Spain never developed a coherent economic policy; the imperial bureaucracy acted simply as a conduit of wealth into Italian, South German, and Dutch coffers.
Eric Wolf, 1982127
Mexican silver underwrote Spain’s cost of governance and war, formed the base of the currency, and paid for such Asian imports as spices, jewels, silks, and pepper. While mining stimulated the region adjacent to the mine, it did not stimulate the economy as a whole. Mexican mining technology changed little after the sixteenth century, so mines created less demand for iron goods,
Such as boilers, than mines in Europe did. Referring to eighteenth-century silver miner Jose de la Borda, Salvucci commented, “Perhaps God gave to the miner Borda, and Borda gave back to God, but neither divine providence nor beautiful churches provide a basis for economic development.”128 During the last decades before independence, Mexico generated wealth on a scale unmatched elsewhere else in Spanish America. Its diversified economy in large part served the needs of the Mexican elite, despite the Crown’s attempts to shape it to meet the needs of the mother country. Between 1796 and 1820, exports only averaged 4.3 percent of the GDP.129
Much eighteenth-century economic growth resulted from a doubling in population from 3.3 million in 1742 to 6.1 million in 1810. However, unlike growth in Europe at the time, Mexico did not acquire new technology. Rather, Mexico added more land and labor to increase production. With much of the domestic wealth falling into the hands of a small number of wealthy miners, merchants, and hacendados, little remained to trickle down. As historian Richard Garner noted, “Growth in output from mining, agriculture, and manufacturing had not visibly enhanced the material lot of the ordinary citizen.”130
The Bourbons administered more efficiently than the Habsburgs. They also appropriated more of Mexico’s wealth to subsidize Spain, the Philippines, and Spanish colonies in the Caribbean. They remained convinced that state intervention was needed to spur economic growth and to keep the state financially solvent. In some cases, such as supplying mercury, salt, and tobacco, the state controlled economic activity directly. In most cases, though, the state influenced the economy through taxes and detailed regulations. Policymakers felt market regulation would eliminate sharp price fluctuations, shortages, and the consequent social tension. Rather than taxing wealth or income, taxes fell heavily on the movement of goods. These taxes, such as a tax on sales and barter, on the movement of goods from one tax district to another, and on exports and imports, retarded the creation of large markets.131
In an exchange remarkably similar to those occurring two centuries later, miner Jose de la Borda argued in 1765 that a decrease in mining taxes would stimulate investment and increase the treasury’s income. Viceroy Bucareli rejected this advice, declaring that the increase in mining that had followed a pervious decline in the price of mercury resulted, not from the price decrease, but from new ore discoveries.132
The society created under Spanish tutelage retarded industry. Concentrated income and high commercial profits led to an emphasis on the import of luxury goods. With the exception of tobacco and mine workers, few wage earners could afford mass-produced goods.133
The Crown’s policy of protecting Spanish industry retarded Mexican industrialization. Authorities tolerated some Mexican industrialization, such as the production of ordinary fabrics and textiles. Generally, however, they prohibited investment that competed with Spanish manufactured imports. Some of these restrictions led to economic absurdities. Until the 1794 economic reform, sugar brandy could not be produced in Spanish America. Molasses would be shipped to Spain for distillation into spirits, and the product would then be shipped back to Mexico for sale. This reflected the Crown’s desire to have the colonies supply Spain with raw materials so that Spanish labor could convert them into finished goods and return them to the colonies.134
The Crown made independence appear less attractive by impeding the industrialization of its colonies, thus prolonging their dependence on the mother country for industrial goods. In 1790, perhaps in response to the successful revolt of Britain’s North American colonies, the Viceroy of Nueva Granada (today Venezuela and Colombia), Francisco Gil de Taboada, stated:
It’s clear that the security of America can be measured by the degree of dependence on the mother country, a dependency which is based on the distribution of merchandise. When the day comes that the colonies have all they need, their dependency will be voluntary, and neither the armed forces we have there, nor government generosity, nor a better system of justice will be sufficient to assure our possession.135
Each guild regulated in detail the type of raw materials used, the shape and form of articles produced, and the tools used. While these measures served their stated purpose of protecting consumers from inferior products, they impeded improved design and the introduction of new production technology. Guild regulations, which excluded certain racial groups, such as Indians, prevented efficient utilization of labor.136
The shortage of coins provided a further impediment to developing the colonial economy. (Paper money did not exist during the colonial period.) Not only was silver hoarded but there was a massive outflow—partly to pay for imports but also because taxes and profits from government monopolies were remitted to Spain and other Spanish colonies and because wealthy Spaniards retired back to the mother country with their personal fortunes. Given the scarcity of coins, in the late colonial period an estimated two-thirds of commercial transactions involved letters of credit.137
The coin shortage also affected the retail trade. Colonials often purchased items as insignificant as bread and clothing on credit. As late as 1800, cacao beans still served as currency. Merchants and hacendados would also issue their own local currency made of wood, copper, or even soap. As the distance from its issuer increased, the value of this currency declined. This served as yet another barrier to increasing the size of the market.138
