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3— Spenders and Hoarders the World Distribution of Spanish American Silver, 1550–1750*
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Spenders and Hoarders the World Distribution of Spanish American Silver, 1550–1750[*]


Anglo-Saxon history of economic thought, which may be ethnocentric, puts the beginning of the end of mercantilism, and especially its bullionist component, about the 1620s with the writings of Thomas Mun (1621; 1664 — the latter written in the 1620s), and the end in the 1750s with David Hume's Essays (1752). The picture is not completely accurate. The Italian city-states, especially Venice, permitted the export of precious metals received from central European mines eastward to the Levant in exchange for Middle Eastern and Asian luxuries, well before the flood of silver from Spanish American mines into Europe after 1560. Having liberated itself from the Midas complex (DeVries, 1976, p. 239), Holland in the early seventeenth century was more relaxed than England in allowing bullion and foreign coin to be exported. But the progression from bullionism to the price-specie-flow mechanism — from preoccupation with accumulating gold and silver to the realization that a self-equilibrating mechanism was at work — was confined to Europe over the two centuries it required. At the other ends of the


earth, in Spanish America (and Spain) and in the Middle and especially the Far East, different models prevailed.

Potosí in Peru (modern Bolivia), which produced silver in prodigious quantities from 1560, and Mexico to a lesser extent a century later, viewed silver as a commodity rather than money and were ready to part with it. Spain was like the rest of Europe in wanting to keep silver within its borders, but resembled Peru in being unable to hold on to it. In Asia, China and India were sponges that soaked up the streams of silver flowing through Europe (and the Philippines) from Spanish America. Instead of one developing price-specie-flow model, there were three: equilibrium, persistent deficits, and persistent surpluses. Peru, Mexico, and Spain were what are called today "high absorbers," economies that spent heavily for private and public consumption, including, in the last, military expenditure. China and India, on the other hand, were 'low absorbers", with high propensities to save or hoard. The demand for goods at one extreme and for silver and gold at the other was characterized in terms of the human condition: Potosí was "starved for goods" (Borah, 1954, p. 82). India had "a voracious appetite for precious metals" (Richards, 1983, p. 183) or "an ever-thirsty insatiable market" (for silver) (Perlin, 1983, p. 68). China had a "hunger for silver" (Parry, 1967, p. 210), or an "avidity" (Spooner, 1972, p. 77).

There is some question whether India and China were really different from Europe. Chaudhuri, who posed the question, thinks not (1978, p. 156), maintaining that the "role of silver in the commercial life of India may appear on closer examination to have been fundamentally determined by the same type of considerations as elsewhere" (ibid., p. 182). An expert on Chinese monetary history first noted that the Chinese government's silver revenues would normally have been spent in substantial proportion on goods and services and thus re-entered the economy and the monetary system, but that in the late Ming period (1368–1644), they fell into the hands of powerful political and military figures, many of whom chose to hoard. In a subsequent footnote, however, this expert questioned whether the Chinese habitually hoarded a higher percentage of their precious metals than other pre-modern peoples (Atwell, 1982, p. 88).

This paper is addressed to the economic forces that determined the amounts of silver that stayed in various countries or passed through. I write as an economist, not as an economic historian, responsive to Coleman's remark that economists make theories, and historians want evidence (1969, p. 2). The central issue is whether there is one balancing model of the balance of payments — the price-specie-flow model in the period concerned — or three, with persistent surpluses and persistent deficits along with balance. The analysis runs in terms of Alexander's


terms of absorption or spending propensities rather than the elasticities implicit in Hume's model based on prices. Several considerations govern the choice. In the first place, after decades of acceptance of the quantity theory of money and the explanation of the price revolution of the sixteenth and seventeenth centuries in Europe as caused by Spanish American silver imports, revisionists have begun to raise doubts. The rise in prices preceded the silver arrivals by several decades, and was much more pronounced in food than in prices in general, suggesting that it was caused more by real than by monetary factors, and especially by the faster comeback of population than of agriculture after the Black Death of the fourteenth century (Outhwaite, 1969). Secondly, price data in the Far East are fragmentary and localized. In India a discussion of "one great rise" of prices between 1610 and the mid-1630s relies on evidence on sugar, indigo, copper, and gold (Habib, 1982, pp. 275ff.); another on copper and indigo alone (Brennig, 1983, pp. 495–6). A discussion of Chinese prices is confined to rice, assumed to be representative of prices in general (Wang, 1972, p. 348). In this paper, it is assumed that gains or losses of specie are based on low or high absorption as much as on low or high prices; of course, the two may be correlated. The monetary approach to the balance of payments under which an excess supply of money, relative to demand, spills over into imports of merchandise and exports of specie, and an excess demand into a merchandise surplus and imports of specie, may have it right for the Far East. In Europe of the sixteenth and seventeenth centuries, however, mercantilist concern for an export surplus to add to the money supply was especially strong because the bullion famine of the fifteenth century had been a consequence of luxury imports from the East that had drained the money supply (Day, 1978).

Among the forces that determined the balance of payments, then, were prices, the money supply, and, of primary concern here, spending and non-spending or hoarding. How much specie and coin were used as money, how much sought as assets for conspicuous consumption or insurance against disasters of one or another sort, and, of the money, how much was retained in the country to help circulate national income, how much spent abroad?

The suggestion that persistent surpluses and deficits can occur alongside the balancing model has some relevance to the present day with dollars (silver) pouring out of the United States (Peru, Mexico, and Spain), circulating into and out of Europe, and ending up — some going directly, to be sure — in the coffers of Japan and Taiwan (India and China). The parallel is inexact because the mining of silver in the earlier period was an economic activity based on costs and selling prices, whereas the dollars in excess supply since at least 1971 have been produced


costlessly. The pattern of the world distribution of Spanish silver, therefore, is of interest both in its own right and as a cautionary tale for the United States today.


The period from 1550 or 1600 to 1750 in Europe, and various portions of it, are widely described in the historiography in terms of "crisis". Sometimes the crisis is financial, sometimes real. The word "crisis" appears often in the title of histories: DeVries (1976) covering 1600 to 1750, with the emphasis on finance, and a book edited by Aston (1965), covering 1560 to 1660 and dealing largely with real factors, are examples. The latter contains essays by Hobsbawm and Trevor-Roper on crisis in the seventeenth century, both in real terms: Hobsbawm ascribing it to the transition from feudalism to capitalism, Trevor-Roper to the changes taking place between society at large and the emerging nation-state.

Many of the crises pointed to are local. Crisis in Venice is typically thought to have arisen after the Age of Discovery of the fifteenth century because of the diversion of trade with the East from Venice—Aleppo and Venice—Alexandria to direct trade around the Cape of Good Hope, first in Portuguese caravels and, from 1600, in the ships of the Dutch and English East India companies. An idiosyncratic view is that Venetian trade to the Levant continued for a century after 1550, and that the decline of that city-state was rather the result of British competition with Venice, not without deception, in woolen textiles and soap (Rapp, 1976). Trade depression in England in the 1620s has especially been seen in crisis terms, with a variety of not necessarily exclusive causes such as Alderman Cockayne's abortive project for forbidding the export of unfinished, undyed cloth to Holland for dyeing and finishing there, the East India Company's exports of silver to the Far East, and especially the debasement of Polish and German currencies as a result of the Thirty Years War (Gould, 1954; Supple, 1959, ch. 4). Another view suggests that part of the English crisis of 1621 may have been related to a cutoff of Dutch lending to Britain in response to the arrest and trial in Star Chamber of eighteen prominent foreign merchants — mostly Dutch — on charges of exporting £7 million in coin — a large sum for those days (Barbour, 1966, pp. 53, 123). There was occasional crisis in particular markets, as in 1619 when the short Anglo-Dutch war in Asian waters ended and both East India companies brought heavy shipments to Europe, resulting in a pepper glut. Related to the Polish and German currency debasements was a flood of copper over Europe from Sweden as it ransomed the fortress of Alvborg from the Danes in compliance with the 1613 Treaty of Knared — copper used to extend the coins of


Spain as it ran short of silver and to adulterate the outputs of Polish and east German mints in the Kipper- und Wipperzeit (period of clipping and debasement).

The connection between real deep-seated change and financial crisis is illustrated by the Polish and East German debasements. The grain-export boom in those countries was the consequence of the rise in populations recovering from the Black Death of 1348, and especially the rise of towns in southern and western Europe faster than agricultural output came back. In the debate between monetarist and real-forces historians, this is the explanation of the latter for the price revolution of the sixteenth century rather than the later sharp increase in silver imports from Spanish America. The comeback of agriculture in the west of Europe in the seventeenth century was critical for east Germany and Poland. The changing structure of agriculture in the west produced a crisis there as well (Ruggerio, 1964). Rice competed with wheat in Italy and Spain as maize did in France. New products of mass consumption were appearing — sugar, maize and tobacco from the New World, calico and tea, to add to the luxuries of pepper, spices, porcelain, and silk, from the Far East. A transition was under way from traditional society based on self-sufficient peasants at the bottom to a market society using money to buy mass consumption goods, not only in food but also in the new instead of the old draperies. As part of this transition, monetization increased, and hoarding decreased. The changes did not come all at once all over Europe, but at different rates in different countries. Postan and Braudel each dismiss theories based on discrete stages which follow one another in succession, for example, that of Hildebrand, postulating stages of natural economy, metallic money and credit, or materialism (self-sufficiency), market economy and capitalism. Postan (1973) and Braudel (1981; 1982; 1984) both claim they overlap. The real aspect of the crisis in Europe between 1550 and 1700 was that these changes — at different rates in different countries — were moving more rapidly.

Crises were not confined to Europe. Two recent articles on seventeenth-century Asia have the word "crisis" in their titles (Atwell, 1986; Wakeman, 1986), in one instance in quotation marks. Atwell (1986, p. 222) calls attention to the literature on crisis in Europe before asking whether there was a little ice age in the seventeenth century in the world as a whole. It is hard to see the connections.


There is a dispute in the literature on mercantilism whether it was largely an issue of money supply, or one of building the national state.


This need not concern us here as my interest is in the monetary aspects. There is something of a tendency today to regard the bullionist aspects of mercantilism as error, based on the failure of observers of the period to understand the self-equilibrating nature of specie movements, later recognized and elaborated by Hume. This negative judgment is being modified. It is recognized that in trading with the East, the self-balancing mechanism did not function well, if at all. In Roman times, the Mediterranean world lost gold to the Middle and Far East (Simkin, 1968, pp. 45–6), and in the late Middle Ages the drain was continuous. The Middle East is called by Ashtor (1971) a sponge economy, soaking up gold and silver. Most of the gold was produced in the Sudan until the Italians and Portuguese diverted it after the sailors of Henry the Navigator made it around Cape Bojador in 1434 to the Gold Coast (now Ghana). The silver came largely from the mines of Central Europe, shipped by Italian merchants, mostly Venetians, with some from Central Asia (Ashtor, 1971, p. 39).

