Declining Silver Production
In the eighteenth century many among the political elite questioned earlier perceptions of Lima and Peru. Declining mining revenue, the successes of rival British and French colonies, and the rise to power of the Bourbon monarchy in Madrid led many to blame practices of Hapsburg colonialism in the previous centuries for the failure to maximize Peru’s full productive potential. Crown authorities and prominent writers on both sides of the Atlantic disparaged both the colony’s gradual economic decline and its overall population loss since the Conquest. They debated how to make Peru more useful to the Bourbons, whose rule in Spain began in 1700.
Silver and base metal-bearing deposits of Mexico and Peru constitute an important portion of the world silver production derived from shallow, vein-type deposits hosted in volcanic rocks. Silver for centuries has been used traditionally for coinage by many countries of the world. Sterling silver is used for jewelry, silverware, etc. where appearance is paramount. This alloy contains 92.5% silver, the remainder being copper or some other metal.
In the 1530s, Spain conquered the Inca Empire in present day Peru and added huge amounts of gold and silver to its coffers. Not surprisingly, France expanded efforts to seize Spanish treasure by licensing privateers to operate far into the Atlantic Ocean instead of concentrating on waters near Spain. In 1537, a year when French privateers captured nine treasure ships, Spain sent several royal warships all the way to the Caribbean to escort the treasure ships home. This convoy of merchant ships and warships is considered the first true treasure fleet. This system of merchant ships sailing in groups protected by warships helped the Spanish bring home large amounts of treasure. In 1545 the Spanish found the richest silver deposits yet discovered in the Americas on a mountainside in Peru. This find ensured the growth of the Spanish empire and made silver the most important precious metal coming from the Americas.
The basic Spanish silver coin was the 8-reales piece or "piece of eight", which came to be called a peso. Because of its high silver content, pesos were widely accepted in Europe. This was important because Spain had virtually no industry of its own and had to buy manufactured goods from other European nations. In this way, the silver and gold Spain mined in the Americas made its way throughout Europe and impacted the global economy. The colonies that Spain founded in the New World became the world's largest sources of precious metals. Spain quickly established a policy whereby colonists in the Americas could only trade with Spanish merchant ships. Since early colonists depended on Spanish merchants for basic necessities including food, tools, domestic animals, and weapons, Spain's trading monopoly was very profitable.
The treasure fleet system reached it height between 1590 and 1600. During this period, about 16 million pesos' worth of precious metals came from the New World mines each year. Then, over the next century the system began to slowly decline.
Silver production entered into a prolonged period of decline in the seventeenth century. This decline also slowed the important trans-Atlantic trade and diminished the importance of Lima as the economic hub of the viceregal economy. Annual silver output at Potosi, for example, fell in value from a little over 7 million pesos in 1600 to almost 4.5 million pesos in 1650 and finally to just under 2 million pesos in 1700. Falling silver production, the declining transatlantic trade, and the overall decline of Spain itself during the seventeenth century have long been interpreted by historians as causing a prolonged depression both in the viceroyalties of Peru and New Spain.
However, economic historian Kenneth J. Andrien has challenged this view, maintaining that the Peruvian economy, rather than declining, underwent a major transition and restructuring. After the decline in silver production and the trans-Atlantic trade eroded the export economy, they were replaced by more diversified, regionalized, and autonomous development of the agricultural and manufacturing sectors. Merchants, miners, and producers simply shifted their investments and entrepreneurial activities away from mining and the transatlantic trade into internal production and import-substituting opportunities, a trend already visible on a small scale by the end of the previous century. The result was a surprising degree of regional diversification that stabilized the viceregal economy during the seventeenth century.
This economic diversification was marked by the rise and expansion of the great estates, or haciendas, that were carved out of abandoned native land as a result of the demographic collapse. The precipitous decline of the native population was particularly severe along the coast and had the effect of opening up the fertile bottom lands of the river valleys to Spanish immigrants eager for land and farming opportunities. A variety of crops were raised: sugar and cotton along the northern coast; wheat and grains in the central valleys; and grapes, olives, and sugar along the entire coast. The highlands, depending on geographic and climatic conditions, underwent a similar hacienda expansion and diversification of production. There, coca, potatoes, livestock, and other indigenous products were raised in addition to some coastal crops, such as sugar and cereals.
