The Age of Trade: The Manila Galleons and the Dawn of the Global Economy by Arturo Giraldez

Author:Arturo Giraldez [Giraldez, Arturo]
Language: eng
Format: epub, pdf
Publisher: Rowman and Littlefield
Published: 2015-03-16T16:00:00+00:00

Chapter Six

The Economy of the Line

China and Silver in the Modern Era

“The avidity of the Chinese for silver established a commercial epoch for the international economy.” To illustrate his point, monetary historian Frank Spooner quotes a 1586 letter from a Florentine merchant: “Without this avidity the Spanish reals would not have raised so much in value as they now are. The Chinese among all the peoples of Asia are wild about silver as everywhere men are about gold.”1 Silver was the commodity that settled accounts on all continents and allowed European countries to trade in the extremely profitable Asian markets because, as Juan Grau y Monfalcón, procurator general of the Philippines, explained, “In Asia and the regions of the Orient, God created some things so precious in the estimation of men, and so peculiar to those provinces, that, as they are only found or manufactured therein, they are desired and sought by the rest of the world.”2 Spices, cotton, silk, tea, and porcelain were exchanged for bullion from the sixteenth century until the Industrial Revolution in England radically altered the basic structure of trade.3

During the sixteenth century, the market value of silver in the Ming Empire was double that in Europe. The relationship between the relative prices of silver and gold (bimetallic ratios) are striking: “From 1592 to the early seventeenth century gold was exchanged for silver in Canton at the rate of 1:5.5 to 1:7, while in Spain the exchange rate was 1:12.5 to 1:14, thus indicating that the value of silver was twice as high in China as in Spain.”4 In Persia the ratio was 1:10, and in India it was 1:8.5 In theory, a merchant could use an ounce of gold to buy eleven ounces of silver in Amsterdam, then transport the silver to China and exchange the eleven ounces there for about two ounces of gold. Pedro de Baeza of Portugal, who served for three decades in the East Indies, actively promoted the trade of Chinese gold for silver from New Spain or Castile, stating in 1609 “that bringing gold from China means a gain of more than seventy-five or eighty per cent.”6 This price differential would continue for decades, until enough silver had accumulated in China for its value there to be equal to its value in the rest of the world.7 In the words of Legarda, “If one were dealing with foreign exchange, these would represent broken cross-rates. The opportunities for arbitrage profits were staggering.”8

Contemporaries were keenly aware of these opportunities, and the Manila galleons engaged in the bullion arbitrage trade. The vessels brought silver to purchase Chinese goods, but on their return voyage also carried a sizable quantity of gold to Acapulco. A good example is the cargo of the Santa Ana, captured by Thomas Cavendish in 1587. Guillaume Raynal, an eighteenth-century French traveler in the Philippines, wrote, “Cavendish found as much as 658,000 livres of [gold] upon the galleon that was sailing toward Mexico.”9 Thus, the Pacific route to China was Spain’s exclusive means of direct access to the Chinese marketplace.

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