Day (1978) has described the "Great Bullion Famine of the Fifteenth Century" and Vilar (1976, p. 63) explains that the basic purpose of Columbus's voyage across the Atlantic was to obtain gold, a metal that he mentioned at least sixty-five times in his diary during the passage from August 3 to October 12 1492. With metallic coinage shrinking, trade rising, and a lag in the spread of Italian methods of credit, especially bills of exchange, bullionism was not a simple fallacy, like that of misplaced concreteness. "In economies without fully developed credit institutions, central banks and fiat moneys . . . concern about a country's coinage was hardly irrational" (Munro, 1979, p. 176). Such a mercantilist as Thomas Mun, who had been a merchant in Leghorn in the 1590s before joining the East India Company on its creation in 1600, knew about bills of exchange. In a famous passage, he stated that if the exchange in Amsterdam is against London because of an unfavourable balance of trade, the East India Company could obtain guilders to buy Spanish reals in Amsterdam by contemplating the countries where England had a favourable balance, "Spain, Italy, Florence, then next to Frankfurt or Antwerp until at last I come to Amsterdam" (Mun, 1664, p. 167). Mun scorned Maynes's view that country could control its exchange rate — a thought not irrelevant to the world of today — observing:

I have lived long in Italy where the greatest Banks and Bankers of Christendom do trade, yet I could never see nor hear, that they did, or were able to rule the price of Exchange by Confederacie but still the scarcity or plenty of mony in the course of trade did overrule them. (Ibid., p. 171)

The bill of exchange was spreading rapidly within Europe at this time. In 1585 bills on Amsterdam were traded in Antwerp, Cologne,


Danzig, Hamburg, Lisbon, Lübeck, Middleburg, Rouen, and Seville. By 1634 six more cities had been added, including Frankfurt, London, and Paris; by 1707 nine more (Sperling, 1962, p. 451). By Hume's time (the 1750s) the network had grown to resemble that of the time of Alfred Marshall more than a century later (Price, 1961, p. 273), sharply reducing the necessity for settling bilateral balances in Europe in specie, when overall trade was more or less balanced. But trade between Europe and the East was not in overall balance.

Data on Specie and Specie Flows

I choose not to try to sort out the great variety of estimates of specie production and flows into and out of Europe as a whole, and certainly not country by country. Figures for world production of silver have been produced by Hamilton (1965), reworked and supplemented with those for gold by Vilar (1976) as shown in Table 3.1.

The rise in gold output after 1680 is because of the discoveries at that time in Brazil. After declining from its 1580–1620 highs to 1700, silver production picked up in Spanish America in the eighteenth century since output in New Spain (Mexico) rose higher than it declined in Peru.

Precious metal arrivals at Seville were given by Hamilton by decades (and converted into rixdollars, broadly equal to one piece of eight or real , also spelled rial , in Arab countries riyal , and the plural in French réaux ) based on the records of the Casa de la Contratación (House of Trade). For a long time these data led to the belief that silver imports


Table 3.1 World average annual production of gold and silver, 1493–1740 (in thousands of ounces)








































Source: Vilar (1976, p. 351)


from the New World declined from the 1630s. Subsequent investigators have challenged this widely accepted view, noting in part that there was a break after about 1630 when the bar on the Guadalquivir River at San Lucar shifted and larger ships could not make their way to Seville, but unloaded at Cadiz twenty leagues downstream. Cargoes of precious metals were required to be transported intact overland to the Casa de la Contratación in Seville (Haring, 1918, p. 10), but they may not have been. The same was required of the occasional cargo that was unloaded in Lisbon. In addition there was smuggling, and diversion of silver directly from the flota to foreign merchants and their ships. Everaert (1973) and Morineau (1985) have challenged the Hamilton figures, the former for a limited number of years on the basis of French consular reports for 1670–90, the latter on the evidence of newspaper reports from 1600. The several estimates are compared by Attmann (1986) in Table 3.2. These data do not include the exports of silver from Peru via New Spain to the Philippines, by way of the Manila galleon, discussed below.

The impact of the precious metals from Spanish America on Europe will be touched upon presently. First observe that most of it was passed through to the East. Charles Wilson asserted that "On balance there seems to be little reason to doubt that over long periods of time, Europe exported at least as much silver as it received" (1967, p. 511). This con-


Table 3.2 Imports of precious metals into Spain, 1530–1700 (in millions of rixdollars per year)


































































Source: Attman (1986, Tables 1.1 and 1.5, pp. 14 and 18).


clusion is broadly supported by the recent estimates of Attman who also states: "The bulk of the supplies of precious metals to Spain and Portugal between 1650 and 1750 were re-exported from Europe to the East" (1986, p. 33). His data show a comparison of precious-metals production with arrivals in Europe and exports East, annual figures for selected years in Table 3.3 and exports by proximate destination, overall in Table 3.4, and by Holland in Table 3.5.

Figures for the separate flows from Europe to the East, by three streams, were estimated in an earlier work by Attman (1983), and the overall figures do not agree exactly. Table 3.4 shows yearly averages about the time of the selected years, Table 3.5 Dutch exports which accounted for somewhere between a half and two-thirds of the total.

In connection with the data on European specie exports to the Baltic (in Table 3.4) Attman insists that the figures are minimal and should not be reduced (1983, p. 12). This certainty reappears in his 1986 discussion of Morineau's work, where he accepts the figures for production but rejects Morineau's resulting estimates for the European monetary stock because Morineau "greatly underestimated the precious metal requirements of the Baltic trade" (Attman, 1986, p. 75 note).


Table 3.3 Circulation of precious metals, 1550–1800 (in millions of rixdollars per year)









In Spanish America








In Brazil (gold)





Supplies from America


To Spain








To Portugal





Bullion Flow to the East








Source: Attman (1986, p. 33).


Table 3.4 Annual exports of precious metals from Europe to the East, 1600–1750 (in millions of rixdollars)

Proximate destination










Baltic (incl. Archangel)





Route around Cape










* Includes some balancing bills on Leipzig.

Source: Attman (1983, p. 12). The figures in parentheses are less certain.


Table 3.5 Holland's bullion exports, 1600–1780 (in millions of rixdollars)

Proximate destination






The Levant












Eastern Asia












Source: Attman (1983, p. 103).

The Producers

The flow of precious metals from Europe to the East via the Levant long antedates the Age of Discovery that produced the route around the Cape of Good Hope and the torrent of output in America. Roman gold coins have been discovered in abundance in India, and Pliny complained of the drain thither. Silver from central Europe and central Asia was soaked up before and during the thirteenth century by Eastern countries with a "silver famine" (Ashtor, 1971, ch. 2, quotation from p. 31). But the massive movement begins in the second half of the sixteenth century, well after Columbus, following the discovery in 1545 of Potosí (see Figure 3.1), a mountain rich in silver ore, and the surge in its output in the early 1570s with the introduction of the mercury amalgamation process and production of mercury at not-too-distant Huancavelica, discovered in 1567, eliminating the necessity to bring it from the Almaden mines in Spain (Vilar, 1976, ch. 14).

Vilar (1976, chs. 14–16) sets out a detailed account of the production of silver in Peru and Mexico, and its passage through and around Spain.

Braudel's three magisterial volumes on Civilization and Capitalism recur to monetary questions at various places (especially 1981, ch. 7; 1982, passim ; 1984, pp. 413–25). It suffices here to note that Potosí produced a silver madness, the city growing from nothing in 1545 to a population of 45,000 by 1555, 120,000 by 1585, and 160,000 by 1610. There were 700–800 criminals, 120 white prostitutes, 14 gambling houses, and 14 dance halls. The city spent 8 million pesos to celebrate the succession to the throne in 1556 of Philip II. Indian labour was virtually enslaved. Imported goods were expensive and importing merchants rich. The population was "inordinately given to luxury and display, and recklessly extravagant", and the "heart of the Indies, leading a riotous career of indulgence for which the stream of silver from the Cerro furnished abundant means . . ." "A city of feverish life, called by a Portuguese by reason of its riches the most fortunate and happiest of cities" (Schurz, 1939, pp. 365–6).


Figure 3.1
Spanish America in the sixteenth and seventeenth centuries


Peru produced little except silver, and imported most of its consumption goods, either in a trickle from Spain, transported from the Atlantic to the Pacific across the Isthmus, or from Mexico and via Mexico and Manila, from China, the counterpart of the silver shipped in the Manila galleon that began with the settlement of Manila in 1571.

The Manila Galleon

The flow of silver that went from Peru and Mexico — the port of Acapulco — to Manila and thence largely to China, is not included in Tables 3.2 to 3.5 and cannot be tabulated as readily. The trade began in 1573 and lasted until 1815. In an effort to attract the silver to Spain and to preserve the Peruvian market for Spanish silks, the Spanish crown tried to limit the Manila trade, but with little success. By 1590 between 2 and 3 million silver pesos were going annually to Manila and in 1597 the figures reached 12 million (Borah, 1954, p. 123). At this stage the movement had grown so large — equal to the shipments across the Atlantic to Spain — that the king increased his measures to stop it. The size of the permitted ships, and their number each year, were limited. In 1631 the trade was forbidden altogether, provisionally for five years and then permanently, but success was small (ibid.). The trade lasted in all two and a half centuries, with the regulations a dead letter (Schurz, 1939, p. 185). In 1770 one Boana provided a list of six irregularities in the form of false oaths, perjury, excess loads, and violations of silver limits, with bribes paid to Spanish officials. The motive for concealment was so strong that figures on the trade, merchandise and silver alike, are impossible to believe. Wild rumours abounded. One ship took 2,791,632 pesos to Manila from Acapulco in 1794, and a contemporary estimate gave 1.5 to 2 million pesos per vessel with one to four vessels a year (ibid., p. 189). Governors of the Philippines were said in 1767 to accumulate 300,000 to 500,000 pesos above expenses in four or five years, and merchants and officials conspired to frustrate attempts of the extraordinary Spanish inspectors investigating fraud.

Peruvian and Mexican silver reached China by way of Manila not only by Chinese traders arriving annually from Canton in junks. Beginning slowly in 1644 and picking up especially in the eighteenth century, though with interruptions for European wars, several groups in India brought primarily cotton cloth to Manila to exchange for silver. This "country trade," as it was called to distinguish it from bilateral trade with England, was conducted originally by Company servants, then by English free merchants, Armenians resident in India and finally by the East India Company itself. It is not completely clear from the


detailed study of the trade how much of the silver was brought back to Madras, the main seat of the business after the British had been driven out of Bantam by the Dutch, and how much was taken to Canton to be exchanged for such goods as silk, tea, and porcelain for Europe. But it has been estimated under assumptions that in the first half of the eighteenth century 45 percent of the silver reaching Madras, which received approximately half of the East India Company's silver shipment to India as a whole, came from Manila (Quiason, 1966, pp. 75–6). Quiason estimates that the total flow from Manila to China exceeded that to India, but it unable to break it down as between Chinese junks, on the one hand, and the "country trade", on the other. In the first half of the eighteenth century, the total flow from Manila to China greatly exceeded that to China direct from England, but by the middle of the century the two amounts were approximately equal. The "country trade" with Manila came to an end, however, in 1762 when the British captured Manila, killing the goose that laid the silver eggs.

