGURE 6Cold/silver ratios: China. Japan and Frunce . 1370-166 0

(Units of silver per unit of gold)

ft -7 -o -

9 _

K_y/

1

Japan

1

France

'Ch ina

1

\ y ^

\ / ~ -JL

Japan

1

iA _ - ^/v

1

71

11370 1400 U 5 0 1500 1550 1600 1650

Soi'Ki K: Richard vi)n Glahn, Vountam of Fortune Money and Monelary Policy in China, OOU-IXUO.Berkeley: IJniversity of California Press, 1996, Chapter 4.

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CHINA AND THF. SPANISH EMPIRF,

the Hispanic Monarchy, these bankers provided only 6,361 escudos, in con-trast with requirements of 300,000 escudos per munth for troops in the Nether-lands alone ".

There were few remaining financial options by the beginning of the seven-teenth centun'. The Crown either had to begin backing out of the empire busi-ness, or increase pressure on ever)' potential revenue source within the Empire. The latter option was chosen. Public assets were sold, prvate assetsseized, and tax rates were raised to (and past) limits of toleration. These ac-tions con trib ute d to civil strife and ev entually to civil wars. W ha t we are sug-gesting is that the loss of purchasing power from the Crown's American enter-prise was inevitable; moreover, the state's well-documented relentless pressurefor increased taxation within Castile and elsewhere within the Empire wasmandatory given global commitments in order to compnsate for lost ex-ternal purchasing power. The alternative was conscious surrender of empire,an apparently unacceptable alternative.

IV. FINA L COL LAP SE UN DE R PH IL IP IV (1621-1665)According to Domnguez Ortiz, the hegemony of Spain in Europe lasted

until 1618 and, although weakened, the Spanish Habsburgs did manage to re-main a forc with which to contend during the Thirty Years' War (1618-1648).Philip IV's (1621-1665) accession to power, however, coincided with the rene-wal of an expensiv e war with the D utc h in 1621. Spain's financial pro blem sdate back to the sixteenth century, as Steele (1986) demonstrares, but the Em-pire's final debacle began in 1621 with the expiration of the Twelve YearsIruce. Relentless fiscal pressure to finance renewed war ruined the Castilianeconomy and was a powerful contributor to political turmoil throughout theEmpire.

The army of Flanders' annual expenditures had been running about 1.5million ducats prior to expiration of the Truce, but these expenses quicklyrose to 3.5 million du cats at the be ginning of hostilities in 1621: Bringing th etotal exp en ditu re for the year to well over 8,000,000 du cats '". Th ese ad di-tional costs were disastrous for Crown finances. Expenditures for 1622 rose toan estimated 9,161,845 ducats, but even the assembly of all possible sourcesenabled the Council of Finance to raise only 2,296,500 ducats revenue up to

Domnguez Ortiz (1977), p 386.Elliott(1970 ), p. 459.)29


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DENNIS O Fl.YNN and ARTl.RO CilKALDF.Z

1626 [not counting silver from America belonging to merchants and bankers,or the millones already assigned for particular expenditures] ' '. Confront-ing this dismaying situation, Olivares wrote a memorndum to the King inwhich he outlined a plan to unify various territories of the Spanish monarchyinto a single administrative unit, the famous Union de Armas promulgatedas a decree in 1626. Behind this administrative reform was the pressing needto collect higher taxes from territories of the Empire in order to finance thewar in Europe. Aragn and Valencia reluctantly accepted the requirements,but the Catalans refused to increase their contribution. The meeting of the1626 Cortes was a failure and the assembly was adjourned in 1632 withoutany success for the central government.The Dutch confrontation was global. Vast sums were sent to fortresses andoutposts in the Caribbean, with even heavier sums remitted to the Philippinesand the Moluccas. According to a Dutch source in 1630, the annual cost ofSpanish d cfcnse in the E ast Ind ics was equiv alent to 5,000,000 gu ilders ^ . Expenditures for distant fortresses and flcets obviously diverted remittanceswhich otherwisc could have helped finance the war in the Low Countries.This diversin increased pressure for fiscal contributions from Flanders, Portugal, and als Spanish America. Hapsburg Italy was an important financia!source as well, but the new resources of Spanish Italy [9.2 million ducats be-tween 1631 and 1643] could not compnsate for the fall in the financial powerof Castile ". In other words, despite partial success in spreading taxes moreuniformly throughout the Empire, Castile was left to shoulder the main financial burden itself

The war with France in 1635 and the conflicts in Portugal and Cataloniaexacerbated an already critical situation. The solution to this predicament wasto increase direct domestic taxes. The Cortes were pressured for larger contributio ns. D uties on foodstuffs, th e millones, we re raised. N ew fiscal de-vices were implemented: There was a tax on salt, another on the sale of paper,and the media anata allowed the Crown to retain half of new appointees' in-come during the first year. The nobility and clergy were under relentless pressure to grant loans and give gifts, donativos. Hidalgos served in the army attheir own expense and the high nobility was expected to maintain companiesof infantry. Offices of the crown, rents, titles and villages were sold and royalpardons were granted to criminis in exchange for payment. In 1635 theCrown confiscated half the yicld of all juros held by natives, and the entire'I Dom nguez O rtiz (1%), p. 16." Israelll982), p. 295. ' Park er (1972), p. 157.

