The discovery of American silver and its subsequent influx into Europe and Asia had a significant impact on the growth of world trade, to the extent that it is accurate to say that the growth in trade at this time laid the foundations for a world economy. In the Early Modern Period there was a world market for silver, and silver was a product produced for profit just like any other commodity. The discovery of silver in the Americas led to an increase in trade between the silver markets of the world. In particular, silver was widely used by Europeans to acquire goods from Asia. This increase in trade and the routes through which it was conducted, laid the foundations for a world economy. In the context of this essay, the concept of a world trade in the 16th and 17th centuries refers to the trade that took place between parts of Europe, Asia, and the Americas. It is necessary to be specific about the areas that engaged in this world trade , as many regions of the world were not involved. However, in the world of the Early Modern Period, Western European expansion was facilitated by American silver in a number of respects. Unquestionably, the primary benefit of the silver to Europe was that for the first time it gave Europeans a commodity that could be traded in Asia. Subsequent consequences of the discovery of silver were an increase in the practicality of new, European controlled sea-trade routes connecting parts of America, Asia and Europe; the accumulation of capital in Europe allowing the shift from feudalism to capitalism to take place; and ultimately, an increase in the power of Western European nations. The importance of Silver to the World Economy will first be described. Other important consequences of American silver will then be examined, as will the impact of these on World Trade .
The discovery of American silver was made in a world that wanted precious metals. In 15th century Europe, the cost of producing silver was declining. According to Dennis O. Flynn, between 1460 and 1530 the cost of silver production in central Europe fell dramatically as the result of technological improvements in the mining and manufacturing of silver. At the same time, demand for silver increased and its market value rose. This may have been a result of demographic factors. At this time in Europe, the population as a whole was increasing only slowly, but there were large increases in the size of the cities. According to Flynn, the movement of people to a more highly monetized sector of the economy would surely imply an augmented demand for money to hold. In other words, the move towards urbanization in Europe would account for an increase in the price of silver. And in combination with the lower production costs, silver was increasingly becoming a more attractive commodity to produce. Flynn goes on to argue that the increase in value of precious metals contributed to early European colonization efforts in eastern Africa, and was an incentive behind much of Columbus s explorations in the Americas.
Within Europe the discovery of silver in the Americas led to a decline in silver prices in the 16th century. There was a high demand for silver in Asia and this slowed the decline in the value of silver in general after the discovery of new-world metals. In Europe however, unprecedented price inflation was experienced. As theorized by John Perkins, this was the result (to a degree) of an increase in money supply and / or its velocity of circulation. There has been much debate as to whether or not the influx of American silver led to this inflation, however that is irrelevant to this discussion. The point is that the inflation in Europe or the price revolution as it is known, did cause the value of silver to decrease further. The obvious result of this was an incentive to take silver to Asia where it retained a higher value. In contrast, the higher value of silver in Asia existed prior to (and during much of) the influx of American silver. There was particularly high demand for silver relative to the demand in Europe. For example, in the 16th century in Europe there was a gold-silver ratio of 1:12. In contrast, in China this ratio was 1:4. The unusually high demand for silver in Asia was primarily driven by demand from China. Chinese desire for silver was mainly the result of the 15th century Ming government s decision to switch from paper money to precious metals after the collapse of China s paper-money system. In China there was also a lack of productive silver mines, and with the adoption of the new currency system this resulted in a huge demand for silver.