It is not clear from accounts whether Peru was short of money as Spain was, as we shall see, and as was New Spain (Mexico). Mexico was drained of its pesos by the exactions of Madrid, which claimed a large share of mining, state monopolies and state taxes not spent in the colonies (Borah, 1954, p. 83). In addition, Mexican groups complained that the Peruvians bought too much of Spanish and Mexican wares in Mexico City, making goods as well as money scarce (ibid., p. 120). Potosí and Lima were famous for their imports of luxury goods from China via Manila and Acapulco — silks, porcelain, lacquer ware, precious stones and pearls. Imports into Lima from China may have reached 2 million pesos regularly and, in the peak year 1602, 5 million (ibid., p. 123). Mexican merchants made substantial profits from this trade, pouring from Mexico City over the "China Road" to Acapulco when the Manila galleon arrived (Schurz, 1939, p. 381). By no means all goods were sold to Peru. All classes in Mexico wore fabrics of the Far East — cottons of Luzon, silks of China, calicos of India — and both men and women in the early seventeenth century were extravagant in their apparel, for example, wearing a hatband of diamonds in a gentleman's hat, and one of pearls in that of a tradesman. Millions of pesos of gold, silver, pearls, and jewels could be seen in jewelry shops (ibid., pp. 362–3). Attempts to control the quantities and flow of trade were futile as corruption and venality abounded in Mexico, Peru, and Manila (ibid., passim , but especially pp. 136, 173, 176, 184–7, 194, 204, 369). Charles V is quoted as having said that it was easier to keep the Flemish from drinking than the Spaniards from stealing (ibid., p. 399). The Manila galleon belongs to the story at the absorbing end, especially China, but our major concern is with the flow around the world counterclockwise.



Despite smuggling and privateers most silver from America shipped in the flotas arrived in Seville and Cadiz. It did not stay long. It remained long enough, however, to produce disaster. A Spaniard in 1650 discussed the ruin brought about by inflation in these terms:

the possession and abundance of such wealth altered everything. Agriculture laid down the plough, clothed itself in silk and exchanging the workbench for the saddle, went out to parade up and down the streets. The arts disdained mechanical tools . . . Goods became proud, and when gold and silver fell in esteem, they raised their prices. (Quoted in Vilar, 1976, pp. 168–89)

Spain suffered from an acute case of what is known today as the "Dutch disease," in which brilliant success in one activity (silver) raises wages to the point where they stifle the rest of the economy (Forsyth and Nicholas, 1983).

The Habsburgs were forced to rely completely on foreigners in supplying the colonies: five-sixths of the outbound cargoes in the sixteenth century were supplied by foreigners (Haring, 1918, p. 113). In 1702 Cadiz, with a monopoly of Spanish overseas commerce, had 84 commercial houses of which 12 were Spanish, 26 Genoan, 11 French, 10 English, 7 from Hamburg, and 18 Dutch and Flemish. At the end of the eighteenth century, 8,734 foreigners were resident in Cadiz, 5,018 Italian, 2,701 French, 272 English, 277 German and Flemish, etc. (Dornic, 1955, p. 85). Spanish manufacturing had been virtually destroyed, and an immense amount of linens came to Cadiz, a turning table for Europe and the Spanish colonies, from France, Flanders, Holland, and Germany (ibid., pp. 83, 86). Da Silva comments that in Spain as a whole, merchants dominated producers and financiers dominated merchants (1969, pp. 607, 620). The internal trading network was weak as interior bills of exchange were prohibited because of usury. Seville could not count on credit facilities to provision the fleet going to the colonies, and Aragon and Castile found it difficult in consequence to export. Indeed exchanges between Seville and Castile required shipment of gold to the north (ibid., pp. 604, 605). Transport in mountainous Castile was difficult enough; financiers, both domestic and foreign, turned their attention to the market for silver and financial transactions, largely abroad (ibid., p. 620).

One industry flourished: silversmithing. In Seville this was the highest class of artisans, along with pharmacists, and some smiths were rich. In her discussion of Seville society, Ruth Pike mentions silversmiths numerous times, either as individuals of wealth, or members of the upper class (1972, pp. 132, 137, 139, 141, 143, 145, 146, 147). Silver-


smithing presumably took place elsewhere in Spain on a sumptuous scale. The Duke of Alva of Toledo, who had served as captain general of the Spanish forces in the Netherlands, and again in the court of Philip II in Madrid, a man without a reputation for wealth, on his death in 1582 left 600 dozen silver plates and 800 silver platters (Braudel, 1981, p. 463).

But most of the silver shipped to Spain from America was diverted elsewhere in Europe or passed quickly through. The Spanish tried to restrain the hemorrhaging, but without success. "Scarcely has it come than it disappears." "When a fleet comes in from the Indies with much money, within a month there is no good money to be found for it is all exported in different ways" (quoted by Vilar, 1976, p. 166). Spain ended the seventeenth century relying mainly on billon , a compound largely of copper.

The silver left Spain by many routes. Some was paid out immediately to requite bills of exchange drawn on local banks or on foreign representatives for goods delivered to Seville or Cadiz. This might be shipped north to Amsterdam or London; or ships of the East India Company or the Dutch counterpart, the Verenigde Oostindische Compagnie (United East India Company or VOC), would stop at Cadiz to pick up silver for carrying to India and what is now Indonesia (Chaudhuri, 1978, p. 171). A large portion of the silver, however, was required to pay the asientos drawn by the Spanish government on German or Genoese banks, or by suppliers of the Spanish troops in Flanders on the Spanish government, to pay the troops fighting in the Spanish Netherlands, and for arming ships of war to fight against France, England, and in the Mediterranean. The problem of the troops in Flanders was particularly exigent. If the troops were not paid they would mutiny or desert as they were largely mercenaries. Spanish soldiers were regarded as superb fighters but as a rule they made up only five or six thousand at a time of armies that reached 84,000 men in 1574 and 300,000 in 1625. The rest were hired in the Spanish Netherlands, Italy and especially Germany (Parker, 1972, pp. 6, 42). Mutinies occurred 45 times between 1572 and 1607, and the more violent of them resulted in the sack of towns (ibid., p. 185).

Asientos were of two types, Spanish and Flemish. The Spanish were negotiated by the Council of Finance in Madrid, though handled at Medina del Campo outside Seville, with businessmen who contracted to provide local funds at given times in foreign places, typically Paris, Lyons, Savoy, Frankfurt or the Genoan fairs of "Besançon" (in Italian transliteration Bizenzone), which for the most part meant Piacenza outside Genoa. Flemish asientos originated with the Spanish troops in Flanders when the king's governors or captain generals obtained local


moneys, often from German bankers such as the Fuggers and Welsers, against payment in Spain. Asientos usually included a license to export silver from Spain (Lapeyre, 1953, pp. 18–19). The silver might be shipped for Spanish account from Barcelona to Genoa, converted into gold and transported via the "Spanish Road" from Piedmont to Savoy, Franche Comté and north through Lorraine to Flanders (Parker, 1972, p. 59). Much of the silver went to Flanders by sea — the so-called "English Road" — from Cadiz to Dover to Flanders, except during outbreaks of war between Spain and England (Attman, 1986, p. 59). Simon Ruiz, the Spanish banker, had a brother in Nantes in France and shipped silver to Flanders through that city and Paris under safe conducts granted by the French with the proviso that one-third of the coin be left in France (Lapeyre, 1953, p. 25). Sometimes silver was used to buy Netherlands currency from the Portuguese, who obtained it with pepper.

The war lasted 80 years, with fighting building up and dying down. In 1572, it cost 1,200,000 florins a month while the Spanish were able to provide only 7,200,000 in all of 1572 and 1573, so that by July 1576 the troops were owed 17,500,000 florins. In September 1575 Philip II declared himself bankrupt, cancelled all licenses to export silver and paid off the asientos in juros , long-term bonds denominated in reals. By August 1576 the entire army had dissolved in mutiny and desertion (Parker, 1972, pp. 136–7). A more far-reaching bankruptcy occurred in 1596 when the king, attempting to repair his finances, signed asientos for a total of 4 million ecus, 280,000 a month, but was unable to make good. He revoked licenses for exporting specie on all earlier asientos , and took over revenues that had been assigned as surety to creditors. The pinch in Flanders was so tight that it was said that the captain general did not have enough money for lunch. This was the crisis that crippled the Fuggers of Augsburg and caused the collapse of Genoan credit (Lapeyre, 1953, ch. 4). In due course the debts were settled with the liberal use of juros and the resumption of payments in silver arriving from America. There were later royal Spanish bankruptcies in 1607, 1627, 1647, and 1653, with more asientos converted forcibly into juros . Spain fought long, hard and losing battles with the aid of American silver, but it did not retain it as money.

David Hume thought that there was a sort of inevitability about Spain's inability to hold on to its silver:

Can one imagine, that it had ever been possible by any laws, or even any art of industry, to have kept all the money in SPAIN, which the galleons had brought from the INDIES? Or that all the commodities would be sold in FRANCE for a tenth of the price they would yield on the other side of the PYRENEES, without finding their way thither and draining from that


immense treasure? What other reasons, indeed, why all nations, at present, gain in their trade with SPAIN and PORTUGAL; but because it is impossible to heap up money, more than any other fluid, beyond its proper level. (1752, p. 335)

The hydraulic metaphor had other uses, however. An English merchant of Thomas Mun's time, expressing the general concern for the loss of specie to the East, said "Many streams run thither [India], as all rivers to the sea, and there stay" (quoted by Thomas, 1926, p. 8). And Mun himself anticipated Hume's conclusion, if not his rhetoric, in giving Chapter 4 of England's Treasure by Forraign Trade the sub-title "The Spanish Treasure cannot be kept from other Kingdoms by any prohibition made in Spain" (1664).

European Demand

In his well-known "Digression Concerning the Variation in the Value of Silver," Adam Smith observes that the demand for silver has two components. As wealth increases, the demand for silver as coin increases in order to circulate a greater quantity of commodities. And wealth also leads to the acquisition of more plate, from vanity and ostentation, "like statues, pictures and every other luxury and curiosity" (Smith, 1937, p. 188). Smith elsewhere distinguishes between goods the value of which derives from "use and necessity" and those based on "fashion and fancy" (ibid., pp. 114–15). The demand for precious metals comes partly from utility and partly from their beauty. A silver boiler, for example, is cleaner than one of lead, but the principal merit of silver is beauty, which renders it particularly fit for the ornaments of dress and furniture (ibid., p. 172).

The matter is more complex. Precious metals may be hoarded not for ostentation and display but as insurance, in which case they are often hidden. "In . . . Asia [there is an] almost universal custom of concealing treasures in the bowels of the earth, of which knowledge dies with the person . . ." (ibid., p. 208). Ostentation and insurance can be complements rather than substitutes, as in the case of silver and gold plate, capable of being coined, and war chests may be thought of as insurance if needed for defence, or ostentation if preparatory to conquest. Thomas Mun, a mercantilist and anti-bullionist, thought some national treasure — "by forraign trade" in a country without mines like England — was necessary, but observed that it should not be entirely in bullion. England's Treasure should consist not only of specie but also of

ships of war with all provisions . . . Forts . . . Corn in Granaries of each province . . . and Gunpowder, Brimstone, saltpeter, shot, Ordnance,


Musquets, Swords, Pikes, Armours, Horses, and in many other such like Provisions fitting War. (1664, p. 188)

The Northern monarchs — Gustavus Vasa, Ivan the Terrible, Charles XI, Frederick William I, for instance — were not so sophisticated but were "hoarders of a type that was disappearing in countries that were advanced economically (Aström 1962, p. 84).