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CHINA A ND THE SPANISH t .MFlRL

yield of those belonging to foreigners a device imitated in whole or in panalmost evcn' year thereafter '*.The disorder caused by the war with France in 1635 prompted rebellionin Barcelona, which was supported by Cardinal Richelieu. The Crown's fiscalpressure on Portugal, coupled with the Dutch attacks on the Portuguese Em-pire, were the causes of Portugal's drive for independence, an event immedi-ately supported by the French and the English. The Portuguese peace treatywith the Dutch in 1641 resulted from Portugal's desire to maintain their cm-pire in Brazil and frica.The financial pressures of these external wars were exacerbated by anarray of costly conflicts and rebellions within the Empire's own territories. Theyear 1640 brought the Cataln revolt and the independence of Portugal. Aconspiracy by the Duke of Medina Sidonia and the Marquis of Ayamonte toseprate Anda lusia from the Crow n followed in 1641. N um ero us pop ular up-risings prompted by rising prices for foodstuffs and higher taxes occurred inVizcaya (1632), Evora (1637), and Naples and Sicily (1647). External conflictand internal disintegration signalled the dramatic twilight of the Empire:From the end of 1640 Spain and Spain's international power were visiblycrum bling " . The territorial arran gem ents after th e Thirty Years War ac-knowledged the demise of Imperial Spain. The King of Spain accepted theNetherlands' independence in the treaty of Munster in 1648. The Peace ofWestphalia sealed the defeat of the Habsburgs of Vienna and Madrid; a newEuropean map was drawn based on independen! states: Until the days of theFrench Revolution, the Peace of Westphalia was considered to be the basis ofthe European state system '*'. The ceding of Artois, Rousilion and part of Cer-dagne to France in the Treaty of the Pyrenees in 1659 reflected continuationof Spanish imperial disintegra tion. Finally, the inde pe nd en ce of Portug al wasformalized in the treaty of Lisbon in 1668, during the minority of Charles II.Another means by which to increase Crown revenue was manipulation ofvelln, the copper coins issued since 1603 by Philip III. Seigniorage rates forpetty coins reached as high as 91 per cent ". Coinage and recoinage of copperwas a desperate measure and yielded a benefit of 13,152,000 ducats in the firstsix years, while the recoinage of 1636 yielded 4,700,000 ducats, compared with10,000,000 ducats in 1641, 6,000,000 ducats in 1643, and 11,000,000 ducats in

Ellioit(1970), p.-165.Eliiott(1970 l, p. 470.Beller(197), p. 358.Motomiira(1994), p. 118.331


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1651 '*. These are significant revenues compared with the Kings average con-signment of only 1,000,000 ducats from galleons arriving in Seville. A more-de-tailed recent study of Castilian seigniorage corroborares the general picturepainted by Domnguez Ortiz: After 1626, the petty money stock fluctuatedwith military spending.... The petty currency did not stabilize until two decadesof peace after 1680 eased th e fiscal pressu res on the M onarchy " . By thistime, there had been State bankruptcies in 1627, 1647, 1656, and 1664. TheCrown had exhausted every avenue to continu financing the Empire, but tono avail. Th ere simply was no sub stitute for dw indling Ne w W orld profits.Having benefitted from neither an agricultura! revolution or a transformationof the manufacturing sector, Empire financing was largely dependent uponAm erican m ines. Elimination of mine profits contribu ted mightily to the decline of Spain. Both were inevitable.

I V . C O N C L U SI O N SThe thesis of this essay is that events within Ming China had a fundamen

tal impact on the rise and decline of the Spanish Empire. A crucial aspect ofthe tremendous surge in global trade in the sixteenth and seventeenth cen-turies was that one particular product silver was the dominant export outof the West and (for a time) out of Japan. Tens of thousands of tons of silvermigrated to China because silver was worth up to rwice as much there relativeto the rest of the world.

A comprehensive analysis of the fiscal basis of the Spanish Empire re-quires inclusin of the silverization of China. Spanish America silver mineswere the richest in world history; in other words, they were enormously profit-able. The Crown was successful in procuring the lion's share of silver-industryprofits, but prodigious production rates led to a gradual decline in silver's mar-ket valu. Th e decline of per-unit proft was inevitable. O u r counter-factualclaim is that silver profits would have probably vanished within a decade ortwo had it not been for the vast and expanding Chnese demand for silver.But Chnese demand for silver did expand dramatically, which in turn contributed to silverization of her entire tributary system. The fact that silver lostvalu around the globe so gradually, in other words, is attributable to this conversin of a third or mo re of wo rld po pula tion (i.e. Ch ina and its tributary

' Do mng uez O rtiz (1960), pp. 272-73." Motom ura(1994) ,pp . 11819 .

