The Tide of Silver — The World Economy and Gold and Silver

Up to the previous episode, we have followed the story of conquest and plunder over the gold of the New World. Yet the gold that the conquistadors pursued was, it is also told, not as great in quantity as they had dreamed. Ironically, the truly vast wealth that the New World sent out to Europe, and then to the world, was not gold but another precious metal. Produced as if gushing from the Andean highlands, surging across the sea quietly yet in overwhelming quantity — white metal: silver. In this episode we trace how the swell of wealth set off by the Potosi silver mine shook the prices of Europe, was drawn across the Pacific into China, and bound the world into a single economic sphere. In telling the history of gold, we cannot leave out silver, which was its shadow protagonist.

The mountain of silver — Potosi, an immense wealth

In 1545, in the Andean highlands of what is now southern Bolivia, a vast vein of silver is said to have been found. The cone-shaped mountain that rose over that harsh land more than four thousand meters in elevation came later to be called ‘Cerro Rico (the rich mountain),’ and the city of Potosi built at its foot is said to have swelled, within only a few decades, into a great city holding a population of well over a hundred thousand. In terms of elevation, a city of a scale rare even in the world of that time appeared in this brutal land, solely for the sake of silver.

Behind this silver pouring out into the world lay two techniques and institutions. One was the mercury amalgam method, whose introduction advanced in the 1570s. By this method of binding silver with mercury to extract it, silver could now be recovered even from low-grade ore that had not paid before, and output is said to have grown by leaps. The other was the system of forced labor called the mita. A remaking by the conquerors of the labor-service system of the Inca era, it is told that adult Indigenous men were conscripted in turn for mine labor.

But behind that wealth lay a deep shadow. Cave-ins and accidents deep in the tunnels, and poisoning from the refining work that handled mercury, are said to have robbed many workers of their health and their lives. The number of lives lost at Potosi varies across the sources, and nothing certain can be said; but on the point that this mountain of silver stood upon immense sacrifice, the various accounts broadly agree. We wish not to forget that into each single grain of this glittering white metal was carved the toil of nameless people.

The price revolution — the overflowing silver shakes Europe

The silver of the New World, from Potosi and elsewhere, crossed the Atlantic by Spanish ships and flowed into Europe. The Spanish crown imposed on the silver produced a share called the ‘fifth (quinto)’ and is said to have gained immense wealth. Yet what the vast silver brought was not necessarily prosperity alone. Rather, it quietly shook the economic foundation of European society.

That phenomenon came later to be called the ‘price revolution.’ It was an event in which, through the 16th century, the prices of Europe rose with a force unseen before. The cause is still debated, but the view widely known is that one factor was the great quantity of silver flowing in from the New World, which increased the amount of money in circulation and, relatively, lowered the value of money. That said, there is also a view that other factors overlapped — population growth, the limits of agricultural production — and it is pointed out that it is hard to explain everything by the inflow of silver alone.

What is interesting is that Spain, which held such quantities of silver, did not, in the long run, necessarily become fully rich. Much of the silver that flowed in went out to other countries through war costs and payments for imported goods, and it did not, it is said, turn sufficiently toward nurturing domestic industry. Wealth does not directly translate into national strength — the tide of silver left a bitter lesson, rich in suggestion even for thinking about the economy of later ages.

Silver moves east — Ming China, an immense sink

The story of New World silver does not end in Europe. It heads further east, across the Pacific, toward China. In fact, a not-small part of the silver produced all over the world is said to have been drawn, in the end, into Ming China. Why did the silver of the far side of the globe drift all the way to China?

The key lay in the tax system of the Ming. In 16th-century China, the system called the ‘Single Whip Law,’ which gathered into silver the taxes formerly paid in kind or in labor service, spread across the regions. Once a vast empire began collecting taxes in silver, naturally an immense quantity of silver was needed. Yet China’s domestic silver output was not enough to meet that demand. Thus China became an immense sink that sought silver from outside.

Two flows carried that silver. One was the ‘Manila galleon trade’ that Spain opened across the Pacific. From around 1571, large sailing ships linked Acapulco and Manila, and the silver of the New World was carried to the Philippines, where it is said to have been exchanged for Chinese silk and porcelain. The other was Japan. Japanese silver, produced at mines such as Iwami Ginzan, is also said to have flowed into China through the trade of East Asia. The value of silver, which China had reckoned cheaply, was higher than in the outer world — and this price gap drew silver in like a magnet.

The first global economy was born

In this way, the flow over the silver of the New World bound the world together on an unexpected scale. Silver dug out in the Andean highlands moved, by way of Spain, the prices of Europe, crossed the Pacific to support the tax system of China, and as its return, silk and porcelain spread once more across the world. The Americas, Europe, and Asia were connected by a single thread: silver. Some researchers call this the ‘first global economy.’ It is the view that a mechanism by which goods and money circulate on a planetary scale gave its first cry at this time.

Of course, it was not a beautiful tale of harmony. At the starting point of that circulation lay the harsh labor of Potosi and the sacrifice of conquered societies. A globally connected economy was a world in which wealth spread smoothly, and at the same time a structure in which the prosperity of one land was built upon the suffering of a distant land. Light and shadow were, from the start, inseparably bound. Without keeping both sides in view, the age in which gold and silver circulated cannot be told rightly.

In any case, even after the tide of silver had drawn back, humanity’s thirst for precious metal did not subside. In time the age moves into the 19th century. Not kings and conquerors, not merchants and states, but ordinary people dreaming that they might, with their own hands, dig gold from the earth — such a new age of frenzy was about to raise its curtain beyond the sea.