This brings us to the central issue, whether the traditional view that hoarding in India and China was a reflection of financial lack of sophistication or whether their use of precious metals was much the same as that in Europe (see Figure 3.2 for a political map of Europe at this time). Observe that practice in Europe differed widely. In discussing Indian hoarding, Keynes adverts to hoarding in Europe. Of India he says:

India, as we all know, already wastes far too high a proportion of her resources in the needless accumulation of precious metals. Government . . . ought to counteract an uncivilized and wasteful habit. (1924, p. 99).

Then he states further on:

There is no one now living in England within whose memory hoarding has been a normal thing. But in countries where the tradition is but lately dead or still lingers, it is apt to revive with astonishing vitality at the least sign of danger. France, Germany and especially Austria during the Balkan wars . . . very remarkable. If this is still the case in Europe, there can not be much doubt as to what would happen in India. (Ibid., p. 165)

These remarks relate to the early part of the twentieth century. In commenting on France, Wicksell refers to the bas de laine (woolen stocking) in which the peasant stores gold coins, and went on to quote a witness to the British Gold and Silver Commission of 1887 who thought it remarkable that a hotel owner in southern France with a turnover of a million francs annually would point to his safe, where gold coins were kept, and say "That's my bank." He compared this with the father of Alexander Pope who was said to have retired two hundred years earlier with £20,000 in gold and silver coins which he drew for spending money for the rest of his life (1935, p. 9).

Hobsbawm underlines the fact that, even in the nineteenth century, the French peasant, whether rich or just well-to-do, did not use much money, forming "an uninviting market for mass manufactures". Their wants were traditional. Wealth went into land and cattle, or into hoards, or new buildings, or even into "sheer waste like those gargantuan weddings, funerals and other feasts which disturbed continental princes at the turn of the sixteenth century" (1965, p. 26). Robert Forster, a historian of French families in the eighteenth century, records widely varied attitudes toward money and its use. One command in 1736 was


Figure 3.2
Early modern Europe


for sale for 160,000 livres, 60,000 in coin (1971, p. 33); the Marquis de Tesse left 500,000 in cash (argent comptant ) (ibid., p. 52). On the other hand, the father-in-law of one of the Deponts who died in 1766 left an estate of 653,040 livres, only 1,436 in specie (Forster, 1980, p. 114) whereas the grandfather-in-law in 1748 left an estate which was audited at 42,429 livres with 15,000 in specie. Equally varied were the tastes of the Danse and the Mottes, families of Beauvais who dyed linens for export to the Spanish colonies via Cadiz when they went out of style in France. Nicholas Danse, the Beauvais bleacher, died in 1661 with property worth 110,000 livres. He was interested in neither silver nor jewelry (Goubert, 1959, p. 52). The Mottes, merchants of the same town, however, were bemused by great luxury — silver, jewels, silk cloths, and indiennes , the French word for calicos (ibid., pp. 34, 149).

In the eighteenth century, France required a great deal of bullion, as explained by Hume:

It is not to be doubted, but the great quantity of bullion in FRANCE is, in great measure, owing to the want of paper-credit. The FRENCH have no banks: Merchant bills do not circulate there, as with us: Usury or lending on interest is not directly permitted; so that many have large sums in their coffers; great quantities of plate are used in private houses; and all churches are full of it. By this means, provisions and labour still remain cheaper among them, than in nations that are not half so rich in gold and silver. (1752, p. 338)

Hume goes on to say:

Our modern politics embrace the only means of banishing money, the using of paper-credit; they reject the only method of amassing it, the practice of hoarding . . . (ibid., p. 343)

Meuvret (1970) has provided a detailed description of monetary conditions in France in the sixteenth and seventeenth centuries. There was a scarcity of money, especially in the provinces. Gold and silver were imported from Spain, especially in the provinces bordering the Pyrenees. Gold and silver were not necessary to satisfy ordinary needs, as peasants lived in semi-autarky. Merchants rarely kept cash reserves, and surviving inventories seldom indicate large liquid wealth. An important fraction of the imported metal went to gold and silversmiths.

No councillor, treasurer, bishop or abbot did not have a complete set of plate . . . and there was no small artisan who did not seek to have a basin, ewer and cup, or at least a salt cellar and half a dozen spoons.

To this was added a large quantity of precious metals in the chalices, vases, chandeliers, crosses, rods and crucifixes, lamps and reliquaries of churches. This was not totally withdrawn from commercial life as it


could be borrowed on and was sometimes melted down on the order of some Huguenot or government official (Meuvret, 1970, passim , especially pp. 144–6).

The amount of specie hoarded in a country relative to that which circulated as money is most uncertain, although the ratio probably varied negatively with the state of development. In 1751, Ferdinando Galiani estimated that the hoards of Naples amounted to four times the value of money in circulation. In quoting this observation, Braudel remarks that Naples at the time had a relatively unsophisticated economy (1981, p. 467).

The two most sophisticated economies in Europe were the Dutch and the British, in that order. The British agonized under the currency disturbances of the early seventeenth century; the Dutch did something about them. Supple (1959, p. 178) records the case of one young man leaving college in 1620, unable to sell his furniture because of a shortage of silver, i.e., of money of the appropriate denomination, since the furniture was worth more than copper, less than gold. Legislation limited how much silver the newly founded East India Company could take with it to the East; proclamations forbade the melting, culling or exporting of gold and silver coin. In 1622 a Commission was appointed on abuse of the exchanges, and a lively debate ensued, the origins of which had gone back to the middle of the sixteenth century. Mun was more sophisticated than many of the participants, winning Misselden to his point of view, and scoring over Gerald Malynes who wanted an official exchanger appointed to monopolize all exchange dealings (Wilson, 1967, p. 504). It was in this connection that Mun expressed his views against Confederacie quoted earlier. Mun's basic contention was that shipping specie east brought back goods that could be sold with great profit in Europe and earn more than the original investment in specie. Wilson calls this argument "using a sprat to catch a mackerel" and claims that it did not apply to the specie shipped by the Eastland corporation to buy timber in Norway, since this was rarely re-exported (1949, pp. 154, 155). Other imports from Asia were sold throughout Europe, some even in Italian ports such as Leghorn in competition with the Mediterranean trade to the Levant. Mun insisted that specie was simply one of Britain's commodities. If it were prohibited, the Dutch would take over the trade, charge Britain monopoly prices and cause her to lose bullion in any event (Chaudhuri 1965, pp. 112–13).

For a time, the East India Company paid its dividends in kind, letting its shareholders dispose of pepper, nutmeg, cloves, calico, etc. (ibid., pp. 142ff.). This was stopped in the 1620s, perhaps as a result of the pepper glut of 1619 that followed peace between the Dutch and English in the East.


The nagging worry about loss of specie continued. The Company made continuous attempts to provide British goods to the East but found little demand for its woolens, tin, lead from Britain, or for other products bought in Europe or Africa, such as iron, coral, ivory, and mercury. In due course it learned to engage in triangular trade, in considerable part within the East, taking calicos against silver from Surat on the west coast of India to Bantam to be exchanged for pepper and spices for Europe. There is a variety of estimates of the proportion of goods and specie in the eastward voyages. In the first twenty-three years of the East India Company's operations, bullion made up 75 percent (ibid., Table III, p. 115). Another estimate gives 80 to 90 percent of imports from Asia paid in gold and silver coins (DeVries, 1976, p. 135). It was mostly silver as the price of silver relative to gold was higher in the East than in Europe or America. Silver was bought everywhere it was available, not only in Lisbon, Cadiz, and Seville, as already mentioned, but in smaller ports such as Saint Malo, Calais and Rouen (ibid., p. 126). For the most part, however, it was acquired in Amsterdam.

Amsterdam's sophistication was shown in its responses to the currency debasement in Europe at the beginning of the sixteenth century: it created deposit banks in Amsterdam in 1609, which was followed by similar institutions in Middelburg in 1616 and Hamburg in Germany in 1619 — and then two more in the United Provinces of Holland, Delft in 1621 and Rotterdam in 1635 (Van Dillen, 1934; Sieveking, 1934). Small states, as Adam Smith had noted in a digression on banks of deposit (1937, pp. 446–55), have to use the coin of neighbouring states, and that circumstances, together with the presence of worn or clipped coins, furnished an opportunity for the formation of banks of deposit, to weigh and assay deposits of coin and give receipts for them which, with assured weight and fineness, lowered transactions costs for merchants. Amsterdam had a huge supply of silver, including Spanish reals, bullion, and Dutch minted coins, the total accumulated in its flourishing trade since the collapse of Antwerp in 1585 when the Dutch Navy blockaded the Scheldt. The imperious Spanish demand for goods meant that the Dutch brought to Spain and the Mediterranean the grain, timber products, and naval stores of the Baltic and Norway. In addition, it accumulated silver in the Low Countries by selling herring, cheese, butter, and all sorts of English, German, and French manufactures to the rebels against Spanish authority (Attman, 1983, pp. 31–2). During the Spanish—Dutch truce from 1609 to 1621, silver shipments took place direct. After the Coddington treaty between Britain and Spain, the English road came into play. The peace of Munster in 1648 left Holland free to buy silver not only in Lisbon, which ceased to be part of the Spanish empire in 1640, but also in Seville and Cadiz.


Amsterdam had abundant trade, abundant money and an open market. Attman records that about 1683 the Dutch mintmasters coined the equivalent of 15–18 million guilders, and 13 million of them were exported. By 1699 Dutch opinion favoured freedom of export as well as import for precious metals (1983, pp. 27–8). The point relates to the export of domestic coins, in contrast to foreign coins and bullion. The practice, however, went further back in the century. And in reaching the view that markets for precious metals and all coins should be free, Thomas Mun seems to have been, in the 1620s, well in advance of the Dutch as a whole.

Peace in Europe did not last long. England depended on Holland for the success of its trade but was fiercely rivalrous. In particular, it resented Dutch monopolies in shipping and fishing for herring. The first Navigation Act was passed in 1651 to restrict British cargoes to British ships. Three Anglo-Dutch wars ensued, in 1652–4, 1665–7 and 1672–4. None of these, so far as it has been borne in on my consciousness, had a major effect on world trade in specie.

The Three Streams

In a memorandum submitted to the English Commission established in 1621 to devise means of coping with the drain of silver, Sir John Wolstenholme, a one-time member of the East India Company's Court of Committees, stated that there were three streams leading east for silver — one by Aleppo for raw silk, one by Mocha in the Red Sea for calicos, and one by Surat and the islands for indigo, pepper, cloves, mace, and nutmeg (Chaudhuri, 1965, p. 120). This is the view of an East Indian merchant (that inadequately takes the Baltic trade into account).

If the focus is on American silver, moreover, there was the stream westward across the Pacific of the Manila galleon. Leaving the last aside, however, but including the Baltic, the streams can be collapsed into three by dividing the trade of Mocha and Ormuz in the Red Sea and Persian Gulf, depending on whether their trade comes around the Cape of Good Hope or north by caravan to Aleppo or Alexandria. It is perhaps anachronistic to take up the Baltic trade ahead of those of the Levant and the Cape route. I do so for geographic reasons, moving gradually eastward.

