Financial and Labour Institutions in Spanish America
When studying colonial history in the Americas, there is no way getting around the fact that established colonial institutions played a decisive role in shaping how Latin American societies evolved over time and even retaining a continous legacy to this day.
This ‘institutional turn’ is concurrent with economists increasingly seeking to explain economic trends and developments from the vantage point of secure and reliable practices that are important for providing the financial structure conducive to private investments and enterprises within a legal frame.
To begin with, although Spain was ultimately unable to profit its dominant colonial expansion and went into a long period of decline starting in the 17th century, it’s still interesting to look at how the imperial machinery functioned.
One important yet overlooked fact is that local elites, not the imperial Spanish crown, benefited most from domain extractions, especially mining, and subsequent growth.
In fact, silver resources in the New World were not directly exploited by the Spanish government, but instead the mines were operated by private entrepreneurs.
Anyone who discovered minerals could stake a claim of 132 x 66 m of land along or across the metal vein, and could additionally pursue a continous vein outside the claim. However, the miners had to continually work their claims and then submit production to the treasury for minting and to pay taxes.
Taxes consisted of a royalty of at most 20%, the well-known quinto policy, which could vary in some regions. In addition there were some much smaller assaying, brassage and seignorage taxes related to the minting of coins. The local elites, private miners and merchants accrued most of the revenue from silver and gold production in the New World.
At most, tax revenue from precious metals production made up 40% of Spanish imperial revenue, averaging approximately 20% of the empire’s fiscal resources (this does not include include loan proceeds or various economic activities appearing as subsidiary consequences of that industry).
However, the imperial revenue stream experienced major fluctuations in the colonial era, hoovering around 10–30%, and this volatile condition was the result of several factors:
- production disruptions
- enemy naval actions, including privateering
- local labour shortages
- access to key raw materials (especially mercury)
- the vagaries of geology
- changing demands on colonial treasuries
The total production wasn’t that overwhelming in the context of the Spanish economy, making up a roughly constant 2% of nominal GDP. Public spending wasn’t that significant either, making up 2.7% of Spanish GDP.
Silver remittances were only large as a percentage of Spanish imperial revenue because Spain was horribly inefficient at collecting tax revenues in some of its most prosperous territories in Northern Italy, where local expenses ate them up, and the Lower Countries, where fiercely independent local parliaments decided to support imperial expenses only if they agreed. Aragón kept extremely light levies dating from the medieval period, so Castile bore the brunt of European revenue.
Manufacturing was minimal, mostly used for local consumption when European imports, including iron and textiles, were too expensive. Paper, for instance, was about eight times more expensive in Lima in Peru than in Spain. There stimulated a lively inter-province trade, where places like Peru received Chilean wheat in return for textiles.
Plantations were important, but by far the greatest revenue source was metals, especially silver.
The silver derived from the annual Spanish galleons fueled the world economy and shaped political developments in not just Europe and Latin America, but also China, a country that relied on silver as the main currency of exchange up until modern times. It even had a silver standard until the 1930s when the Americans meddled in their business, but that’s another story.
In this context there were three different labour regimes involved in extracting that silver: the encomienda, the mita minera and free labour.
The encomienda was the most general labour regime in Spanish America in which Spanish settlers provided ‘protection’ and Christianized the natives in return for their tribute and labour services in the form of forced labour.
The natives were subjected to forced labour where they had to work in mines, build churches and construct public works. Suffice to say, they were not too fond of this, and eventually employed techniques of mass migration, passive resistance and political mobilization to avoid and protest against the unfair and forced labour practices.
Interestingly, the Spanish Crown did not view them as slaves and actually instituted a minimum salary for every native workers. However, a backlash against the cruel treatment and the inability of colonial elites to replace labour coercion with cash payments and in-kind tribute made them abandon the encomienda practice in the late 17th century. In some places it survived for a bit longer, like in Paraguay.
A variation of the encomienda was the mita minera, a specific labour regime endogenous to Peru and the former Inca Empire, where the system had furnished the king with an adequate supply of drafted labourers and soldiers.
The Spaniards adapted this labour regime to forcibly draft natives to work in their silver mines, and the relative familiarity of the institution made it somewhat easier for the locals to submit temporarily, although it was by no means a popular policy per se.
When the mita minera was introduced to Mexico, another large supplier of silver, it didn’t work as planned because the natives were not used to such a labour regime. They refused to submit to the new institution and the Spaniards turned to free labour, the regime under which most silver was extracted.
African slavery was (mostly) not used due to the high mortality rate, a natural liability for mine owners. To this day, mining remains one of the deadliest professions out there along with shipping, i.e. working as seamen on a container ship.
In Spanish America, mining sustained the early trans-Atlantic slave trade, but African slaves were for the msot part employed in the plantation economy.
In Portuguese Brazil, on the other hand, slavery played a major role in extracting the gold deposits discovered in Minas Gerais in the 1690s.
Some of this could be explained by the fact that there already was a sizable and readily available African labour force present in Brazil when the first finds were made. Many native tribes escaped the Portuguese colonization ventures by fleeing deep into the Amazonas, some of which still don’t have any real contact with the outside world.
The search for minerals in Brazil was the main factor for redrawing their borders far more west than the original line set in the Treaty of Tordesillas of 1494.
This shows why it is important to study institutional history in the context of the Americas, as local sources of metals prompted colonizers and miners to explore new territories, stake new mining claims and find the most effective ways of extracting resources with minimized costs.
All of this helps inform us of the fascinating and significant yet brutal early modern history of the New World, a largely overlooked corner of the world today.