Before American silver began to arrive, Japan was the only significant contemporary source of the metal in Asia. Even after the arrival of American silver, Japanese silver remained important, and gold from eastern Africa also become important. Silver from the Americas however, was by far the largest source of silver the world had ever seen. Between 1550 and 1800, Mexico and South America contributed more than 80% of the silver and more than 70% of the gold produced in the world. A substantial amount of this silver flowed eastward from Europe in exchange for Asian commodities and gold (which was worth less relative to silver in Asia). The commodities for which there was the most demand in Europe, were spices (sugar and other natural products), cottons, and silks. As there were no European-controlled plantations in existence yet, Europe was entirely reliant on Asia for these goods. In contrast, there was little or no interest from Asia in acquiring European goods. The major non-agricultural commodity produced in Europe, wool, was not suitable for most Asian regions. As a result, In the 16th century, there was an imbalance in the commodity trade excluding precious metals between Europe and Asia. An enormous actual and potential demand for Asian goods existed in Europe. This demand, especially the unsatisfied potential demand for Asian goods, was satisfied to an extent by the discovery of American silver. Silver was a commodity whose qualities included durability, high value-to-weight, along with a worldwide acknowledgment of value. The exchange of silver for commodities in the orient led to a situation in which, in a very real sense, Japan and Spain were major competitors in the world s first global market; China was the most important customer, followed by India.
The discovery of American silver by the Spanish and the subsequent increase in trade between Europe and Asia had a number of highly significant consequences on world history. One of the most important consequences of European control of New World silver, was a result of the routes used to trade the precious metal. As has been noted, trade between Europe and Asia increased in general as a result of Asian desire for American silver and European desire for Asian products. More specifically, trade intensified via the Levant, that is from the Mediterranean through the Red Sea or Persian/Arabian Gulf to the Indian Ocean. Of more historical significance to World Trade however, were the trade routes made possible around the Cape of Good Hope from Europe, and across the Pacific from the Americas. As summarized by Peter Ross, this new trade route (across the Pacific Ocean) actually created for the first time a world economy. The trade route around the Cape of Good Hope was established following the Portuguese expedition led by Vasco da Gama which traveled to India using this route in 1497. This trade route while not especially important in the 16th and 17th centuries, was to increase in consequence with the growth in European power in the 18th and 19th centuries. The importance of silver to the viability of this trade route was critical. In a quote cited by Pearson, the author quoted says that if silver had not been available to the Europeans in sufficient quantities, the East India trade could not have been carried on. The trade route from Acapulco to Manila, was a direct result of the discovery of silver in the Americas. According to Vilar, the export of silver to China became extremely profitable [due to the high value of silver]. Mexico took advantage of it and sent silver annually by what was known as the Manila galleon, a ship that started from the Philippines, but carried Chinese products. This trade route was not unimportant, and according to Pearson, substantial amounts of silver reached Asia using this route. For the first time in the history of the world, the three continents of Asia, Europe, and America were linked economically in a triangle of direct trade routes. Despite the discovery of American silver and European control of it, most of the trade with Asia continued to be conducted via the Levant. Indeed, according to Pearson, Most authors find the flow via the Levant greater than that carried in East India ships via the Cape well into the eighteenth century. The new routes were of importance however because, as mentioned, they integrated the economies of the world into a world economy .
The discovery of American silver undoubtedly contributed to the development in Europe of the capitalist mode of production. How this occurred and to what extent it was a consequence of the import of silver, has been the subject of much scholarly debate. According to Flynn, the discovery of American silver may have contributed to the early transition to European capitalism by extending the range of east and west market activity. Trade with Asia to the East, was substantially increased by the relatively high value of silver, especially in China. Trade with the colonies established in the Americas to the West, was also primarily a result of the discovery of silver to the extent that significant trade between Europe and the western colonies is unimaginable in the absence of some source of precious metals. In addition to these direct consequences (of the introduction of American silver) on the development of capitalism in Europe, the accumulation of capital was also facilitated by the New World metals. Prior to the discovery of American silver, the uncertainty of bullion supplies had influenced economic performance in medieval Europe. The Spanish discoveries meant that this was no longer a problem, and the acquisition of a commodity that could be traded in Asia resulted in an increase in capital in Europe. As has been mentioned previously, Europe also experienced a rise in inflation or price revolution during the early modern period. According to Flynn, the transition to capitalism was stimulated by the price revolution the falling market value of silver. Smith is also of this opinion and contends that while there are doubts about the precise role of American silver in stimulating the inflation, there is no disagreement that prices experienced an unprecedented rise and that the nature of their escalation was significant.