The Baltic

A number of scholarly debates have sprung up over the need, as seen by the Eastland Company, to export specie to buy imports from the


Baltic countries and Norway. First, it has been held that while bilateral Baltic-British trade needed to be balanced by specie, this was because of the absence of trade in bills of exchange; if they had been available, it might well have been that Britain's import surplus was matched by a Dutch export surplus and that trade could have been balanced all around with adequate financial institutions. This turns out not to have been the case (Heckscher, 1935; 1950; Wilson, 1949; 1951). Wilson (1951) has shown that the Dutch, too, had an import surplus through the Sound, i.e., by sea, in the seventeenth century. In the late eighteenth century, Dutch earnings on invisible transactions covered its negative merchandise balance, and the French accounts were also in surplus. The British deficit remained substantial, however, and outweighed the combined Dutch and French surpluses. As a consequence, bullion continued to flow to the East (Johansen, 1986, p. 140). Direct bilateral estimates of British trade with Scandinavia may be understated, however, on account of exports by sea to Hamburg, by land to Lübeck, and again by sea to Denmark and Norway. It was estimated by the English Hamburg Company in 1737 that its annual sales of woolens to Denmark and Norway by this route were, at between £60,000 and £70,000 a year, of the same order of magnitude as those direct (Thomsen and Thomas, 1966, about p. 60).

The question arose in the earlier period whether the Baltic countries had a large import surplus with Europe by land, large enough to balance the seaborne export surplus with the two major trading companies. Evidence exists of jewelry imports from Leipzig by Eastern nobles, and some imports in the middle of the eighteenth century were paid for with bills drawn on Amsterdam (Jeannin, 1982, p. 18). But the major overland export was livestock, of an amount broadly equal to the export of grain from Poland, Lithuania and East Germany, and in the same direction. Trade of these regions with Western Europe was not thus balanced (ibid., p. 20).

An exception should be noted for Norway, although there is some disagreement. General histories suggest that Norway was traditional in the Hobsbawm sense quoted earlier, importing little in consumption goods, and using the precious-metal proceeds of exports partly as "silver plate and other imported luxuries for want of alternative outlets. Travellers frequently commented on the quality of the houses and furnishings of shipbuilders and merchants" (Milward and Saul, 1973, p. 519). In the sixteenth-century weddings, "We are told how 'the bride was dressed in brown velvet, magnificently arrayed in a crown, and many gold chains around her throat, shoulders and elbows; she had gold chains hanging down toward the ground . . .'" (Larsen, 1948, p. 264).

This view was disputed by Heckscher, insisting that the Baltic was


not India (1950, p. 226) and by Scandinavian scholars in recent research covering the timber trade between Norway and England for the period 1640–1710 (Tveite, 1961) and Anglo-Danish trade from 1661 to 1963, for the first part of which, down to the Napoleonic Wars, Norway was part of Denmark (Thomsen and Thomas, 1966). Each study has an English summary, which is all that I can read, although Dr Thomsen was kind enough to translate several pages of her main text commenting on Dr Tveite's study.

Both studies emphasize the large balance-of-payments deficit of England with Norway because of timber imports and their freight, but point to the fact that bullion imports into Norway were supplemented as early as 1630 and commonly from 1660 by bills of exchange drawn in Norway which were discounted in Copenhagen and returned for payment in London via Hamburg or Amsterdam (Tveite, 1961, p. 576). Precious metals continued to be sent in the form of English coins which became the usual means of payment in southern Norway from the middle of the seventeenth century (Thomsen and Thomas, 1966, p. 60). Such coin continued to serve as Norwegian money in the manner described by Adam Smith, already noted, and in 1751 a Norwegian tax collector said he was unable to collect taxes in Norwegian money because merchants paid their workers and creditors in English coin, a practice legalized in 1758 (ibid.).

A Danish student of the Norwegian timber trade, Ole Feldbaek, has privately told me his impression that the notion that Norwegians imported a lot of specie and used it in conspicuous consumption and insurance, in so far as jewelry displays in weddings had such a component, is probably mistaken. In the early trade, with timber cut in south Norway near the water's edge, merchants imported foodstuffs which were traded against timber. As cutting took place further from the ports, and involved cutters away from the sea and specialized haulers, the Norweigian economy had to become both specialized and monetized, and most of the imported specie served this latter purpose. Taxes were paid in money, and the net flow to Copenhagen was partly passed back to Lübeck, Hamburg, and Britain in a loop that did not go continuously east and remain there.

Sweden seems to have been another country that stood aside from the preoccupation with precious metals. For one thing, Sweden's money was initially largely copper, though some silver circulated from time to time when not driven by Gresham's Law. The Stora Kopperberg (copper mountain) at Falun produced half the copper in Europe around 1690, and the awkwardness of the metal as money led the country to issue the first paper money in Europe and to establish the first central bank. The scattered character of the iron and timber industries sus-


tained the natural economy with wages paid in kind longer than elsewhere in Europe. Large inward and outward payments for invisibles took place in the balance of payments — war-tolls collected in Prussia until halted by the Thirty Years War; "feverish" borrowings against the collateral of copper to pay ransom or for conduct of war on the Continent; remittance of profits of the many foreign entrepreneurs in the country, of whom the best known was the ironmaster from Liège, Louis de Geer, transplanted to Amsterdam. The Heckscher account observes that Sweden was only mildly mercantilistic in the period 1600–1720, and gives no indication of preoccupation with gold and silver either for monetary purposes or for ostentation (1954, ch. 4).

Elsewhere in the Baltic, including that honorary Baltic port, Archangel, the precious metals featured prominently. East Germany, Poland, Lithuania, and Russia exported to the West especially grain and timber, grown by peasants on huge noble estates, and brought to the ports down broad rivers that provided cheap transport. Table 3.6 gives an estimate of the export surplus at Danzig and Elbing for median years of decades from the 1560s to the 1640s. The export surplus of the area as measured by this portion of it was variable in response to blockades, wars and bad harvests, but it was on the whole continuous. The question is what happened to the specie counterpart (Maczak, 1974, p. 507).

The important point to bear in mind in this area — I judge from a limited amount of reading — is the skewness of income distribution. The peasants that grew the grain and cut the timber were in effect serfs, while the nobles and the merchants that exploited them were "extremely rich". In a contiguous passage, Braudel claims that prices were dictated from Amsterdam — which seems unlikely — and that the Danzig


Table 3.6 Export Surplus at Danzig and Elbing, 1565–1646 (in thousands of rixdollars)



















* Includes land trade.

Source: Maczak (1970, p. 139).


merchants manipulated the magnates by advancing them downpayments on wheat and rye (1984, pp. 254–6). On the land, yields were low but surpluses were obtained "mostly at the expense of peasant consumption" (Bogucka, 1980, p. 7), what are sometimes called "hunger exports".

Some specie was drained to the Middle East through Lwów, or to buy silks, furs, carpets, and jewels from Venice, Leipzig, or Vienna, as well as wines, and Dutch and English cloth through the Sound. The movement of "ready money" (a term for coins of gold or silver) drained to Constantinople was so heavy that robbers in the mountains trimmed their hats with English "nobles" (Maczak, 1976, p. 17). Polish nobles spent heavily on grand tours to the West, and their "greedy and hungry retainers" also lived high, with much more magnificence than servants in Italy and Spain, according to a 1650 remark (ibid., pp. 77, 83). In 1601 Chancellor Zamoyski took 31 sacks of coins, worth 6,000 ducats, on his travels, half his ready money (ibid., p. 80). Precious metals of all kinds were a sign of prestige, still used in the rather medieval way, which, in the West, was slowly giving way to a more economical lifestyle (ibid., p. 82).

How much was spent in the West on luxury goods and travel, how much was drained away to the East in payment for its exotic merchandise, and how much displayed or hoarded at home, the scholar experts on the subject fail to guess. Bogucka twice says that hoarding needs further study (1975, p. 148; 1980, p. 16). In the 1980 paper she says "it seems to have played an enormous role". The crisis of the 1650s and 1660s, she asserts, struck its worst blow at the nobility, which had been accustomed to a lavish lifestyle. The rapid rise in the price of gold (from the depreciation of the currency) cut down the nobles' purchases of cloth, furs, imported wine and fruit from the South, increased the cost of adornment, jewelry, plates, and fancy goods, and reduced the opportunities for hoarding. She quotes one Gostkowski, a nobleman:

If a nobleman needs to buy anything in silver or gold for himself or his children, such as a jewel, spoon, an inlaid sword or some article of clothing, he now has to cut twice as much corn as he had a few years ago. (Bogucka, 1975, p. 145).

The attitude clashes sharply with that of a nineteenth-century English economist who said:

No one can feel much commiseration for the richer classes of the community when their expenditure presses inconveniently close to their income. A footman, a horse, a ball or a shooting excursion retrenched during the year will restore the balance without inflicting very great hardship . . . but the poor . . . (Jevons, 1884, p. 93)


It is further observed that the poor burghers and even the peasants tried to lock away valuable ornaments, sometimes a little of the old small coin that was sought after (Bogucka, 1975, p. 148). One is not entitled to a guess, but I gather the impression that of the specie paid to East Germany, Poland, and Lithuania — and doubtless there were differences among them and among different periods — some fraction, perhaps a fifth each, went circulating back to the West, went circulating forward to the East, and stayed in domestic circulation over the long haul, while perhaps two fifths went into hoards.

The Middle East

The further east he goes, the deeper the writer's ignorance, and I venture to say anything at all merely to try to sketch the picture as a whole and to encourage experts to correct and fill it out.

The flow of gold and silver from Europe to the Middle East against luxuries brought to the shore of the Mediterranean by caravan produced the great European bullion famine of the fifteenth century, as noted earlier. But the Middle East itself was said to have experienced a scarcity of precious metals as a regular matter, especially after the wave of silver looted from central and Southern Asia produced by the Muslim conquest of those areas. Gold from the Sudan went regularly to the Middle East as Moslem converts made their pilgrimages to Mecca until the ships of Henry the Navigator penetrated south in the Atlantic to acquire it for Portugal and Christendom from the Gold Coast. This diversion, according to one conjecture, may have dealt a severe blow to the Ottoman Empire of Turkey, Syria, and Egypt (Ashtor, 1971, p. 13).

There was ostentation and display. The sultans sought to win recognition with lavish gifts (Walz, 1983, p. 311; Ashtor, 1971, pp. 100–3). Tribute was paid by Egypt to Istanbul, 600,000 gold coins annually in the sixteenth century, and by Syria, 450,000 ducats each year of which 300,000 came from Aleppo. Tribute was equivalent to taxation and also to protection money (Steensgaard, 1973, pp. 41, 178). But more damaging to the circulation of precious metals as coin, says Ashtor (1971) for the fifteenth century, was hoarding. The mus-dara was a contribution arbitrarily levied on the wealthy, especially high dignitaries from time to time to tax away fortunes amassed legally or with fraud. (The practice was widespread in seventeenth- and eighteenth-century France, where it was known as the Lit de Justice , in England after the collapse of the South Sea bubble, and even in twentieth-century Argentina, where


specialized tribunals were established to tax away "undue enrichment" under the Perón administration.) The threat of such confiscation and pillage that took place frequently led to burying large quantities of gold and silver, jewelry, precious stones, and objects of great value. Ashtor comments that this tendency was more harmful in reducing the quantity of money available for circulation and investment than wasteful spending (1971, pp. 103–5).

