Over the next centuries, all this was to be destroyed. In England, the festive life was systematically attacked by Puritan reformers; then eventually by reformers everywhere, Catholic and Protestant alike. At the same time its economic basis in popular prosperity dissolved.
Why this happened has been a matter of intense historical debate for centuries. This much we know: it began with a massive inflation. Between 1500 and 1650, for instance, prices in England increased 500 percent, but wages rose much more slowly, so that in five generations, real wages fell to perhaps 40 percent of what they had been. The same thing happened everywhere in Europe.
Why? The favorite explanation, ever since a French lawyer named Jean Bodin first proposed it in 1568, was the vast influx of gold and silver that came pouring into Europe after the conquest of the New World. As the value of precious metals collapsed, the argument went, the price of everything else skyrocketed, and wages simply couldn’t keep up.2 There is some evidence to support this. The height of popular prosperity around 1450 did correspond to a period when bullion—and therefore, coin—was in particularly short supply.3 The lack of cash played havoc with international trade in particular; in the 1460s, we hear of ships full of wares forced to turn back from major ports, as no one had any cash on hand to buy from them. The problem only started to turn around later in the decade, with a sudden burst of silver mining in Saxony and the Tirol, followed by the opening of new sea routes to the Gold Coast of West Africa. Then came the conquests of Cortés and Pizarro. Between 1520 and 1640, untold tons of gold and silver from Mexico and Peru were transported across the Atlantic and Pacific in Spanish treasure ships.
The problem with the conventional story is that very little of that gold and silver lingered very long in Europe. Most of the gold ended up in temples in India, and the overwhelming majority of the silver bullion was ultimately shipped off to China. The latter is crucial. If we really want to understand the origins of the modern world economy, the place to start is not in Europe at all. The real story is of how China abandoned the use of paper money. It’s a story worth telling briefly, because very few people know it.
After the Mongols conquered China in 1271, they kept the system of paper money in place, and even made occasional (if usually disastrous) attempts to introduce it in the other parts of their empire. In 1368, however, they were overthrown by another of China’s great popular insurrections, and a former peasant leader was once again installed in power.
During their century of rule, the Mongols had worked closely with foreign merchants, who became widely detested. Partly as a result, the former rebels, now the Ming dynasty, were suspicious of commerce in any form, and they promoted a romantic vision of self-sufficient agrarian communities. This had some unfortunate consequences. For one thing, it meant the maintenance of the old Mongol tax system, paid in labor and in kind; especially since that, in turn, was based on a quasi-caste system in which subjects were registered as farmers, craftsmen, or soldiers and forbidden to change their jobs. This proved extraordinarily unpopular. While government investment in agriculture, roads, and canals did set off a commercial boom, much of this commerce was technically illegal, and taxes on crops were so high that many indebted farmers began to flee their ancestral lands.4
Typically, such floating populations can be expected to seek just about anything but regular industrial employment; here as in Europe, most preferred a combination of odd jobs, peddling, entertainment, piracy, or banditry. In China, many also turned prospector. There was a minor silver rush, with illegal mines cropping up everywhere. Uncoined silver ingots, instead of official paper money and strings of bronze coins, soon became the real money of the off-the-books informal economy. When the government attempted to shut down illegal mines in the 1430s and 1440s, their efforts sparked local insurrections, in which miners would make common cause with displaced peasants, seize nearby cities, and sometimes threaten entire provinces.5
In the end, the government gave up even trying to suppress the informal economy. Instead, they swung the other way entirely: stopped issuing paper money, legalized the mines, allowed silver bullion to become the recognized currency for large transactions, and even gave private mints the authority to produce strings of cash.6 This, in turn, allowed the government to gradually abandon the system of labor exactions and substitute a uniform tax system payable in silver.
Effectively, the Chinese government had gone back to its old policy of encouraging markets and merely intervening to prevent any undue concentrations of capital. It quickly proved spectacularly successful, and Chinese markets boomed. Indeed, many speak of the Ming as having accomplished something almost unique in world history: this was a time when the Chinese population was exploding, but living standards markedly improved.7 The problem was that the new policy meant that the regime had to ensure an abundant supply of silver in the country, so as to keep its price low and minimize popular unrest—but as it turned out, the Chinese mines were very quickly exhausted. In the 1530s, new silver mines were discovered in Japan, but these were exhausted in a decade or two as well. Before long, China had to turn to Europe and the New World.
