Trade Routes 1770/1780

[Verbose]

There's one thing I haven't yet understood about the European use of silver in such trade. I'm of the understanding that the European economies of this time and indeed earlier were valued upon and fixed to silver. But what I wonder about is, when Europeans stumbled upon all that silver in the New World, didn't their currencies get ridiculously undervalued with such large amounts of silver being injected?

Short answer: Sure!

I agree with Martin and Dell.

Inflation was a massive problem in history. It's just that it was very little understood, meaning people were mostly at a loss as how to prevent it from kicking in all the time.

 

[Rambuchan]

The next question: Why just Spain? Or were there others who experienced these (silver / inflation) problems?

 

[Dell19]

There is a Venetian event as well from AGCEEP:

The only significant sources of silver left operating in Europe in early 1420s were mines at Srebrenica in Bosnia and Novo Brdo in soutern Serbia, and they shipped most of their production through the Venetian ports and fortresses that controlled the coast of Dalmatia, with an average outflow of about 20 tonnes of silver a year. As the Bosnian mines declined in the 1430s, the stage was set for a financial disaster, completed when the Turks overran the Serbian silver mines in 1455, and in 1460 captured the last Bosnian mine. The last Venetian silver grosso was minted in 1462. On 17th March 1464 Venice sent all the city's spare cash with the galleys to trade with Syria, leaving nothing in the city treasury but small and debased coins. The bullion crisis reached a point where trade was strangled. Compounding the problem, a genuine fear that creditors would be unable to find money to pay bills led to a restriction for credit. Such fears were real: several Venetian banks failed, and so did the Strozzi bank of Florence, the second largest in the city. Even the smallest of small change became scarce. But the crisis didn't last long. In the late 1450s, Martin Claus of Gotha solved the problem of the flooded silver mines of Saxony, just as Europe ran out of currency. The old mines quickly re-opened, and new discoveries were made in the Harz Mountains (the Erzgebirge). Thereafter, Saxon and Bohemian mining resumed at full scale from mines such as Kutná Hora, Freiberg, and Rammelsberg, and new mines were opened in other regions: at Schneeberg in Saxony and at Schwats in the Tirol, which was discovered in 1448. New supplies of bullion reached European economies, beginning in the 1460s, but especially in the 1470s and 1480s.

The follow up event is:

Having learned from the coin crisis of 1465, the Venetians began minting pure copper coins for everyday use in 1473. The coins were good coinage, that is, they were worth almost exactly what the copper in them was worth. The Venetians were able to do this because new copper mines had opened in the Alps and Carpathians, and Venice was well placed to trade in the metal.

 

[Verbose]

The next question: Why just Spain? Or were there others who experienced these (silver / inflation) problems?

'S a good question. It got me thinking, which lead to some snooping on the internet, which turned up someone's notes re. the discovery of the New World triggering inflation and specifically the impact on the Ottoman empire:

(McCarthy, p.141)
The Ottoman government did not have anything that might be called an overall economic strategy. Survival of the state, civil order and morally, the creation of a just Islamic society were the Ottoman goals Any economic activities of the government were toward those ends.

(pp.151-7)
One of the primary causes of Ottoman economic inferiority cannot be blamed on any Ottoman deficiency -- a change in trade routes from Europe to the East... While the Middle Eastern transit trade did not quickly decline after the Portuguese discoveries, it did not increase as it always had. Once the Dutch and British, stronger opponents that the Portuguese, took over the trade, the Ottoman role in it was doomed.

Nor were the Ottomans at fault for another major blow to their economy, the European discovery of the Americas.... Most damaging to them was a by-product of the discoveries... inflation. Spanish conquest of South American silver mines and theft of their contents brought tremendous inflation to Europe.... The Ottomans had a fixed economic system. With government support guilds and other suppliers set fixed prices for raw materials, goods and wages. As European inflation increased, the price of raw materials outside the Empire became higher than within it. Raw materials were sucked out of the Empire, usually by illegal smuggling. Attempts to halt the smuggling led to corruption through bribery of officials...The result was both unemployment and a lack of finished goods in the market place. Eventually prices in the Empire rose to the world level, but not before great disruption to the Ottoman economy. The government reacting to the need to buy things that were more expensive than before reacted as governments often do.. they made things worse by adulterating the coinage. Reducing the amount of precious metal in coins was the equivalent of today's governments printing too many banknotes and had the same result, more inflation. This caused further disruption in business and distrust of the government. ... it can be said that the Ottomans were responsible for the inflexibility of their economic system.... Their system was based on Middle Eastern and Balkan realities, not on anticipation that America would be discovered.

(Inalcik, pp.49-51)
In the mid-sixteenth century Mexican silver flooded the European market, causing huge price increases, and in the 1580s, this situation was repeated in the Ottoman Empire, where gold was cheaper in relation to silver. These relatively low gold prices encouraged the export of European silver to the empire, to such an extent that in 1584 it was reported that 'one of the main items of trade going to Turkey are Spanish reals sent by the chestful'. European silver coins inundated the Ottoman market, and within a short time, prices doubled. Fixed income groups such as timar-holding sipahis [cavalrymen], kapi kulus [the 'state slaves'] or those who derived their incomes from vakifs [property given over to support the religious establishments and in turn those supported by them] were suddenly impoverished. Sipahis abandoned their timars rather than go on long campaigns which they found too costly, and the Janissary corps in the capital mutinied more and more often. Bribery and misappropriates increased among state officials, soldiers and quadis. The state sought to offset rocketing Treasury expenses by debasing and diminishing the akce, but these panic measures only worsened the situation.