In the period of our interest, a substantial movement occurred in silver further east, and some small amount of gold to the West, not as arbitrage but because of the greater profit available by spending the cheaper metal in each direction. Transactions costs were so high, with worn coin, losses, heavy transport charges, and commissions to money changers, that arbitrage in the modern sense was impossible (Munro, 1983, p. 111). The silver going east was used in what Steensgaard calls "the glorious peddling trade" (1973, pp. 47, 196) or "the magnificent but insignificant [peddling] trade" (ibid., p. 205). This was the shipment by camel of silver and some goods to the Indian Ocean by way of Aleppo, Baghdad and Basra to Ormuz on the Persian Gulf, or Alexandria to Mocha on the Red Sea. From Ormuz and Mocha the Gujarati, later the Portuguese, and — after the fall of Ormuz in 1632 — the British and Dutch exchanged calicos, and spices, especially pepper, for silver and Arabian coffee. Some Chinese silks were also brought to the caravan trade, but further loads consisted of Persian silks. It was initially thought that the Portuguese transport of pepper to Europe around the Cape would ruin the Venice—Aleppo and Venice—Alexandria trade, but it survived another century. The decline of the Ottoman Empire was only in part owing to the gradual shift to the sea route, according to Bernard Lewis (quoted by Steensgaard, 1973, p. 78). Other contributing factors were the closing of the European frontier, the price revolution and depreciation of Turkish money, and the shift of the army from feudal cavalry, who contributed their services on the basis of loyalty, to mercenaries who had to be paid. Some part of the decay may be attributable to the neglect of Middle East navies and shipping. Gradually the Moslems stopped importing timber, iron and pitch from Venice, and let their fleets and shipbuilding decay. An Arab soldier who died in 1406 said that in his day the Moslems no longer knew how to build ships (Ashtor, 1976, p. 577). In addition, the taxing authorities in Constantinople tried to raise their returns. Cheap silver killed the Balkan mines of the Empire after 1580 (Richards, 1983, p. 17; Sahillioglu, 1983, p. 284). Ottoman monetary liquidity was offset by an unspecified amount of hoarding (Steensgaard, 1973, pp. 80, 113), but for a great part the Middle East was a stage in the path of silver to the east, and some gold in the opposite direction.


India and China — Levels and Distribution of Income

India and China are thought of as poor today. Such has not always been the case. In the third quarter of the eighteenth century, they were considered rich. Hume wrote:

China is represented as one of the most flourishing empires in the world; though it has little commerce beyond its borders. (1752, p. 296).


The skill and ingenuity of EUROPE in general [surpass] perhaps that of CHINA, with regard, to manual arts and manufactures; yet we are never able to trade thither without grave disadvantage. (Ibid., p. 334)

The difficulty lies in the monopolies of the India companies and the distance.

Nor can any reasonable man doubt but that that industrious nation, were they as near to us as POLAND or BARBARY would drain us of our overplus of specie, and draw to themselves a larger share of WEST INDIAN treasure. (Ibid.)

Adam Smith is equally emphatic:

China has long been one of the richest, that is, one of the most fertile, most industrious, and most populous countries in the world. (1937, p. 71).

And again:

China is a much richer country than any part of Europe and the difference between the price of subsistence in China and in Europe is very great . . . In China, a country much richer than any part of Europe, the value of the precious metals is much higher than in any part of Europe. (Ibid., pp. 189, 238)

There are traces of Malthusian doctrine and a belief in the backward-bending supply curve:

In rich countries, which generally yield two, or sometimes three crops a year, each of them more plentiful than any common crop of corn, the abundance of food must be greater than in any corn country of equal extent. Such countries are accordingly more populous. In them too, the rich, having a greater super-abundance of food to dispose of beyond what they themselves can consume, have the means of purchasing a much greater quantity of the labour of other people. The retinue of a grandee in China or Indostan accordingly is . . . more numerous and splendid than that of the richest subjects in Europe . . . and the same super-abundance of food . . . enables them to give a greater quantity of it for all those singular and rare productions which nature furnishes in very small quantities; such as the precious metals and the precious stones, the great objects of the competition of the rich. (Ibid., p. 205)


The poor, however, are hungry, suffering

low wages of labour, . . . and the difficulty which a labourer finds in bringing up a family in China. If by digging in the ground all day, he can get what will purchase a small quantity of rice in the evening, he is contented . . . The poverty of the lower ranks of people in China far surpasses that of the most beggarly nations in Europe . . . The subsistence is so scanty that they are eager to fish up the nastiest garbage thrown overboard from any European ship . . . [In] Bengal and . . . some other English settlements in the East Indies . . . three or four hundred thousand people die of hunger in one year. (Ibid., pp. 72–3)

Daniel Defoe, writing half a century earlier in 1728, ascribed the "incredibly cheap manufactures" of China, India, and other Far Eastern countries to the poverty of the labourers:

The people who make all these fine works are to the last Degree miserable, their Labour is of no Value, their Wages would frighten us to talk of it, and their way of Living raises a horror in us to think of it. (Quoted in Heckscher, 1935, II, p. 171)

Paul Bairoch has estimated that the Third World including Asia was as rich on the average as developed countries in 1750 — about 180 1960 dollars per capita — but in private correspondence grants that averages are not very meaningful when distributions are highly skewed.


After the caravans that brought Asian goods to the Levant via Mocha or Ormuz, direct Indian trade with Europe began in the sixteenth century with Portuguese caravels and was followed in the seventeenth with the East India Company of Britain and the United East India Company of Holland. Each chose different modes of operation and different bases (see Figure 3.3). Portugal traded to Goa on the west Indian coast, Ormuz in the Persian Gulf, Malacca in the Straits, and Macao in China. Portugal lost Ormuz in 1632 and Malacca was overtaken about the same time by the Dutch headquarters in Batavia and the British Indonesian centre in Bantam, both trading to Canton in China. In addition to the silver the Portuguese brought from the Iberian peninsula, their ships exchanged Chinese silks for Japanese silver from about 1540 to the 1630s, bringing the silver to Macao, Malacca, and India until the Japanese cut them off because of their attempts to convert the Japanese to Catholicism. Thereafter the Dutch continued to obtain Japanese silver against silks from Canton until 1668 when Japan banned the export of silver for monetary reasons (Yamamura and Kamiki, 1983, pp. 348–50). The


Figure 3.3
Early modern Asia


British had stopped trading in Japan in 1623. Portuguese, Dutch, and English traders brought silver to India and China from Europe directly, from the Red Sea and the Persian Gulf, and from Japan. The importance of the local trade, in which the servants of the East India company traded privately as well, is underlined in a famous 1619 statement by Jan Pieterszoon Coen, the governor-general of the Dutch East India Company (VOC) in Batavia:

Our wishes we have often repeated before: many ships, good warships, good return ships, medium-size ships for the intra-Asian trade . . . Once we obtain them we can not only procure gold for the Coromandel Coast but also rials for the pepper trade the silver for trade with China without it being necessary to send the bullion from home, but the supplies from the Netherlands must on no account be stopped immediately . . .

Piece goods from Gujarat we can barter for pepper and gold on the coast of Sumatra, rials and cottons from the coast for pepper in Bantam, sandalwood, pepper and rials we can barter for Chinese goods and Chinese gold; we can extract silver from Japan with Chinese goods . . . And all of it can be done without any money from the Netherlands and with ships alone. We have the most important spices already. What is missing then: Nothing else but ships and a little water to prime the pump . . . (By this I mean sufficient money so that the rich Asian trade can be established.) (Quoted in Steensgaard, 1973, pp. 406–7)

European ships had the advantage over the dhows of the Arabs, small sailing vessels of the Indians and the Chinese junks in that they were more seaworthy and carried larger cargoes. But the prospect of cutting off the flow of silver from Europe failed to materialize.

The silver had to keep coming partly because not enough profit could be earned in the intra-Asian trade in competition with local merchants and seamen, and partly because neither the Indians nor the Chinese wanted European goods. The East India Company at least, and presumably the VOC as well, consistently tried to load English woolens for India, but was unable to sell them. There was an initial demand for woolen cloth as a novelty, serving some great men as covering for their elephants or as blankets under their horses' saddles (Chaudhuri, 1965, p. 137). Some tin, lead, ivory from Africa, cowrie shells from the Maldive Islands in the Indian Ocean, and the like could be used, but the limit was low, and silver was needed. When silver from any source was traded against gold, the gold was not shipped home, not because of the high rate of interest and the length of the voyage, as Chaudhuri (1973, p. 181) claims — the interest charges would be the same on gold or merchandise of the same value — but because the profit on Asian luxuries in Europe was higher. The silver/gold ratio was consistently higher in India than in China so that it paid to trade silver to China for gold for India.

Why was there no demand for European goods in India? Some put


the explanation in terms of the self-sufficiency of the economy in necessities, and the greater expense of luxuries from Europe as opposed to those available locally (Richards, 1983, p. 183). The same explanation is given of the Chinese lack of interest in imports by one Sir Robert Hart, writing in 1901:

The Chinese possess the best food in the world, rice; the best drink, tea, and the best clothing, of cotton, silk, furs. Provided with these articles and their innumerable indigenous complements, they have no need to buy for a penny outside themselves. (Quoted by Dermigny, 1964, II, p. 685; see also III, ch. iii, discussing the Chinese lack of need for European products. Simkin, 1968, p. 252, also quotes Hart, noting he might well have added the best pottery.)

In India it was said that the Europeans were surprised to find that the supply of native produce dried up when they raised the prices they were willing to pay, testifying to the presence of a backward-bending supply curve, derived from "satisficing," working to a target income, presumably at the level of subsistence, and being uninterested in maximizing levels of living (Rich, 1967, p. xxiii). This explanation is vigorously denied by Chaudhuri who asserts that it is difficult to accept the hypothesis of an income elasticity of demand for real income of zero (1978, p. 156). The more general view, called "traditional" by Richards (1983, p. 183), is the Indian penchant for hoarding, each generation putting coins down a hole in the ground, well or cistern, not counted, it not being known how much was down in what Smith called "the bowels of the earth". In addition there was the Indian "excessive liking for gold and silver and jewelry" (Richards, 1983, p. 184). Chaudhuri chafes at this, saying that it is hard to accept the argument of an income elasticity of demand for hoarding greater than one (1978, p. 156), although the elasticity of demand for all luxuries is greater than one (by definition). Chaudhuri wants to explain the demand for silver and gold in terms of the need for money — a transactions demand, and a demand for assets, in the absence of alternatives, just as in England (1978). Another scholar who attacks the hoarding thesis is Frank Perlin. He admits that there was an insatiable market for silver, but insists that it was needed for monetization as proto-industrialization — that is, cottage industry organized by merchants — spread through the countryside and required the use of money. Along with cottage industrial workers, peasants in western Deccan in south India participated in fairly frequent if low-level monetary transactions (Perlin, 1983, section vi, especially pp. 68, 73, 75).