The wealthy frittered away much of the economic surplus they accumulated, rather than reinvesting it. Historian Jose Durand commented that among the descendants of the conquista-dores, “From a very early date, riches financed such manifestations of Renaissance exquisiteness as Plateresque architecture, clothing, jewels, paintings, and the lifestyle of a courtesan.” Some hacendados invested in ostentatious homes, titles of nobility, dowries for daughters to enter convents, and lavish social gatherings. The Church, while it did facilitate credit, also diverted much of its wealth into temples and convents adorned with paintings, altars, and images, many of which were made with precious metals and jewels that had once belonged to women of aristocratic lineage.139
Between 1792 and 1820, the Bourbons transferred roughly 7.2 percent of colonial income to the mother country—a tax burden that by today’s standards is remarkably light. Institutional problems resulting from Spanish colonization provided a greater obstacle to development than did taxation. These obstacles included inefficient judicial institutions and pre-modern land tenure. The existence of privileged corporate bodies, such as the military and the Church, whose members operated with their own rules and sat in judgment of one another, raised the costs and risks of enterprise for the rest of the population. The Crown failed to develop a financial infrastructure capable of supporting productive long-term investment. The system of racial classification forced mestizos and Indians into a straightjacket of approved activities.140
Ironically, despite having the largest empire in the world, Spain failed to benefit significantly from its colonies. The 1492 expulsion of the Jews deprived Spain of much of its financial expertise, just when the inflow of New World wealth increased the need for such knowledge. Given the antientrepreneurial values among Spain’s Castilian elite, the expulsion of Jews created a catastrophic financial vacuum. Before 1492, foreign bankers had played virtually no role in Spain. The expulsion of Spain’s Jews destroyed the primary source of credit, leaving Spain completely dependent on Dutch, German, French, and especially Genoese bankers.141
France, England, and the Netherlands, lacking mines, focused on obtaining gold and silver by manufacturing for export. Many of the taxes and guild regulations that plagued Mexican industry of the time also stifled Spanish industry. The massive inflow of precious metals to Spain led to 400 percent inflation between 1500 and 1600, pricing Spanish goods out of the market. In 1521, Spanish clergy, monarchy, and aristocrats cut off the growth of the class that developed industry elsewhere in Europe when they defeated the comunero rebels at the Battle of Villalar. This shaped Spanish values and, as a result, until 1772 engaging in manufacturing could cause one to lose noble status. Because of these factors, by 1600 the core of the world economy had shifted to Holland, England, and France.142
Spain fell further behind northern Europe in the seventeenth century, in large part due to enormous military expenditure. In the early 1600s, King Felipe IV had 300,000 men under arms. The seemingly endless wars left Spain with little to invest productively. These conflicts resulted from: 1) the Habsburg monarchy inheriting possessions in territory now forming parts of Italy, Holland, Belgium, France, and Germany, and waging costly, futile battles to retain them; 2) the Crown perceiving its duty as combating Protestantism in Northern Europe and Moslems in the Mediterranean area; and 3) the Crown protecting its New World claims and its shipping from the French, Dutch, and English. In retrospect, imperial Spain never recovered from its wasting seventeenth-century conflicts.143
Spain acted as a conduit for commerce between its colonies and the rest of Europe. Increasingly Spain bought inexpensive manufactured goods from North Atlantic nations and then shipped them to the colonies. By the end of the seventeenth century, only 5 percent of the merchandise shipped from Spain to its American colonies came from Spain. France supplied 25 percent, Genoa 22 percent, Holland 20 percent, Flanders 10 percent, Great Britain (a latecomer to trans-Atlantic trade) 10 percent, and Germany 8 percent. During the last third of the eighteenth century, the percentage of exports to the New World produced by Spain increased. However, such an increase could not reverse the ascendancy of northern Europe.144
By the end of the colonial period, profit-oriented Mexican entrepreneurs, who were increasingly relying on wage labor, owned and directed the major means of production. This was especially true along a spinal column of commercial capitalism that extended west from Veracruz through Jalapa and Mexico City and then north to the mining districts of Zacatecas and Durango.145
Elsewhere in the colony, various factors prevented the formation of vigorous markets. At the end of the colonial period, most work was not performed by free wage labor. High transport costs, the Church tithe, and internal customs (alcabala) also hampered the development of large markets. Mexico’s increasingly being milked by a greedy and belligerent metropolis further stymied the development of markets.146
The colonial period saw the depletion of many of Mexico’s natural endowments. Precious metals, mined and lost forever to Mexico, facilitated European development. Similarly, Mexico’s forest stock declined during the colonial period. Forests covered roughly three-quarters of New Spain at the time of the Conquest. By the end of the colonial period, as a result of using wood for fuel, construction, shipbuilding, and mining, forest cover had declined by one-third. This loss occurred despite efforts to protect Mexican forests. For example, in 1765, King Carlos III decreed that licenses would be required to cut wood on private as well as on common land and that for each tree cut three more had to be planted.147
World History