Now, since Roman times, Europe had been exporting gold and silver to the East: the problem was that Europe had never produced much of anything that Asians wanted to buy, so it was forced to pay in specie for silks, spices, steel, and other imports. The early years of European expansion were largely attempts to gain access either to Eastern luxuries or to new sources of gold and silver with which to pay for them. In those early days, Atlantic Europe really had only one substantial advantage over its Muslim rivals: an active and advanced tradition of naval warfare, honed by centuries of conflict in the Mediterranean. The moment when Vasco da Gama entered the Indian Ocean in 1498, the principle that the seas should be a zone of peaceful trade came to an immediate end. Portuguese flotillas began bombarding and sacking every port city they came across, then seizing control of strategic points and extorting protection money from unarmed Indian Ocean merchants for the right to carry on their business unmolested.
At almost exactly the same time, Christopher Columbus—a Genoese mapmaker seeking a short-cut to China—touched land in the New World, and the Spanish and Portuguese empires stumbled into the greatest economic windfall in human history: entire continents full of unfathomable wealth, whose inhabitants, armed only with Stone Age weapons, began conveniently dying almost as soon as they arrived. The conquest of Mexico and Peru led to the discovery of enormous new sources of precious metal, and these were exploited ruthlessly and systematically, even to the point of largely exterminating the surrounding populations to extract as much precious metal as quickly as possible. As Kenneth Pomeranz has recently pointed out, none of this would have been possible were it not for the practically unlimited Asian demand for precious metals.
Had China in particular not had such a dynamic economy that changing its metallic base could absorb the staggering quantities of silver mined in the New World over three centuries, those mines might have become unprofitable within a few decades. The massive inflation of silver-denominated prices in Europe from 1500 to 1640 indicates a shrinking value for the metal there even with Asia draining off much of the supply.8
By 1540, a silver glut caused a collapse in prices across Europe; the American mines would, at this point, simply have stopped functioning, and the entire project of American colonization foundered, had it not been for the demand from China.9 Treasure galleons moving toward Europe soon refrained from unloading their cargoes, instead rounding the horn of Africa and proceeding across the Indian Ocean toward Canton. After 1571, with the foundation of the Spanish city of Manila, they began to move directly across the Pacific. By the late sixteenth century, China was importing almost fifty tons of silver a year, about 90 percent of its silver, and by the early seventeenth century, 116 tons, or over 97 percent.10 Huge amounts of silk, porcelain, and other Chinese products had to be exported to pay for it. Many of these Chinese products, in turn, ended up in the new
cities of Central and South America. This Asian trade became the single most significant factor in the emerging global economy, and those who ultimately controlled the financial levers—particularly Italian, Dutch, and German merchant bankers—became fantastically rich.
But how exactly did the new global economy cause the collapse of living standards in Europe? One thing we do know: it clearly was not by making large amounts of precious metal available for everyday transactions. If anything, the effect was the opposite. While European mints were stamping out enormous numbers of rials, thalers, ducats, and doubloons, which became the new medium of trade from Nicaragua to Bengal, almost none found their way into the pockets of ordinary Europeans. Instead, we hear constant complaints about the shortage of currency. In England:
For much of the Tudor period the circulating medium was so small that the taxable population simply did not have sufficient coin in which to pay the benevolences, subsidies, and tenths levied upon them, and time and time again household plate, the handiest near money that most people possessed, had to be surrendered.11
This was the case in most of Europe. Despite the massive influx of metal from the Americas, most families were so low on cash that they were regularly reduced to melting down the family silver to pay their taxes.
This was because taxes had to be paid in metal. Everyday business in contrast continued to be transacted much as it had in the Middle Ages, by means of various forms of virtual credit money: tallies, promissory notes, or, within smaller communities, simply by keeping track of who owed what to whom. What really caused the inflation is that those who ended up in control of the bullion—governments, bankers, large-scale merchants—were able to use that control to begin changing the rules, first by insisting that gold and silver were money, and second by introducing new forms of credit-money for their own use while slowly undermining and destroying the local systems of trust that had allowed small-scale communities across Europe to operate largely without the use of metal currency.
This was a political battle, even if it was also a conceptual argument about the nature of money. The new regime of bullion money could only be imposed through almost unparalleled violence—not only overseas, but at home as well. In much of Europe, the first reaction to the “price revolution” and accompanying enclosures of common lands was not very different from what had so recently happened in China: thousands of one-time peasants fleeing or being forced out of their villages to become vagabonds or “masterless men,” a process that culminated in popular insurrections. The reaction of European governments, however, was entirely different. The rebellions were crushed, and this time, no subsequent concessions were forthcoming. Vagabonds were rounded up, exported to the colonies as indentured laborers, and drafted into colonial armies and navies—or, eventually, set to work in factories at home.
Almost all of this was carried out through a manipulation of debt. As a result, the very nature of debt, too, became once again one of the principal bones of contention.
Part I:
Greed, Terror, Indignation, Debt
No doubt scholars will never stop arguing about the reasons for the great “price revolution”—largely because it’s not clear what kind of tools can be applied. Can we really use the methods of modern economics, which were designed to understand how contemporary economic institutions operate, to describe the political battles that led to the creation of those very institutions?
