Economic and Social Effects of Silver From the 16th to the 18th Century
Economic Effects in Spain
Discovering the New World was an undeniable victory for explorers from the 16th to the 18th century, but Spanish conquest of the New World would cause economic instability throughout Eurasia. In the early 1500s Spain inhabited most of Mesoamerica and Northern South America. There, they found enormous deposits of silver and began mining it with the help of the native peoples they had conquered. When speaking of the Spanish and their prolific silver production, Antonio Vasquez, a Spanish priest, said, “So huge is the wealth that has been taken out of this range…that, according to most accounts in the Spanish royal records, 326,000,000 silver coins have been taken out.” Japan also had large stores of silver and Ralph Fitch, a British merchant, described their relationship with Spain. “They have a great ship that goes to Japan every year and brings back more than 600,000 coins worth of silver.” Hing Qiaoyuan, a Ming Dynasty official, even described Spain as having “silver mountains.” Eventually, the influx of silver into Spain became so immense that inflation occurred because the standard of supply and demand changed. The economic principle supply and demand states that things that are rare are valuable. In Spain, silver was far from rare. There was so much silver that the value of silver currency went down and prices had to be raised higher to compensate.
Economic Effects in China
As Spain was falling into inflation, Ming China was falling into deflation. When Spain discovered the infinite supply of silver in the Americas, the Ming Dynasty saw a rising commodity and issued that any trade fees with the Ming must paid silver. China’s silver supply began to grow into the likes of Spain and Japan. However, rather than inflation being the result, as in Spain, deflation shook the Chinese economy. When deflation occurs the value of currency goes up. Therefore, prices have to go down because it takes less currency to purchase items that cost more before the value of currency increased. While lower prices sounds like a good thing for the consumer, when out of control, deflation can be detrimental to the producer and the free market. If the value of currency rises too high, businesses have to lower their prices to the point where they can no longer stay in business. Then not only is currency rare, but the things consumers wish to buy with the currency are rare also. Deflation in China was illustrated in a report to the Ming emperor by a court official, Wang Xijue when he said, “The venerable elders of my home district explain that the reason grain is cheap…is due entirely to the scarcity of silver coin. The national government requires silver for taxes but disburses little silver in its expenditures. As the price of grain falls, tillers of the soil receive lower returns on their labors, and thus less land is put into cultivation.” So, if so much silver was being funneled into China, why would silver be rare? Regardless of the Ming government’s motives, which cannot be fully known, history is clear that Chinese government officials were hiding and stockpiling China’s silver collections, rather then dispersing it back into the free market economy. Money is power and power is money, and the Ming Dynasty chose to invest that power in silver.
Spain and China Economic Summary
Tomas de Mercado, a Spanish scholar, illustrated the vicious cycle of Spain and China’s economy. “High prices ruined Spain as the prices attracted Asian commodities and the silver currency flowed out to pay for them.” The Spanish and Chinese economies were trapped in a vicious cycle. Prices were higher in Spain because of silver, so Spaniards gave more silver to China by buying things where prices were lower due to deflation because of silver! While trade connections and exploration were good and noble things in the 16th to 18th century, they, with the help of silver, caused economic instability for Spain and China.
Along with economic instability, the flow of silver from the 16th to the 18th century also caused social change by changing the mindset of European consumers and changing the relationship between buyer and trader. While debating a bill in Parliament, Charles D’Avenant, and English scholar said, “Europe draws from Asia nothing of use; only materials to supply luxury…but sends to Asia gold and silver, which is there buried and never returns. But since Europe has tasted of this luxury…it can never be advisable for England to quit this trade, or leave it to any other nation.” England understood that China’s economy was not a smart one to invest in, and that giving them more currency would not help matters. However, Europe had gotten used to the luxuries China provided: silk yarn, perfume, porcelain, spices, etc., and Parliament officials knew that Europeans would not want to live without them. In China, the relationship between buyer and seller adapted to the deflation occurring in the economy. Xu Dunquiu Ming, a 17th century writer, said in his essay “The Changing Times,” “In the past, the dye shops would allow customers to have several dozen pieces of cloth dyed before settling accounts and charging customers. Moreover, customers could pay for dying the cloth with rice, wheat, soybeans, chickens, or other fowl. Now, when you have your cloth dyed you receive a bill, which must be paid with silver obtained from a money lender.” Previously, stores and others offering services could have a more lenient, intimate relationship with their customers, but once deflation shook the Chinese economy, producers could no longer be sure of their earnings and had to be paid in the only currency that had meaning then: silver. Change came to Eurasia socially through a new European mindset and a new relationship dynamic in trade, all because of the flow of silver.
The flow of silver from the 16th to 18th century was the source of change economically and socially. Inflation, deflation, and a shift in the mentality and relationship of European consumers and producers were all effects of one precious metal: silver.