Richards has written of the Muslim attack on India from 1000 to 1400 and its plundering of Indian treasure under four Moslem sultans, who


looted temples, demanded ransom for captives, instituted payment of tribute, and the like, taking it north and west in one stream, and later in another to Delhi. The amounts of gold and silver were enormous (1983, pp. 186ff.). Later the Emperor Akbar (1572–1607) accumulated a large hoard of precious metals (Brennig, 1983, p. 492), and a sudden drop in the price of gold relative to silver in 1676 was rumored to be the result of a sudden dispersion of the ancestoral gold hoards of the Emperor Auraazeb (1659–1707) who needed money to finance campaigns in western India and Afghanistan (Chaudhuri, 1978, p. 178). This interpretation is disputed by Habib (1982, p. 369), who states that the collapse of the gold price in 1676 (in terms of silver) was the consequence of large imports of Japanese gold, shipped to India by the Dutch. It is worthy of note in the quotation from Jan Pieterzoon Coen on p. xx above that gold was wanted for the Coromandel coast (in India) and silver for trade with China.

It is clearly the case on the reading of the evidence that after 1600 silver was minted into coins in Surat, and used as money as well as hoarded. Jean-Baptiste Tavernier, a French jeweller who travelled in India in the seventeenth century, observes, however, that gold was not coined but sold directly to jewelers (Habib, 1982, p. 365). One Asiza Hasan, whose study I have not seen, working from numismatic finds, concludes that all the silver arriving in India was coined into rupees, and that it tracks closely, with a five- to ten-year lag, the pattern of Hamilton's estimates of American silver arriving in Spain (Habib, 1982). Not all was used as money within India, although monetization was pursued, farm rentals were converted to money payments, and after an initial period when rupees circulated mostly within cities (Brennig, 1983, p. 482) they spread. But Habib's attempts to measure the increase in the Indian money stock based on strong assumptions about all silver arriving being coined and circulated, and no change in the earlier absolute amount of hoarded silver, estimated in 1571 as two-thirds of the total, seem overstated. There was undoubtedly some hoarding of the rupees passed northward along the caravan trail to Agra where the calicos were woven. Perlin states that silver and gold found ready markets in India, silver in the north, gold in the south (1986, p. 1044). There was also a substantial movement of rupees, often recoined when they reached their destination, to Southeast Asia to buy local spices, especially pepper, and Chinese silks, porcelain, and later tea.

The rankest of amateurs is persuaded of the Indian propensity to hoard from the experience of the twentieth century. The appetite for precious metals goes back, as earlier noted, to Roman times, and it comes down to the present day. A New York Times article of January 18, 1988 (p. D6) discusses the wedding season and the jewelry expected


to adorn many of the 10 to 20 million brides of the season, the 150 to 200 tons of gold smuggled into the country each year from abroad, the 7,000 tons believed to be hoarded in the country. A 1982 study of the world gold position gives a figure of 3,500 tons hoarded in India as of 1968 and well over 4,000 tons at the time of writing (International Gold Corporation Ltd., 1982, p. 15). The report observes that while most of the Indian hoards consist of old jewelry, smuggled exports and imports respond to changes in the outside price so that Indian net demand tends to stabilize the world price (see also The Economist , April 30, 1988, p. 85).

Earlier in the century, when the price of gold was raised in the United States from $20.67 an ounce to $35, in 1934 a billion and a half dollars worth of gold poured out of India and China according to Graham and Whittlesey (1939, p. 16). They considered that India was unlikely again to hoard in significant amounts, adding: "If, in these circumstances, the natives of India increase their holdings materially they will not only be failing to show their alleged shrewdness but will be acting against all tradition and common sense" (ibid., p. 125). It is not clear that gold hoarding in India is contrary to tradition there, but as for common sense a United Press International story in the Boston Globe of January 31, 1988, discussing a wave of gold buying following a nine-month decline in the stock market in 1987 that reduced the values of portfolios by 25 percent, used expressions like "gold fever," "an age-old lust," "a crazy buying spree," and "madness." One jeweler noted that in India "Gold is considered sacred and auspicious" (sic ) (Boston Globe , February 28, 1988, p. A19). The newspaper account notes that at $29 a gram, equivalent to $812 an ounce, the price of gold in India was 40 percent above the world price, which had recently been $480 in New York (ibid.). The wedge in this instance, of course, was the result of a government ban on private imports of gold, and the need for a large premium to cover the risks involved in smuggling.

Given this fascination with gold, it is hard to accept the experts' opinion — those of Chaudhuri, Perlin, and Richards — that India did not have a strong propensity for hoarding gold, but needed silver imports to use as money, given the spread of small-scale industries and the need for money to pay rents and taxes. The reason is that gold was not used as money in India, money being confined initially to cowrie shells, and then to copper and silver. Much — how much? — of the silver was exported further east to Indonesia against spices, and to China in exchange for gold. The only use of gold in India was ostentation, insurance against a bad monsoon, and for hoarding.

Chaudhuri's most recent statement renews the attack on an Eastern propensity to hoard:


The huge influx of gold and silver from the New World to Europe from the sixteenth century to the nineteenth was seen by many European historians as one of the fundamental determinants of economic expenditures. But the outflow of the same precious metals to the Middle East, India and China in the paths of an ancient trans-continental trade, we are told, owed its explanation to a totally different reasoning, an eastern psychology which assigned a higher value to stored wealth than to current material consumption. The point has been made many times, by myself and others, that the absorption of gold and silver by the Asian economies in the early modern period had little to do with a "hoarding" social mentality but was grounded on an international pattern of economic specialization, on payments mechanisms, and socially determined demand which had existed for at least a millennium. (1986, pp. 64–5)

The payments mechanism cannot, of course, be said to have produced India's taste for gold over a millennium, especially as gold was not used as money, and monetization of silver to replace cowrie shells is not a thousand years old. Secondly, the pattern of economic specialization and the socially determined demand are consistent with a propensity to hoard. Apart from monetization, the utility produced by gold and silver lies in its possession, rather than in its use and being used up as food, clothing, raw materials. Other objects similar to gold and silver play roles in international trade, for example, paintings. Indian purchases of gold constitute investment, rather than consumption, and it is difficult to accept the argument of the experts that the East is no different from the West when, with millions of poor people, it trades consumption goods — albeit luxuries — against investment goods.

Hoarding in modern times has been studied analytically for Southeast Asia by P.J. Drake who explains it as a transitional stage in very poor countries between saving in real forms such as stores of goods and land, and saving through financial institutions (1980, pp. 124–8). It is thought to be small as a flow, but large as a stock, and the stock further serves to balance consumption cyclically by being borrowed against in bad times. Charles Gamba lists the propensity to hoard first among twelve factors affecting inability to spend and save, following inadequate earnings (1958, p. 35). He notes different hoarding practices — Eastern Indonesians in hollow bamboos, hidden in the walls of houses or buried in the ground; Chinese in Southeast Asia mostly in gold ornaments; rural Indians, particularly the Tamils from Madras, in buried earthenware pots, in the form of gold ornaments and diamonds — and observes the contribution to hoarding of the Muslim prohibition of taking interest on savings (ibid., p. 38). Drake's general discussion of hoarding under the rubric of "informal finance" notes that it gives psychic income, especially when it takes the form of jewelry and ornaments, an attribute of


durable consumer goods not obtainable from other stores of value (1980, p. 127). This aspect of hoarding, of course, is not confined to poor villages, in which 90 percent of the people of Asia live, but applies to both rich in poor countries, and some rich countries as a whole.

I end this section with a diversionary aside to note that in Gunnar Myrdal's three-volume work on Asian development, there is no discussion of specie imports, hoarding, or monetization, issues which might have been thought connected with Myrdal's interest in development. He dealt, however, with real rather than with financial factors (1968).


The frequent mention of China by Adam Smith and David Hume underlines Heckscher's remark that China to the eighteenth century was idealized as the Netherlands had been earlier, and as China is, to some extent, idealized today (Heckscher, 1935, I, p. 352). A modern historian observes that there was an "India Craze" in the 1680s and 1690s (Brennig, 1983, p. 481). Heckscher says that China was an economic utopia. It was, moreover, full of contradictions, having a disdain of foreign trade based on Confucian philosophy (Richards, 1983, p. 378; Smith, 1776, p. 462, p. 644), but sending its merchants to Manila and the Dutch East Indies to obtain above all else silver. In one view, part of the avidity for silver, at least initially, stemmed from the collapse of its paper money in the second half of the fourteenth century when the silver to gold ratio went from 10:1 to 4:1 between 1346 and 1375 (Atwell, 1982, p. 83; letter of September 15, 1987, and seminar at Harvard University, October 5, 1987). An expert has hypothesized that the movement of silver into the Middle East from Central Asia in the second half of the thirteenth century may have been the result of the introduction of paper money into China (Ashtor, 1971, p. 39).

If both these explanations have merit, a substantial outflow of specie from China during the expansion of paper money, and a return flow when the paper money had collapsed, would constitute a pattern, stretched out over time, such as that followed later in France at the beginning of the French Revolution. The revolution and especially the events leading up to the Terror in 1793 produced a strong outflow of capital that piled up specie in England and contributed substantially to the British canal mania of 1792, whereas the collapse of the assignats in 1795 led to an imperious need for money in France. This was so strong that it induced a return flow of specie that depleted the reserves of the Bank of England and led to abandonment of convertibility of sterling in 1797 with the run


precipitated by the landing of a handful of Frenchmen on English soil at Fishguard (Hawtrey, 1919, ch. xv). The demand for money continued in the Ming (1368–1644) and Ch'ing (1644–1911) dynasties, and took the form of silver perhaps because of an inbred distrust of paper substitutes, but the experience is unlikely to have dominated Chinese attitudes three centuries later.

Chinese preoccupation with silver does seem paranoid to a Westerner. Atwell puts it in terms that are non-economic: "Foreign silver was so important to the Chinese economy that merchants would do almost anything to procure it" (1982, p. 69). One can find a few traces in the literature of Chinese exports of silver to Japan and to Southeast Asia (Yamamura and Kamiki, 1983, p. 341; Simkin, 1968, p. 98, referring to the period from AD 999 to the twelfth century; Prakash, 1986, p. 84, referring to the sixteenth century; Meilink-Roeloesz, 1962, pp. 40, 168). They were ready to export gold which was not money and they exported money in the form of cash — copper coins, holed, and strung on string — to Japan and the East Indies, "vast quantities" to Bantam, for example (Meilink-Roeloesz, 1962, p. 248). Chinese merchants trading to Manila wanted only silver, and those to Southeast Asia, mostly silver, along with a few spices, sandalwood, an aromatic material available in quantity in Timor and used for ointments, perfumes and especially in cremation ceremonies and sacrifices (ibid., p. 87). Some clockworks were brought from Europe as toys; furs, first from Russia and then the United States, and in the early nineteenth century opium. Another import was rhinoceros horns, an aphrodisiac (Simkin, 1968, p. 98). Silver was clearly money — although it was not minted by the Chinese, but rather used in little "shoes" or "loaves" that could be cut to produce wanted amounts. In due course, the Mexican peso circulated as money, in contrast to Smith's dictum that large countries did not use foreign money. Somewhere between 150 and 500 million dollars flowed into the country between 1700 and 1826 (Wang, 1972, p. 364). Wakeman comments that China drew as much as 20 percent of all silver mined in Spanish America via the Manila galleon, other silver through Central Asian trade at Bokara, as much as half of the silver coming from Spain, plus substantial amounts from Japan. In all, he suggests that at least 250,000 to 265,000 kilograms of silver were imported in the first third of the seventeenth century, and probably much more (1986, p. 3). The amount from Japan to China is estimated at over 112,500 kilograms between 1640 and 1772 (Yamamura and Kamiki, 1983, p. 350).

