Pacific Centuries

Dennis O. Flynn, Lionel Frost, A.J.H. Latham, Dennis O. Flynn, Lionel Frost, A. J. H. Latham

• Publisher: Routledge
• Year: 1998
• ISBN:
  9781134669028
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Starting with the 16th century trade of Latin American silver and Chinese silk, leading researchers trace the economic, environmental and social history of the Pacific region. Chapters examine the trade of diverse commodities within the Pacific and analyse the ecological and social impacts of this increasing economic activity. The strong Chinese ma

1
SPANISH PROFITABILITY IN THE PACIFIC
The Philippines in the sixteenth and seventeenth centuries

Dennis O.Flynn and Arturo Giráldez

The silver of Peru finds its way, not only to Europe, but from Europe to China…. In the cargoes, therefore of the greater part of European ships which sail to India, silver has generally been one of the most valuable articles. It is the most valuable article in the Acapulco ships which sail to Manila. The silver of the new continent seems in this manner to be one of the principal commodities by which the commerce between the extremities of the old one is carried on, and it is by means of it, in great measure, that those distant parts of the world are connected with one another.

(Adam Smith 1937 [1776]: 167–8, 207)

What Adam Smith characterized over two centuries ago as a fundamental feature of global trade history, we (Flynn and Giráldez 1995a) have re-emphasized in recent years: American silver, ultimately destined for China, was a prime impetus behind the birth of global trade. Having traversed the Atlantic Ocean, approximately three-quarters of the New World silver production continued on through a variety of European trade routes—via the Baltic and Russia and Persia, via caravans and waterways of the Middle East, around the Cape of Good Hope—and eventually on to China during three centuries. K.N.Chaudhuri (1978:156) and others make clear why American (as well as Japanese) silver was attracted so relentlessly to China: the market value of silver was simply twice as high in China as it was elsewhere.

So Italy stood at the cross roads where the south-north axis maintained by Spanish policy and the Genoese asientos met the east-west axis running to the Levant and the Far East, where the golden road from Genoa to Antwerp met the silver road to the east.

On the eastern axis there were to be no surprises: silver was the favoured currency there, its value increasing once it reached the Levant…; it increased even more the further east it travelled, crossing Persia and India finally to arrive perhaps in the Philippines or in China; Chinese gold was exchanged [against silver]…at 1 to 4, while the ratio in Europe was at least 1 to 12. This Italy-China axis, beginning in America and running right round the world either through the Mediterranean or round the Cape of Good Hope, can be considered a structure, a permanent and outstanding feature of the world economy which remained undisturbed until the twentieth century.¹

(Braudel 1972:499–500)²

When Ming China’s paper money system collapsed in the fifteenth century, its monetary and tax system gradually converted to a silver basis, culminating in the 1570s in the “single-whip tax reform.” Conversion of both the monetary and fiscal systems of the world’s largest economy to a silver standard naturally raised the price of silver in that region. Arbitrage profits—buying where a product is cheap and selling where it is dear—attracted innumerable European and Asian merchants (and their governments) engaged in fierce and deadly competition for access to profitable trade routes leading toward China.

Although controlling the richest silver mines in world history, Spaniards were locked out of trade routes connecting the markets of Europe and China. The Portuguese and Dutch had already established linkages in Asian waters, thereby blocking Spanish access. Spaniards were excluded from the lucrative spice trade, as well as the inter-Asiatic trade which was so crucial to the Portuguese and later the East India Companies of England and Holland. Under these circumstances, Spanish access to the world’s largest market was only possible via the Pacific Ocean. The birth of Pacific Rim trade dates from 1571, the year the city of Manila was founded. Manila was the crucial entrepôt linking substantial, direct, and continuous trade between America and Asia for the first time in history. The profit motive was preeminent.

Fiscal nightmare in the Philippines: The traditional view

Historical consensus claims that the Philippines were a financial drain for Imperial Spain during the sixteenth and seventeenth centuries. Costs to mother-country Spain are alleged to have far outweighed Imperial benefits.³ Religious and political goals must therefore have superseded financial considerations; otherwise, why would Spain have continued to subsidize these islands for centuries?

The Philippines never provided Spain with the fabulous riches which it received from the gold and silver mines in America. But it was perhaps because Philip II of Spain was able to rely on a steady source of revenue from the Americas that he was willing to tolerate the losses sustained in the Philippines and magnanimously offer to make it “the arsenal and warehouse of the faith.”

(Andaya 1992, v.1:357)

This chapter aims to challenge the conventional depiction of the Philippines as a “profitless archipelago” (Bauzon 1970:172) during the sixteenth and seventeenth centuries.⁴ Instead, we contend that the Spanish state enjoyed substantial net financial benefits from the Philippines. We estimate the Spanish Crown’s net Philippine profit at some 218,415 pesos per year throughout the seventeenth century. Around 125,000 pesos (57.2 percent) in Philippine profit was collected inside of America prior to the loading of silver onto Manila galleons in Acapulco. We term this 125,000 pesos per year “indirect profit.”

