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Estimations find Spanish American empires silver production at 300
metric tons per year during the 16th and early 17th century and Japans
the second largest world producer at 200 (332). Over the period, 15,000 tons went from America to Europe and 13,000 directly from Mexico to Philippines (335) Japan exported 10,000 tons (336). Yet, this enormous annual production only represented 1 or 2% of the worlds silver stock at the time.
Europeans didnt keep the silver, Spain used copper and European
trade relied on bills of exchange. Instead European were middlemen
bringing American and Japanese metal to China and (to a lesser extent)
India. Chinas silver thirst was due to the collapse of the paper-money
system in 1436.
The traditional Western textbook explanation for the
West-to East flow of silver is based on a type of macroeconomic
reasoning that views money as a passive balancing item. [] Because
European imports greatly exceeded exports, precious metal flowed
eastward in order to balance the books. The monetary sector merely
responded to an imbalance in the real sector. This conventional
wisdom is defective. Precious metal were produced for profit just like
any other commodity they neither more nor less real than any other
product (337).
Silver although was quiet particular in that
it was not consumed (it accumulated for centuries) hence the supply can
only increase (on a graph the supply curve would be vertical).
Consequently, the value of silver constantly decreased over time; it
lost 50 to 65% during the early modern period (339).
Problem
On the contrary of what was previously assumed, the 17th-century
silver production was greater than 16th-century. According to Flynn,
the 17th century crisis was not due to a lack of supply but to a drop
of silvers value.
Flynn doesnt see the early modern globalization as the creation of
a world market but as the progressive overlapping of numerous localized
submarkets (W. Europe, E. Europe, Russia, Middle East, China). This
gradual integration happened between China and Japan, by 1640s the
value of gold to silver in one had become virtually identical to that
in the other.
By 1630s, the arbitrage profit
coming from the favourable exchange rate between gold and silver had
disappeared but not the flow of European silver to China. Why? Because
arbitrage profits still existed between silver and other commodities.
Besides, arbitrage profit is not the only benefit one gets from trade,
accessing new market to widen the demand side is essential (economies
of scale and so on).
Arbitrage profits were possible because the world market prices were
based on former (15th century) production price. American silver was
much cheaper to produce, thus the margin was enormous. It took about a
century (till the 1630s) for the market to re-attain a equilibrium
price in relation with the production costs.
Spain waged military ventures with the benefice of the American
silver, while shoguns and damyos invested in infrastructures (in
1550-1650 Japan doubled its amount of rice paddy). Critically, the
Tokugawa bafuku was in charge of all the silver mines of the
archipelago, it explains its domestic supremacy and its ability to pull
Japan out of the Chinese tributary world order. Why did Spain decline
while Japan didnt? Spain only had silver, Japan had gold and copper.
Spanish silver was cheaper to produce because of the easier access
to mercury (necessary to proceed silver) and to the fact that
production was not monopolized by the political power but left to the
private sector. Spain and Japan were competitors on the Asian market.
But what if Japan hadnt produced silver? Silver price would have
decline much been delayed (50 years latter maybe) and Spain could have
win the war against Holland and England and modern capitalism may have
never appeared.
Consequences
In Japan and not in Spain, the economic development allowed
by silver undermined the power of the warrior class and accelerated the
strengthening of capitalism.
Discussion
The author defends the von Hayeks monetary theories and is
inspired by libertarian ideology. It is quite refreshing considering
that most historians are more or less Marxist. That said, his view on
money as a mere commodity is simplistic as silver makes trading easier
and thus participate more than any other commodity to economic growth,
it hardly stays still, silver is a prime multiplier. Besides, his bet
that 20th century Spanish economic setbacks compared to Japanese
success are partly related with the 16th century fiscal pressure is
very awkward.