The Saga of Spanish Silver: an Austrian Perspective – Part 2: The Storm is Brewing

For part one of this series go here: The Saga of Spanish Silver: an Austrian Perspective – Part 1: Before the Storm

Here we need not concern ourselves with how Spain subjugated the greater part of what is now Latin America. We will concentrate on the incredible luck Spain had in the XVI century, which gave to her, even by the most conservative accounts, thousands of tons of silver.

Even while the conquistadores were busy scouring the land for every scrap of gold and silver they could extract from the locals, they realized their loot was running scarce, and set out in search of new veins of precious metal. At first their luck was not good. They found some “miserable” silver veins in what is now Colombia, but they were nowhere near as rich as the Old World silver ores of Saxony and Tyrol.

In 1545 by an extraordinary chance of luck, an Inca girl discovered some silver ore while herding llamas in a remote location more than 4000m above sea level, in what is now Bolivia. The Inca name for the place was Potosì.

The first Spanish miners started arriving next year, and soon discovered how good their luck had been. In the next sixteen years they discovered seven huge, enormously rich silver ore veins.
By 1573, according to Don Pedro de Toledo (the fifth Spanish viceroy of Peru), the area was home to 150,000 people, Spaniards and Indians, all working in the mines or providing services to the miners.

In 1546 a prospecting team led by one Juan de Tolosa struck it rich. At Zacatecas (220km from modern day Mexico City) they found silver veins which promised to be almost as rich as those in Potosì.
But Spain’s good fortune was not about to run out.

A big problem that silver miners had faced since Roman times was that once the richest ores had been used, even a promising silver mine had to be abandoned: in order to extract silver from poorer ores, enormous quantities of fuel had to be expended and this usually made operations uneconomical.

This problem was brilliantly solved by an alchemist called Vanuccio Biringuccio. In 1540 he published in Venice a book titled La Pirotechnia in which he detailed an industrial scale procedure to extract silver from ores using quicksilver (refined metallic mercury).

In 1554 a “merchant from Seville” called Bartolomé de Medina arrived at Zacatecas. He had studied both Biringuccio’s book and the advanced methods used by German miners in Saxony to crush silver ores using water powered mills. Under his influence the production in Zacatecas literally boomed.

Spain had some among the richest mercury ore veins in all of Europe at Almadén, about 100km from Cordoba. During the late XVI century it produced about 250 tons of refined quicksilver yearly. In the XVII century advanced mining and refining methods imported from Germany allowed yearly production to increase to 400 tons. Every last drop of quicksilver was destined to the colonies. And it still wasn’t enough.

However, thanks to Hapsburg family ties, Spain also had ready access to the mercury mines of Idria, not far from Trieste. Spain bought most if not all the yearly production of Idria mines well into the XVIII century.

And once the conquistadores conquered the Philippines, Chinese quicksilver could also be imported from the Far East in times of need, though due to communication and transportation issues this was only done thrice in the XVII century (and most likely at times when Chinese quicksilver was so cheap as to justify purchase and shipping costs).

Yet there was never enough quicksilver to go around: European production went almost entirely to the Zacatecas mines due to transportation issues, leaving the Potosì miners no choice but to use the old and highly inefficient fusion method.

Yet Spain’s luck wasn’t about to run dry. In 1563 Amador de Cabrera, a Spanish encomendero*, was approached by a Christian Inca during a religious festival. The Inca proposed to take him to a place “of great interest to the Spaniards”. Amador quickly equipped a small expedition and, led by his Inca guide, arrived at place called by local Indians Huancavelica. It was situated almost 4000 meters above sea level, and it was cold, miserable and inhospitable. In this place there was an old mine, used by the Indians for generations, where they extracted cinnabar. Cinnabar is mercury sulfide and the Indians had used it as a dye since time immemorial. Amador immediately realized his luck and how rich the ores in Huancavelica were. The next year he was declared the discoverer of Huancavelica and given exclusive mining rights by the viceroy of Peru. Despite the remoteness of the area, by 1573 the mines and refining plants in Huancavelica were already producing hundreds of tons of refined quicksilver per year, which for convenience were mostly allocated to the Potosì mines, with the ones in Zacatecas absorbing the European production. 1573 is usually considered the year where the silver craze really began as production skyrocketed thanks to the availability of large quantities of quicksilver.

Now let’s take a look at how the Spaniards “split their loot”. Contrary to popular opinion, the Spanish crown didn’t “own” the mines in the Americas. These were private property. The Crown obtained silver (and in much smaller quantities, gold) in three separate ways.

The first was taxation: taxes in the Colonies were low by modern and contemporary standards but had to be paid in silver or gold.

The second was the sale in the colonies of goods on which the Crown had a monopoly.

The third was a 20% tax on all silver and gold which was imported from the Indies (almost entirely coming from the sales of European goods) and which was extracted at Seville the moment the ships arrived.

However the reality was much different: the Spanish Crown was always flirting with bankruptcy due to the expenses of maintaining large standing armies mostly made up of expensive mercenaries. The Crown took huge loans with a number of banking families and to repay these creditors the Crown often gave them rights to take a share from the sale of monopoly goods. The Fugger banking family got the lion’s share of quicksilver sales in the Americas and was given the monopoly on the sales of some American goods in Spain, chief among which was the guajaco, a wood essence used to treat syphilis and hence always in high demand.