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States, not to mention India) to the use of silver for monetary and fiscal pur-poses. M ethod ical red uctio n in silver's m arket valu, in turn , implied gra dualprice inflation (in siiver-content terms) around the world, but more importantis the implication that enormous profits were thereby transferred to the Span-ish Crown (and to the Shogun) from the sixteenth century up to about 1640.We would go so far as to say that Spain's extensive Empire would have beenimpossible in the absence of events emanating from within Ming China (just asSaudi Arabia today could not maintain its economic power in the absence ofoil-deman d ema nating from a petroleu m -based world industrial structure).

We have focused on silver's inevitable profit squeeze because it helps tietogether two long-recognized trends in Spanish historiography: (1) The Treas-ury's fixation with increasingly onerous taxation in the face of enormous resist-ance, and (2) evidence that international smuggling became increasingly preval-ent over time. Declining purchasing power from American- based taxes left theCrown no alternative but to increase the squeeze on domestic citizens; afterthe far-flung Empire had reached its zenith, the enterprise either had to besupported financially or down-sized significantly. As for smuggling, once theCrown tried to take virtually all of the available economic profit from the min-ing industry, private participants were forced to choose between tax-avoidingsmuggling or cessation of activities. Understandably they chose to smuggle,which itself further reduced tax revenues and exacerbated the Crown's finan-cial dilemma.

It is useful to keep in mind the distinction between the silver trade's pre-1640 arbitrage phase versus its post-1640 non-arbitrage phase. This dis-tmction helps reduce confusin when confronting such things as the mountingevidence that seventeenth-century silver production/exports were consider-ably larger than previously realized ''". Again, we need to think in terms of industry profits as opposed to quantities per se. Spanish American exports of sil-ver appear to have been relatively robust after 1640 with no decline at allvisible via the direct Pacific route but the point is that extraordinary profitshad already been squeezed out. American silver continued to gravitate towardCh ina after 1640 because Jap ane se m ines began to play out, but m ore import-

"' Ac cord ing to the con ven iion al view of Earl J. Ha m ilio n (193-4), arrivals of silver to Sevillepeakcd during the late sixteenth century, followed by precipitous decline during the scventeenthcenturi, '. Th e research of M ichel Mo rineau (1985, Ch apte rs 1 and 3) con tradic ts H am ilton 's fnd-ings with the claim that a steady flow of silver arrived in Spain during the seventeenth century.Acco rding to th e survey article of Barrett (1990, p. 225), overall silver pro du ction in seve nteenth -century America exceeded that of the sixteenth century, findings which are consislcnt with thegrowing literaturc which documents the increasing prevalence of contraband silver during theseventeenth century.

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antly because normal profits were sufficient to induce shipments into an ex-panding market. This later period contrasts sharply with the explosive pre-1640 arbitrage phase, characterized by above-normal profits and the associatedtrade frenzy which accompanied the opening of global trade opportunities.Normal post-1640 profits were not suicient, however, to continu to financean aberration on the scale of the Spanish Empire.The years around 1640 seem to have been critical in many parts of theworid. Could seemingly-disconnected events around the world have beenlinked globally via the silver trade? Not only was the Spanish Empire a sham-bles by this date, but reduction in profits negatively impacted the Americancolonics as well as those regions of Europe most closely connected to the Empire via commerce and finance. Japan was the world's second-largest silverproducer in the early-modern period selling, of course, to China as well. Webelieve that the timing of the so called ciosure of Japan in the mid-1630sis not coinciden tal. Th e Shogun 's silver profits declined for the same reasonsas did those of Spanish America, but Japan enjoyed gold and copper booms asreplacements, and in any case Japan was a more developed country than wasSpain ' ' ' .Goldstone has proposed the interesting hypothesis that the Ming and theOttomans suffered from essentially similar fiscal crises up to and around 1640;taxes in each case were fixed in terms of silver receipts, while both govern-ments had experienced escalating expenses for some time (because of silver-content price inflation) ". Evaluation of the Ottoman case is best left for ex-perts in Middle Eastern history, but we do fnd plausible Goldstone'scontention that fixed Ming silver receipts (in conjunction with silver-contentprice inflation) may have contributed to Qing overthrow of the Ming in1644 ".This essay raises many contentious issues, but one thing about which weare confident is that attempts to unravel the multi-faceted complexity sur-rounding the rise and decline of the Spanish Empire should approach from aglobal perspective. The global silver trade provides a useful vantage. The physi-cal penetration of Europeans into Asia has understandably prompted scholarsto emphasize the impact of the West on Asian history. Eco nom ic mechanism ssometimes hide below the visible surface, however, and we believe thatChina's economic impact on Europe was far greater than all combined Western economic impacts on Asia during this period. Perhaps no European state

For a comparison between Imperial Spain and the Tokugawa Shogunate, see FIynn (1991).Golds tone (1991, chapter 4).Flvnn and Girldez (1995bl, scction IV.}34


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was as heav i ly in f luenced by developments wi th in Ming China as was Imper ia lSpain .

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