The methodology used to generate estimated yearly profits is explained below. It should be emphasized at the outset, however, that our 125,000 pesos per year Philippine “indirect profit” is described as American mining profit in the mainstream literature. At issue is whose methodology is most appropriate for allocation of overall Crown profit to specific geographical locations within Spain’s global silver-trade network. Rather than attributing high profits solely to Spanish-American mines, we contend that a significant fraction of the profit normally attributed to Spanish-American mining should be viewed as “indirect profit” stemming from the Philippine trade. We feel that the silver-economy dichotomy between (a) silver mining, and (b) shipment of the white metal through Manila, is misleading. Mine activity and trade across the Pacific comprised aspects of a multi-faceted global marketplace. American mine profits were impossible without silver’s dominant end-market customers in China.⁵ Manila was the Pacific’s linchpin, connecting silver’s American supply-side (and silk’s demand-side) with silver’s dominant Chinese demand-side (and silk’s supply-side). Therefore, assessment of the magnitude of Philippine profitability for the Spanish Crown requires a global perspective.

Profit from a global perspective

Debate over the rise and decline of the Spanish Empire has traditionally been restricted to “Western” (Spanish American, European, Spanish) issues. By contrast, we contend that Imperial Spain can be fully understood only within the context of an emerging, silver-centered global economy (Flynn and Giráldez 1996a). Spanish-American and Japanese silver mines dominated on the supply-side; China contained by far the most important customers on the demand-side. The sixteenth-century value of silver in China was double that of the rest of the world because China’s enormous monetary and fiscal systems had gradually become “silverized” (von Glahn 1996a, b). High silver prices in China, in conjunction with low production costs in Japan and Spanish America, created enormous merchant profits throughout the world. And no entity profited more from the silver industry than did the Spanish Crown, which received up to 40 percent of the non-smuggled treasure shipped into Spain.⁶ But we argue that, in the absence of Chinese demand for silver, there would have been no Spanish Empire; profit for every entity along silver’s global mercantile chain—including Spain’s central government— depended upon high silver prices offered by end-customers in China (Flynn and Giráldez 1996a).

The Pacific leg of the global silver trade

More than any other entity, the Spanish Crown controlled the Atlantic leg of silver’s journey,⁷ but Spain did not control subsequent legs of the continuum—vast networks of trade connecting European entrepôts with silver-hungry marketplaces in Asia, especially China. The earliest Europeans to establish maritime-merchant empires in Asia were the Portuguese and Dutch; Spain was thereby blocked from the lucrative intra-Asian and Asia-Europe trade vectors. Thus, silver’s Pacific route to China via Manila was Spain’s only direct access to Asian marketplaces. Spaniards circumvented competing European middlemen by trading directly with (mostly) Asian merchants through Manila; the core Philippines trade bartered American silver for Chinese silks. Relatively direct access to the Chinese marketplace explains rates of Acapulco-Manila-China commercial profit which “probably ranged from one hundred to three hundred percent”⁸ (Legarda 1955:362). The goal of this essay is to assess Crown profits, however, not private profits. Analysis of Crown profits from the Philippines trade requires two steps: (1) establishment of a realistic estimate of the magnitude of trade passing through the Philippines, and (2) provision of a global perspective on Crown benefits and Crown costs stemming from trade via the Philippines.

The volume of Pacific trade

Most historians seem to accept, as fact, Chaunu’s three-phased Manila trade: (1) continual increase until about 1620, (2) high plateau and slight decline after 1620, and (3) precipitous fall after 1640 (Chaunu 1960:250). Chaunu’s estimates were based upon almojarifazgo records, an ad valorem tax on legal imports/exports. Unfortunately, Chaunu’s numbers misrepresent Philippine trade volumes. We know that an ever larger share of the merchandise traversing the Pacific was contraband over time; smuggled goods were not recorded in almojarifazgo tax documents, of course, so reliance upon almojarifazgo records led to serious underestimation of commodity values aboard the Manila galleons. Eschewing details of this debate (Flynn and Giráldez 1994; 1995b), suffice to say that Chaunu’s estimates seriously understate the vitality of the Philippines trade. We find plausible, on the other hand, Chuan’s (1969:79) estimate of a two-million pesos annual Acapulco— Manila trade throughout the seventeenth century.⁹ The Manila trade essentially boiled down to a barter of American silver for Chinese silks, so Flynn and Giráldez (1996b) investigated Mexican-bound Chinese silk exports via Manila and Macao; the silk-...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Contributors
• Introduction: Pacific Centuries Emerging
• 1. Spanish Profitability In the Pacific: The Philippines In the Sixteenth and Seventeenth Centuries
• 2. The Great Silk Exchange: How the World Was Connected and Developed
• 3. Islands In the Rim: Ecology and History In and Around the Pacific, 1521–1996
• 4. Maritime Trade and the Agro-Ecology of South China, 1685–1850
• 5. Rice Is a Luxury, Not a Necessity: The Sources of Asian Growth
• 6. Gold Rushes and the Trans-Pacific Wheat Trade: California and Australia, 1848–57
• 7. American Trade Dollars In Nineteenth-Century China
• 8. Alfred Crosby’s Ecological Imperialism Reconsidered: A Case Study of European Settlement and Environmental Change On the Pacific Rim
• 9. Economic Motivations for China-United States Rapproachment In 1971
• 10. Migration and Perceptions of Identity: The Case of Singapore and Malaysian Perceptions of the Australian Identity, 1966–96