This is not just a conceptual problem. There are moral dangers here. To take what might seem an “objective,” macro-economic approach to the origins of the world economy would be to treat the behavior of early European explorers, merchants, and conquerors as if they were simply rational responses to opportunities—as if this were just what anyone would have done in the same situation. This is what the use of equations so often does: make it seem perfectly natural to assume that, if the price of silver in China is twice what it is in Seville, and inhabitants of Seville are capable of getting their hands on large quantities of silver and transporting it to China, then clearly they will, even if doing so requires the destruction of entire civilizations. Or if there is a demand for sugar in England, and enslaving millions is the easiest way to acquire labor to produce it, then it is inevitable that some will enslave them. In fact, history makes it quite clear that this is not the case. Any number of civilizations have probably been in a position to wreak havoc on the scale that the European powers did in the sixteenth and seventeenth centuries (Ming China itself was an obvious candidate), but almost none actually did so.12
Consider, for instance, how the gold and silver from the American mines were extracted. Mining operations began almost immediately upon the fall of the Aztec capital of Tenochtitlán in 1521. While we are used to assuming that the Mexican population was devastated simply as an effect of newly introduced European diseases, contemporary observers felt that the dragooning of the newly conquered natives to work in the mines was at least equally responsible.13 In The Conquest of America, Tzvetan Todorov offers a compendium of some of the most chilling reports, mostly from Spanish priests and friars who, even when committed in principle to the belief that the extermination of the Indians was the judgment of God, could not disguise their horror at scenes of Spanish soldiers testing the blades of their weapons by eviscerating random passers-by, and tearing babies off their mother’s backs to be eaten by dogs. Such acts might perhaps be written off as what one would expect when a collection of heavily armed men—many of violent criminal background—are given absolute impunity; but the reports from the mines imply something far more systematic. When Fray Toribio de Motolinia wrote of the ten plagues that he believed God had visited on the inhabitants of Mexico, he listed smallpox, war, famine, labor exactions, taxes (which caused many to sell their children to moneylenders, others to be tortured to death in cruel prisons), and the thousands who died in the building of the capital city. Above all, he insisted, were the uncountable numbers who died in the mines:
The eighth plague was the slaves whom the Spaniards made in order to put them to work in the mines. At first those who were already slaves of the Aztecs were taken; then those who had given evidence of insubordination; finally all those who could be caught. During the first years after the conquest, the slave traffic flourished, and slaves often changed master. They produced so many marks on their faces, in addition to the royal brand, that they had their faces covered with letters, for they bore the marks of all who had bought and sold them.
The ninth plague was the service in the mines, to which the heavily laden Indians traveled sixty leagues or more to carry provisions … When their food gave out they died, either at the mines or on the road, for they had no money to buy food and there was no one to give it to them. Some reached home in such a state that they died soon after. The bodies of those Indians and of the slaves who died in the mines produced such a stench that it caused a pestilence, especially at the mines of Oaxaca. For half a league around these mines and along a great part of the road one could scarcely avoid walking over dead bodies or bones, and the flocks of birds and crows that came to fatten themselves upon the corpses were so numerous that they darkened the sun.”14
Similar scenes were reported in Peru, where whole regions were depopulated by forced service in the mines, and Hispaniola, where the indigenous population was eradicated entirely.15
When dealing with conquistadors, we are speaking not just of simple greed, but greed raised to mythic proportions. This is, after all, what they are best remembered for. They never seemed to get enough. Even after the conquest of Tenochtitlán or Cuzco, and the acquisition of hitherto-unimaginable riches, the conquerors almost invariably regrouped and started off in search of more treasure.
Moralists throughout the ages have inveighed against the endlessness of human greed, just as they have against our supposedly endless lust for power. What history actually reveals, though, is that while humans may be justly accused of having a proclivity to accuse others of acting like conquistadors, few
really act this way themselves. Even for the most ambitious of us, our dreams are more like Sindbad’s: to have adventures, to acquire the means to settle down and live an enjoyable life, and then, to enjoy it. Max Weber of course argued that the essence of capitalism is the urge—which he thought first appeared in Calvinism—never to settle down, but to engage in endless expansion. But the conquistadors were good Medieval Catholics, even if ones usually drawn from the most ruthless and unprincipled elements of Spanish society. Why the unrelenting drive for more and more and more?
It might help, I think, to go back to the very onset of Hernán Cortés’s conquest of Mexico: What were his immediate motives? Cortés had migrated to the colony of Hispaniola in 1504, dreaming of glory and adventure, but for the first decade and a half, his adventures had largely consisted of seducing other people’s wives. In 1518, however, he managed to finagle his way into being named commander of an expedition to establish a Spanish presence on the mainland. As Bernal Díaz del Castillo, who accompanied him, later wrote, around this time
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