The Saga of Spanish Silver: an Austrian Perspective – Part 4: Aftershock

Part 1, Part 2 and Part 3

Given the large amount of silver available in the late XVI centuries, other high content silver coins started appearing in Europe, chief among which were the Dutch leeuwendaalers and rijskdaalers. These coins had a lower nominal silver content than Spanish dollars (.885 vs .909 for the Mexican coins and .916 for the Peruvian coins) but had one big advantage over their competitors: the silver content was stable.

The big issue is, despite her well developed minting industry, the Spanish Kingdom had serious issues (or no desire) producing coins of consistent purity. This issue has never been properly addressed: mints in Saxony and Italy had absolutely no problem striking consistent coins in the XV century already. Spanish authorities were obviously powerless (or unwilling) to deal with the issue: between 1630 and 1650 the Potosì mint produced an unknown number (running in the hundreds of thousands of pieces of eight) of coins with a silver purity under .400 instead of the prescribed .916. Despite being warned many times by both the Crown assayers in Cadiz and the Genoese bankers, the Spanish government intervened only in 1650. Both the governor of the Potosì mint and the chief assayer were put to trial in Spain, sentenced to death and brutally executed, yet there were many who felt these two men were either scapegoats or just accomplices in a larger counterfeiting scheme.
Again in 1664 the chief assayer in Genoa sent a letter to both his superiors and the Spanish Crown complaining that a recent shipment of pieces of eight struck in Sevilla had a much inferior silver content than prescribed. This time no action followed.

A 1642 edict from Genoa forbidding the use of Reales of suspected quality

In spite of all these issues, Spanish coins became the main mean of exchange worldwide. Again this is an example of Gresham’s Law: as the pieces of eight, known to be of very variable quality, started to become available in enormous quantities, more “reliable” coins, like the Dutch leeuwendaaler and the Venetian ducato, were “hoarded”, or to be more precise used as a mean to store wealth.
One of the most overlooked effect of the availability of this enormous mass of silver was it helped increase trade between Europe and Asia to unheard of before proportions.
Already in 1580 Spanish coinage was very common in Istanbul. It became even more common after the Great Currency Debasement of 1585-1586: in those two years the official Ottoman currency, the silver akçe was officially devalued by 100% against the Venetian ducato and its silver content was reduced by 44%. This measure was introduced both to help finance an ongoing war against the Safavids of Persia and to cope with a botched attempt at monetary unification (up to the reign of Suleiman The Magnificent the Ottoman Empire was divided in a number of semi-independent monetary districts).
The Venetian ambassador to the Porte, Vincenzo Tonarini, wrote to his superiors that both European and American coins were in very high demand in the Ottoman Empire and much preferred to local currency. He suggested Venice should change her business model and, instead of exporting manufactured goods to the East, started ship over both silver coinage and ingots*. Sadly his advice wasn’t followed and already in 1610 the Venetian government was lamenting its merchants had a very hard time trading in the East. The great Republic had begun her slow and unstoppable decline which ended in 1797, when she was annexed by France.
The Ottoman Empire had a heavily negative trade balance with both Persia (despite being traditional enemies) and sundry Indian kingdoms and this deficiency was made up by exporting silver coinage. Thus Asia was introduced to American silver and quickly began clamoring for more of it. Olearius, who visited Persia in 1637-1638, said European traders who paid in Spanish coinage could get “excellent” deals in Isfahan.
European merchants quickly became savvy to the deal: ships would leave their harbors in Rotterdam, London and Lisboa carrying only silver and return laden with exotic goods from the Far East. These luxury goods had been in very high demand for centuries but Europe had little to offer for them except for basic agricultural commodities, raw materials and weapons, none of which were very palatable to Asian buyers. There were some timid attempts at exporting objects de arts, but as European art was heavily based on Biblical themes it had no appeal to the Asian buyer: the Dutch even attempted exporting pornographic material (in form of “indecent prints”) but just found it easier and cheaper to export silver.