Often the King’s creditors were waiting on the docks of Seville for the silver-laden ships: they carried letters from the Crown allowing them to take a cut directly from the ships cargo belonging to the Crown. This was often very large and in 1583 they took every single ounce of silver earmarked for the Crown.

Finally, people returning from the Indies became very adept at evading the 20% tax. In the confusion surrounding the arrival of seventy or more ships it was very easy to slip a large quantity of silver through the controls and many Crown functionaries contented themselves with much less than a 20% cut to “look the other way”. “Contraband silver” became huge business. Charles V was well aware of this state of affairs and tried to took “extreme” measures to extract every single ounce of silver due. We can all guess how well it panned out. It is said the thought of contraband silver coming from the Americas was the only thing that could enrage the usually imperturbable Hapsburg Emperor.

This can be regarded as an early documented instance of the Laffer Curve: as taxation approached a level perceived as unbearable by the taxpayers, they found ways to get around it. It must be understood that, despite the ruthlessness often displayed by its representatives, the Spanish Crown had neither the powerful repressive means nor the ideological apparatus of modern Social-Democracies and hence the apex of the Laffer Curve was placed much closer to zero than it is today.

Spanish policies regarding the colonies were aimed at the strictest protectionism. Only people from Castilla, Aragon and Leon were allowed to settle in the Americas, only Spanish merchants could sell goods in the Americas, the colonies weren’t allowed to produce a variety of agricultural goods and only Genoese bankers were allowed to export silver coinage and bars from Spain. The reality, however, was quite different.

Spain had no problems supplying the Colonies with large quantities of basic agricultural commodities like wheat, wine, olive oil, salted pork, etc., but could not meet domestic demand for more capital-intensive goods, let alone supply the Colonies. Spanish merchants ended up acting as mere middlemen, purchasing cloth, swords, glassware, firearms, etc., in the Flanders, Italy, France, etc., and reselling them for a profit in the Americas. Despite all the Crown’s efforts and the enormous wealth amassed this way, Spain’s capability to manufacture capital-intensive goods grew at an anemic pace, well below demand. This is all the more baffling considering the fact that both Milan and the Flanders were Spanish possessions and both experienced a boom in their capital-intensive productions in the same period as a result of both the increased demand and the availability of large (by contemporary standards) quantities of capital.

Also, despite all its efforts, there was nothing the Spanish Crown could do to keep silver at home. Spanish merchants had to pay for their goods and smuggling (especially in Catalunya) was booming. However it must be remembered that the Crown was the first “exporter” of silver: wherever her armies went, huge quantities of silver followed. Not only that but the huge debts the Crown had with numerous banking families all over Europe meant that large quantities of silver quickly found their way to Genoa, Antwerp, Milan and Augsburg.

Two Spanish dollars from the late XVI century. Top one was struck in Segovia, bottom one was struck in Potosì

Two Spanish dollars from the late XVI century. Top one was struck in Segovia, bottom one was struck in Potosì

Finally let’s turn an eye on which form Spanish silver took. Originally silver was shipped from the colonies exclusively in ingots. In 1535, to supply the colonies with currency, the first American mint was opened in Mexico City. In 1574 another started operating in Potosì. Starting in the last quarter of the XVI century silver was shipped both in ingots and coins from the Americas

A Spanish dollar struck at the Sevilla mint in 1600.

A Spanish dollar struck at the Sevilla mint in 1600.

Spain itself had a number of well developed, high quality mints. During the late XVI century these were reorganized: the mints in Burgos, La Coruna, Cuenca, and Valladolid were shut down, while the Madrid mint, despite the large capitals invested, never really took off and was abandoned during the reign of Philip II. This reorganization left mints in Barcelona, Granada, Segovia, Sevilla, Toledo, and Zaragoza. All these mints produced large quantities of coins but the two largest by far (both by output and importance) were the Segovia and Sevilla mints. Segovia saw her output grow so much it had to be split in two, with one facility inside the old city walls and another (using a water mill to strike coins, an innovation imported from Germany) outside the city walls. Sevilla was, at one time, the largest mint in the world, employing 200 skilled workers plus an unknown number of laborers. Other mints (of secondary importance) were located in the Spanish controlled cities of Antwerp and Milan.

All these mints struck reales, the Spanish coin originally introduced by Pedro I, in ¼, ½, 1, 2 and 3 formats. As the quantity of currency started to to increase, so did prices and hence coin production adapted. The first to disappear was the 3 reales coin, replaced by a 4 reales coin. Then the ¼ and ½ coins were eliminated, followed by the 1 real. Given the inflationary climate, a new coin was introduced, the 8 reales also called Spanish dollar or peso de ocho. This is by far the most widely produced coin of the period and the star player of our story.

*An encomendero was a Spaniard ruling over a territory called encomienda. This was one of the defining features of early Spanish rule in the Americas. An encomendero was given a territory with a certain number of Indians to be colonized, Christianized and “civilized”. It was originally a form of reward for the men who had helped conquer the Americas. The power of the encomendero over the Indians was absolute and the system was very prone to terrible abuses.


Cipolla, Carlo M. Conquistadores, Pirati e Mercatanti, Bologna 1996, Il Mulino

Farres, Octavio Gil, Historia de la Moneda Espanola, Madrid 1976, Apartado

Hamilton, Earl J. American Treasure and the Price Revolution in Spain, London 1965, Octagon Books

Richards, John F. (editor) Precious Metals in the Later Medieval and Early Modern Worlds, Durham SC 1983, Carolina Academic Press


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