This transition toward internal diversification in the colony also included early manufacturing, although not to the extent of agrarian production. Textile manufacturing flourished in Cusco, Cajamarca, and Quito to meet popular demand for rough-hewn cotton and woolen garments. A growing intercolonial trade along the Pacific Coast involved the exchange of Peruvian and Mexican silver for oriental silks and porcelain. In addition, Arequipa and then Nazca and lea became known for the production of fine wines and brandies.
And throughout the viceroyalty, small-scale artisan industries supplied a range of lower-cost goods only sporadically available from Spain and Europe, which were now mired in the seventeenth century depression.
If economic regionalization and diversification worked to stabilize the colonial economy during the seventeenth century, the benefits of such a trend did not, as it turned out, accrue to Madrid. The crown had derived enormous revenues from silver production and the transatlantic trade, which it was able to tax and collect relatively easily. The decline in silver production caused a precipitous fall in crown revenue, particularly in the second half of the seventeenth century. For example, revenue remittances to Spain dropped from an annual average of almost 1.5 million pesos in the 1630s to less than 128,000 pesos by the 1680s. The crown tried to restructure the tax system to conform to the new economic realities of seventeenth-century colonial production but was rebuffed by the recalcitrance of emerging local elites. They tenaciously resisted any new local levies on their production, while building alliances of mutual convenience and gain with local crown officials to defend their vested interests.
The situation further deteriorated, from the perspective of Spain, when Madrid began in 1633 to sell royal offices to the highest bidder, enabling self-interested Creoles to penetrate and weaken the royal bureaucracy. The upshot was not only a sharp decline in vital crown revenues from Peru during the century, which further contributed to the decline of Spain itself, but an increasing loss of royal control over local Creole oligarchies throughout the viceroyalty.
Lamentably, the sale of public offices also had longer-term implications. The practice weakened any notion of disinterested public service and infused into the political culture the corrosive idea that office-holding was an opportunity for selfish, private gain rather than for the general public good.
If the economy of the viceroyalty reached a certain steady state during the seventeenth century, its population continued to decline. Estimated at around 3 million in 1650, the population of the viceroyalty finally reached its nadir at a little over 1 million inhabitants in 1798. It rose sharply to almost 2.5 million inhabitants by 1825. The 1792 census indicated an ethnic composition of 13 percent European, 56 percent native American, and 27 percent castas (mestizos), the latter category the fastest-growing group because of both acculturation and miscegenation between Europeans and natives.
Demographic expansion and the revival of silver production, which had fallen sharply at the end of the seventeenth century, promoted a period of gradual economic growth from 1730 to 1770. The pace of growth then picked up in the last quarter of the eighteenth century, partly as a result of the so-called Bourbon reforms of 1764, named after a branch of the ruling French Bourbon family that ascended to the Spanish throne after the death of the last Habsburg in 1700.
In the second half of the eighteenth century, particularly during the reign of Charles III (1759-1788), Spain turned its reform efforts to Spanish America in a concerted effort to increase the revenue flow from its American empire. The aims of the program were to centralize and improve the structure of government, to create more efficient economic and financial machinery, and to defend the empire from foreign powers.
For Peru, perhaps the most far-reaching change was the creation in 1776 of a new viceroyalty in the Rio de la Plata (River Plate) region that radically altered the geopolitical and economic balance in South America. Upper Peru was detached administratively from the old Viceroyalty of Peru, so that profits from Potosi no longer flowed to Lima and Lower Peru, but to Buenos Aires. With the rupture of the old Lima-Potosi circuit, Lima suffered an inevitable decline in prosperity and prestige, as did the southern highlands (Cusco, Arequipa, and Puno). The viceregal capital's status declined further from the general measures to introduce free trade within the empire. These measures stimulated the economic development of peripheral areas in northern South America (Venezuela) and southern South America (Argentina), ending Lima's former monopoly of South American trade.
As a result of these and other changes, the economic axis of Peru shifted northward to the central and northern Sierra and central coast. These areas benefited from the development of silver mining, particularly at Cerro de Pasco, which was spurred by a series of measures taken by the Bourbons to modernize and revitalize the industry. However, declining trade and production in the south, together with a rising tax burden levied by the Bourbon state, which fell heavily on the native peasantry, set the stage for the massive native American revolt that erupted with the Tupac Amaru rebellion in 1780-82.
By the 21st Century, Peru was the biggest producer of silver in the world, and was the fifth largest producer of gold. In fact, Peru had the largest gold mine in the Western hemisphere owned by an American company.
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