What needs to be explained is why the silver stops when it comes to China. In other proximate destinations — the Baltic, Levant, India — some is used as money, some as conspicuous consumption or insurance hoards, but some is passed on. China is the end of the line. Not until


the opium period of early nineteenth century was silver exported in large amounts, $140 millions from 1827 to 1849 according to Yu-Chienchi'ung, following a net inflow of $75 millions in 1801–26, and followed by net imports equivalent to $360 millions from 1871 to 1931, as estimated by Charles F. Remer (both quoted by Wang, 1972, pp. 365–6). It would appear that silver was as addictive as opium.

There was lavish use of silver but also of gold, pearls, and precious stones at the court, first in Nanking and after 1421 in Beijing. The emperors ran enormous establishments; 3,000 court ladies, and 20,000 eunuchs (Wakeman, 1986, pp. 10, 11), 5,000 servants in the kitchen alone, and 70,000 overall at the end of the Ming dynasty, most employed in the capital, serving lavish meals on gold and silver vessels, with great banquets four to six times a year (Mote, 1977, pp. 212–13, 220, 243). The court gave gratifications and received presents and tribute. Marco Polo noted that the Great Khan rewarded his captains with fine silver plate, fine jewels of gold, silver, pearls, and precious stones: the officer who was a captain of 100 received a tablet of silver, a captain of 1,000 a tablet of gold or silver gilt, and a captain of 10,000 a tablet of gold with a lion's head on it (Yule, 1903, I, p. 351). On New Year's Day the Great Khan held a festival in which the direction of giving was reversed: from the people who showed him allegiance came "great presents of gold and silver and pearls and gems and rich textiles of all kinds" (ibid., p. 394). Gold and silver came to China regularly from Vietnam in tribute, in the shape of gold men, golden gongs, a gold turtle weighing 90 ounces, silver cranes, etc. (Whitmore, 1983, passim , but especially pp. 375–8). Atwell comments that wealth poured into public coffers after the middle of the sixteenth century, leading to imperial extravagances of monumental proportions, illustrated by the weddings and investiture ceremonies of the five sons of Emperor Wan-li costing 450,000 kilograms of silver. This behaviour was emulated by others so that conspicuous consumption became a hallmark of the late Ming period (1986, p. 227). At the same time some poor were starving under the pressure of taxes and labour-service obligations (ibid., p. 228) while others were executed for tax delinquency and anti-government activities (ibid., p. 244 note).

It is hard in the light of this admittedly spotty and anecdotal evidence to share the conclusion of the experts that the Chinese appetite for silver was dominated by monetization and that the notion that the Chinese hoarded more than other countries is questionable (Atwell, 1982, p. 88 note 75). Monetization was important, especially in taxation. Taxes were originally levied in rice, then in paper money, then bolts of cloth, and finally silver (Wakeman, 1986, p. 9). The Imperial Treasury collected its taxes in "silver chests" (Reischauer and Fairbank, 1958, p. 340). Land taxes, labour-service obligations and extra levies were


also commuted into silver payments — not exactly monetization since, as already noted, the silver was dealt in as bullion in tael. Taxes were oppressive. The Ming dynasty raised taxes seven times between 1618 and 1636, drawing silver from the economy directly, and increasing the hoarding of warlords (Atwell, 1982, p. 88).

China covers an enormous span of land, and the economies of different areas differed, especially in a monetary sense. The south supplied most of the export products — silk, tea, porcelain, and most of the industrial goods sold internally. The north collected silver in taxes and contributions mainly from the south, spent silver there, and remitted silver south as the private income of officials; local transactions were conducted with cash. The far west was relatively unaffected by monetary changes, but dealt in silver bullion and cash (Wang, 1977, pp. 483–90).

Much of the demand for silver arose from the increase in population from 100–150 million in 1644 to more than 400 million by 1850, along with the commutation of real to money payments. Daily expenses were made in cash, rather than silver, although the use of Spanish dollars started in Canton at the end of the seventeenth century and spread north along the coast. But considerable hoarding must have gone on fairly continuously. Banks had to provide private armies to guard silver shipments (Fairbank et al. , 1965, p. 98). Disorder would seem to have been pandemic, and contributed to substantial hoarding. Hoarding is mentioned by Wang, who notes that "a certain percentage [of silver] was channelled into the arts and industry, hoarded or buried under the ground for safekeeping," but offers no guess as to what that percentage was (1977, p. 474).

It would be plausible to believe that the Chinese passion for silver (and the Indian for gold) were no different than those in Europe, except for the fact that the silver seldom left China, and then mainly in payment for the addictive substance, opium, or esoteric items such as spices, incense, and sandalwood.

A final contemporary fact that may or may not be related to a Chinese hoarding phenomenon: the Boston Globe reported that in the first few months of 1988, Taiwan bought 186 tons of gold from the United States, worth approximately $600 million, leading a New York commentator to call the country "a major sponge for gold, literally absorbing more gold than is available" (May 23, 1988, pp. A6–7). A traditional Midas complex may not account for the purchases: the metal bought was gold, not silver; it was bought for official, not private account, and it may reflect primarily an attempt to cut down the statistical size of the Taiwanese export surplus by recording the purchases as commodity imports. It may none the less be worth mention.


Gold/Silver Ratio

Much of the literature on precious metals is devoted to the ratio of the price of silver relative to gold. This is not a particular interest in this discussion, which is directed more to the high deficits settled in silver at one end of the chain and its hoarding or disappearance at the other. A few figures gathered from the handiest sources — largely from a single book on precious metals in the later medieval and early modern world (Richards, 1983) — are useful, however, in illuminating some features of the problem (see Table 3.7). The dates selected from those available in tables by separate authors, covering different periods, are guided on those in the table for China. The drop in the ratio after 1200 and particularly after the collapse of Chinese paper money in about 1360 strongly supports the monetary view favouring silver as money over gold as wealth for ostentation and display, perhaps hoarding and the like. The lower price of silver in India in the early seventeenth century may well reflect the preference of that country for hoarding gold. Increasing trade in modern times helps explain the convergence of ratios, although


Table 3.7 Silver/gold ratio at various centers, 1000–1664
















































































































* Authors unable to explain departure from trend.

Source: Flanders: Munro (1983), pp. 148–53.

Amsterdam: Gaastra (1986), pp. 470–1.

Egypt: Bacharach (1983), pp. 170–80.

India: Habib (1982), p. 367.

China: Yamamura and Kamiki (1983), p. 345.


the integration of markets is far from perfect with arbitrage limited in the explanation of Munro (1983, p. 111) already referred to. But our interest is less in the ratio than in the high prices of both precious metals in the East as compared with the West.


Chaudhuri contends that India was not basically different in its response to supplies of precious metals than any other country, and that the movement of silver and some gold eastward was the same as any commodity movement, to be explained along Ricardian principles of comparative advantage (1978, p. 157). Gold and silver were cheap in the West, expensive in the East, and luxury products, the only ones that would bear the cost of transport taking a long time, were cheap in the East and expensive in the West. That is satisfactory as far as it goes, but seems to demand some explanation why the precious metals were so highly prized in India and China. Why did the influx of metal not raise prices, as called for by the price-specie-flow mechanism, and push it out again? Chaudhuri recognizes the problem and says that it is not possible to solve the paradox with available evidence, nor to trace the precise effects of bullion imports on the Indian economy (ibid., p. 160).

Dennis Flynn (1986) attempts to deal with the flow of bullion to the east in micro- rather than macro-economic terms, terms that closely parallel those of Chaudhuri. Instead of the silver being needed to pay for the imports of the West from the East, he claims that the precious metals were the cause of the expansion of intercontinental trade, not the response. This leaves unanswered why the East wanted silver and gold more than it wanted luxury consumers goods. Assume that the East could not have been able to buy food in the West (for it would spoil on the long voyage) or other highly useful but inexpensive goods such as iron, timber for shipbuilding and housing (too heavy and bulky relative to their value), or goods that would be used up in the course of consumption like the exported spices, calico, silks, later tea (but not porcelain, which was durable but could be put to daily use). Perhaps it could be argued that the trade was one in durable consumers goods — say, only porcelain and silver — that yielded utility through aesthetic enjoyment over time. Or the precious metals serving as money could be regarded as highly useful goods, producing utility through lowering transaction costs. I find the explanation unacceptable if it is intended to explain passion, avidity, a voracious appetite, and the like. The West seemed quickly to get sufficient pepper, with gluts leading to sharply lower prices. While the prices of gold and silver shifted against one


another in Asia, prices of other goods rose only slightly against the two metals. This is what needs to be explained.

The distribution of income is perhaps a key. The Eastern rich had their necessities cheap, including cheap service, had little taste for Western luxuries, and cultivated the precious metals for their beauty as well as for the insurance they afforded in troubled times. The poor had difficulty in obtaining the cheaper necessities, and no capacity to buy others that were imported. Income distribution was skewed in the West, to be sure, and there was something of the same indulgence in conspicuous consumption. But the tastes of the rich were communicated fairly quickly to the poorer classes in England, at least in the spices, tea, and calico if not in silk and porcelain.

Monetization plays a role, to be sure, especially in the intermediate run, but over the long run money problems can be met through innovation. Wang observes that China developed four types of credit instrument in the eighteenth century: silver notes, cash notes, native bank order drafts, and transfer accounts (1977, p. 480). These made progress at different rates in different places, slowly in the interior such as Yunnan and Sinkiang, more rapidly along the coast. The view that the flow of specie to the East was primarily for monetization encounters the difficulty that India had a voracious appetite for gold and gold was not money, perhaps not even near-money, and that additions of specie were continuous, whereas money plays a balancing role, raising prices and reversing the flow of trade, as explained by Hume in the price-specie-flow mechanism. In China, silver was spent primarily for opium, one addictive substance exchanged for the other. The answer to the puzzle may lie less in economic theory than in psychological and psychoanalytical regions.

Let me return to the present day, and the heavy dollar deficit of the United States, on the one hand, and the surpluses of Japan, Taiwan, and the three other small Asian economies, South Korea, Singapore and Hong Kong, on the other. American high absorption — spending for consumption, investment and government, especially military — and low savings are explained in terms of United States wealth. In writing about the Decline of Empires , Cipolla

points out that improvements in the standard of living brought about by a rising economy lead to more and more people demanding to share in the benefits. Incomes and extravagances develop, as new needs begin to replace those that have been satisfied. (1970, Introduction)

Japanese per capita income has surpassed that in the United States, though the comparison relies on market exchange rates which are often distortionary when real incomes are compared. Japanese savings, how-


ever, remain high. A pair of articles in the Boston Globe suggests that the Japanese realize that they are in a position to work less hard, consume more, indulge in leisure and save less, but somehow Japanese society finds it difficult to the point of impossibility thus far to do so (February 27, 1988, p. 1; February 28, 1988, p. 1). They export goods with great intensity but find it difficult to buy foreign goods.

I find it difficult to explain the United States deficits by a surplus of money, and the Japanese and Taiwanese trade surpluses by an excess demand for money which could not more readily be otherwise satisfied.

In brief, the explanation that India and China are just like Spain and the rest of Europe, or that Japan and Taiwan today are like the United States and the United Kingdom is implausible, counter-intuitive and unacceptable.

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