A XVII century trading vessel in a lithograph by Peter Brueghel

The Spanish dollars’ march eastward culminated with their arrival in China
When American silver first arrived, China was in a state of deep turmoil: the once all-powerful Ming Dynasty was in full decline, beset by her own weaknesses, internal revolts and the meteoric raise of the Jurchen, a tribal group from modern-day Mongolia which went on to found the Manchu Dynasty which was to rule China until 1912. In such chaotic conditions, local currency (mostly made up of paper notes and bronze coins) was nigh on worthless, to the point both the Jurchen and the Ming had taken accepting only gold and silver, in whatever form, as tax payment. China was ready and willing to gobble every last coin and ingot Europe could send her way.
The ingenious Chinese quickly came up with a very peculiar way to strike coins “on the cheap”: foreign coins were often cut in small pieces or clipped to replace local, worthless coins and notes. The vast majority of these maimed coins were melted into new coinage once the Manchu solidified their hold on power but a few examples have survived to this day, showing this bizarre but undoubtedly ingenious practice.

A clipped 8 Reales coin (minted in Potosì) found in China

How much silver did China absorb? It’s very hard to tell. In 1602 the Viceroy of Nueva Espana (Mexico) wrote to his superiors in Madrid to inform them the galleons bound for Manila had loaded about 140 (long) tons of silver that year. A modern estimate puts the quantity of silver exported by Portuguese traders to the Far East between 1550 and 1680 between 6 and 30 (long) tons per year.
Already in 1621 Gomes Solis wrote

“Silver roams throughout the world and always ends up in China”.

Obviously merchantilists decried (and decry to this day) the trade deficit but forget one critical thing: China acted as the “sinkhole” of the world for currency (silver), currency which as we saw in previous installments was having deleterious effects on Europe. Already around 1620 Europe, despite the beginning of the catastrophic Thirty Years War (1618-1648) and steady silver shipments from the Americas, was experiencing a period of deflation and raising interest rates. Unknowingly China had stabilized the world monetary system by absorbing a large chunk of the excess currency Spain had produced.
We are seeing the same today: China “absorbs” part of the inflation generated by Western governments thanks to her massive trade surplus, building large foreign currency reserves and using them to buy enormous quantities of Western bonds, thus artificially propping up foreign currencies even further . The difference is, of course, Spain could only mine so much silver from Zacatecas and Potosì before the mines started to decline in production (as they did after 1630) while modern day central banks can print as much currency as they want. Also while in the XVII century the Chinese had serious need for a more reliable currency (silver) to replace the heavily debased coins and notes issued by a government which stood on the brink of oblivion, right now China is gobbling up increasingly worthless foreign currency to prop up a heavily export-oriented economy, which is seen as the cheapest and quickest way to “widespread prosperity”, an easy way to “buy” social peace.
It will be interesting to see how the experiment will turn up. The final triumph of the Manchu over the Ming and their other enemies coincided with both a serious decline in output of American silver mines and the beginning of the deep revolution in European economy, society and thinking which in the XVIII century gave rise to both the Enlightenment and the Industrial Revolution. This allowed the world to reach a sort of equilibrium, as the monetary system became considerably stabler and Europe started to be able to export goods which were much more palatable to the Asian buyer in both quality and price. Conversely right now we don’t see any sign of change in Western monetary policies and industrial output in the so called “Developed World” is on a slow but seemingly unstoppable decline which is now accelerating as more and more capital is siphoned from the productive part of the society to both prop up a failed financial system and to meet growing entitlement expectations from large parts of the population. By contrast China, for all her issues, is accumulating capital at a steady pace and is slowly seeing the tight grip of the Maoist-era central planners loosen.
As always those who don’t learn from past mistakes are not only bound to repeat them all over again but to make new and much worse ones.

*Silver ingots in the XVI and XVII century were completely different from their present day, well minted descendants. They were more or less round in overall shape, very rough in appearance and due to the alloying metals used very easy to cut. Their overall resemblance to a loaf of bread was not lost to contemporaries who nicknamed them pastas, after unbaked loaves of bread.


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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One thought on “The Saga of Spanish Silver: an Austrian Perspective – Part 4: Aftershock

  1. Etjon Basha 01/03/2013 at 10:43 Reply

    Great series indeed. The implied heavy role of the American mines in Europe’s ascendance was very interesting.

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