Economy of New Spain

The philosophy of mercantilism was the force behind all overseas ventures by European colonial powers. This set of ideas emphasized that the most important function of colonial possessions was to enrich the mother country. Spain monopolized the trade of Mexico, or "New Spain." Commerce to and from the colony could be carried only in Spanish bottoms; nothing was permitted to be grown in Mexico that might in any way come into competition with products from Spain. Only native-born Spaniards could hold office under the government in New Spain. The establishment of manufactures of all kinds was discouraged or prohibited.

The accumulation of wealth was largely accomplished by the levy of the quinto (royal fifth) on all colonial production. Trade duties protected manufacturers and merchants in Spain from competition in the colonies and placed strict restrictions on the colonial economies. Mexico was required to supply raw materials to Spain, which would then produce finished goods to be sold at a profit to the colonies.

According to Spanish policy, colonial lands could not compete with Spain in commercial enterprises. Thus, colonials were prohibited from manufacturing wine, olive oil, and other items. Colonies were encouraged to develop mining, in order to supply Spain with silver and gold, and to develop agricultural activities. In New Mexico, mining was widespread, but ranching was the primary economic activity, with trade secondary.

From the mid-sixteenth century on, some land grants were provided to Europeans willing to farm the land and raise livestock in underpopulated areas. The European acquisition of land often encroached upon native villages. Displacement and fear of forced labor in the early seventeenth century led entire villages to flee to larger towns, mining camps, or haciendas, where the displaced persons hired themselves out as artisans, servants, peons, or laborers. Although originally kept apart in separate "republics," close contact of all sorts with the Spaniards was responsible for the indigenous peoples' acculturation. The mestizos, who would later play the dominant role in Mexican society and history, could trace their origins to this period of intense assimilation of the two cultures.

Agricultural production was directed to internal markets, while exports consisted mainly of precious metals and animal hides. During the initial phase of the colonial period, gold had been collected from the Aztec treasures and from some mining operations. However, silver soon became the dominant colonial product, followed by the red dye cochineal, and by the late sixteenth century, silver accounted for 80 percent of all exports from New Spain. Exploration and the search for mines led the Spaniards to the north, far beyond the Aztec empire. The rich mines of Zacatecas, Real del Monte, Pachuca, and Guanajuato in north-central Mexico were discovered between 1546 and 1552. Silver production continued into the seventeenth century, and it employed most available labor.

During the sixteenth century, a dual economy developed in New Spain: the hacienda economy in the Valley of Mexico and the south and the frontier economy of the silver mines to the north. By the mid-seventeenth century, however, silver production collapsed when mercury, necessary to the refining process, was diverted to the silver mines of Potosí (in present-day Bolivia). The seventeenth-century mining crisis led to widespread bankruptcy among miners and hacendados (hacienda owners) and also had a negative effect on transatlantic trade. However, the financial crisis did promote the production of crude manufactures and food for domestic consumption by the growing population of New Spain.