The discovery of American silver contributed to an increase in the power of Western European countries and ultimately, their dominance over much of the world. As has been mentioned, the discovery of American silver increased the viability of the relatively new sea routes to Asia. What is highly significant about these routes (in addition to the creation of a world trade system ) is that they were European controlled. Portugal s monarchy attempted to dominate this route and inter-Asian commerce was subjected to Portuguese taxation. By the 1530s however, Portugal was unable to prevent other European interlopers from becoming increasingly involved. In particular, the powers which gained ascendancy over Spain in the seventeenth century the British and Dutch largely controlled the new channels of trade. Previously, the only option available to European merchants wanting to trade with Asia had been conduct their trade via the Levant. Following the Portuguese example, European knowledge of Asia increased as did (ultimately) European influence in and control of the Orient. American silver contributed to the establishment of the trade route which facilitated the physical means of European expansion. The discovery of American silver also contributed to an increase in Western European power in that economic activity was transferred from central Europe to the Atlantic seaboard. The central European mines which were previously the largest source of silver in Europe, became uneconomic (with the exception of the most productive mines) when the abundance of American silver was discovered. As a result the smelting of metals and various metal working industries declined in these regions, and Western Europe became the centre of industrial activity. A growth in world trade also resulted from the colonization of the Americas, and the commodity production that accompanied this. American silver played a very important role in the colonization, and according to Richards, New World Bullion greatly accelerated the process of settlement in the Americas. An example of this can be seen in Mexico where by 1608 some 4500 people had settled permanently in a place where until 1548 there had been none. Flynn attributes the importance of silver in regards to the colonization of the Americas to the extent that he theorizes that without silver there would have been no, or at least a much smaller Spanish empire than that which was established. Flynn also suggests that the incredible amount of silver procured by the Spanish was the envy of other Western European nations and ultimately resulted in a move towards colonization and the control of trade through military superiority. In addition to hastening the colonization of the New World the silver from the Americas also contributed to a move towards commodity production. According to Perkins, the imbalance in Europe s commodity trade with Asia, involving a drain on the silver acquired from the Americas, was undoubtedly a major stimulus to the effort to develop the West Indies the Americas as an alternative source of supply of desired products of the Orient.
In conclusion, as has been seen, American silver made a substantial contribution to the growth in world trade between Europe, Asia, and the Americas. The high value of silver (to its weight), along with its durability and the world wide recognition of its value, increased the practicality of the new sea-trade routes to Asia. The shift to capitalism in Europe and subsequent increase in Western European power were also facilitated by discovery of American silver. The most important consequence of the enormous influx of silver however, was that it enabled Europe to balance trade with Asia. In this sense, American silver was instrumental in the creation of an integrated world economy.
2. Flynn, D.O., World Silver and Monetary History in the 16th and 17th Centuries, (Vermont, USA: Ashgate Publishing Company, 1996)
3. Flynn, D.O., Comparing the Tokagawa Shogunate with Hapsburg Spain: Two silver-based empires in a global setting in Tracy, J.D., (ed.) The Political Economy of Merchant Empires, (New York, USA: Cambridge University Press, 1991)
5. Pearson, M.N., The Flows and Effects of Precious Metals in India and China: 1500-1750 in Ross, P., (ed.) The Impact of American Silver on the World, (Anales, 2, 2, 1993.)
6. Perkins, J., American Silver and the Economic Development of Sixteenth Century Europe in Ross, P., (ed.) The Impact of American Silver on the World, (Anales, 2, 2, 1993.)
7. Richards, J.F., (ed.), Precious Metals in the Later Medieval and Early Modern Worlds, (North Carolina: Carolina Academic Press, 1983)
8. Ross, P., (ed.) The Impact of American Silver on the World, (Anales, 2, 2, 1993.)
10. Vilar, P., A History of Gold and Money, 1450-1920, (London: NLB, 1976)