This seemed interesting. I'll have to snoop some more. And as I know you're good at tuning over stones yourself.

 

[Rambuchan]

Your last quote box hits it quite nicely I think.

And as I know you're good at tuning over stones yourself.

OK OK, I can take a hint!

I haven't had much time today, but I thought I'd see what there was on the introduction of the Gold Standard, which I know didn't come long after the time period in the thread title. Being short on time, I went to Wiki first and found that it had good, accurate content on the subject (it's really getting much better these days!) ...

The crisis of silver currency and bank notes (1750–1870)

To understand the adoption of the international gold standard in the late 19th century, it is important to follow the events of the late 18th century and early 19th. In the late 18th century, wars and trade with China, which sold many trade goods to Europe but had little use for European goods, drained silver from the economies of Western Europe and the United States. Coins were struck in smaller and smaller amounts, and there was a proliferation of bank and stock notes used as money.

In the 1790s England suffered a massive shortage of silver coinage and ceased to mint larger silver coins. It issued "token" silver coins and overstruck foreign coins. With the end of the Napoleonic Wars, England began a massive recoinage program that created standard gold sovereigns and circulating crowns, half-crowns, and eventually copper farthings in 1821. The recoinage of silver in England after a long drought produced a burst of coins; England struck nearly 40 million shillings between 1816 and 1820, 17 million half-crowns and 1.3 million silver crowns. The 1819 Act for the Resumption of Cash Payments set 1823 as the date for resumption of convertibility, reached instead by 1821. Throughout the 1820s, small notes were issued by regional banks, which finally were restricted in 1826, while the Bank of England was allowed to set up regional branches. In 1833, however, the Bank of England notes were made legal tender, and redemption by other banks was discouraged. In 1844 the Bank Charter Act established that Bank of England notes, fully backed by gold, were the legal standard. According to the strict interpretation of the gold standard, this 1844 act marks the establishment of a full gold standard for British money.

As a result, many of Britain's colonies were forced to resort to using token coins in the 1800s. Large numbers of token coins were issued by businesses at this time. The most famous of which is the trade tokens of Strachan and Company, South Africa's first widely circulating indigenous currency - first issued in East Griqualand in 1874.

The US adopted a silver standard based on the "Spanish milled dollar" in 1785. This was codified in the 1792 Mint and Coinage Act and by the Federal Government's use of the "Bank of the United States" to hold its reserves, as well as establishing a fixed ratio of gold to the US dollar. This was, in effect, a derivative silver standard, since the bank was not required to keep silver to back all of its currency. This began a long series of attempts for America to create a bimetallic standard for the US Dollar, which would continue until the 1920s. Gold and silver coins were legal tender, including the Spanish real, a silver coin struck in the Western Hemisphere. Because of the huge debt taken on by the US Federal Government to finance the Revolutionary War, silver coins struck by the government left circulation, and in 1806 President Jefferson suspended the minting of silver coins.

Seems Spain was not alone after all and that the influx of more silver into European economies was not the major, stand alone problem (seeing Dell's post).

 

[Rambuchan]

So if I understood correctly, the english exploited indian peasants in order to screw the chinese society by making them addicts of opium for being able to buy this nice chinese stuff like porcelaine and silk... hooray to the classical christian values.

To be more accurate, I think the phrase 'Britain acquired its empire by default' rings somewhat true here for Opium also. See, the intention was not immediately to exploit Indian peasants growing and manufacturing Opium. Rather the British (firstly as the East India Company, then as the Crown and just like other Europeans) were simply interested in attaining trading rights in the Subcontinent, primarily for spices, cotton goods and, yes later, opium as well. But it's not like there was a grand plan to go for the Opium from the outset.

What was noticed over time is that the major power on the sub-continent at the time, The Mughals, had focussed their governmental revenues on Opium, in much the same way as the Saudis focus theirs on oil today. And it paid off grandly, the Mughal economy of the late 1600s and early 1700s dwarfed all the Europeans'. Opium was their primary source of income. Now, as the EIC went battling and backstabbing its way around India to gain those trading rights over other goods, they soon found that the Mughals were waning in influence and power and, eventually, they collapsed altogether. The Brits found themselves to be 'hegemons by default' and this meant acquiring these Opium producing peasants seemingly by default too.

Also, if I'm not mistaken, the Mughals sold most of their Opium into the Middle East and Central Asia, mainly owing to local tastes, religious and political ties with fellow Muslims and also because the trade routes were well worn (unlike those which the Europeans carved out afresh in the oceans). China was not so much of a focus as these old clients and they were interested in other goods. So, as that article you read probably noted, it was indeed the Brits (and the Dutch to a lesser extent) who re-focused such trade toward China, in some controversial ways too. I believe this 're-focusing' was largely because of the different relations, trade routes and buddies that the Mughals had to the Brits. Birdy's probably got a map or two to show all this in that wonderful book of his.

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off-topic: Why have you chosen that username Goa?