“Precious Metal Development in America and Influence on the Stock of Bullion”

From the early 1500 until the late 1600, the founding of America brought great

abundance of precious metal into the scene of the world. This finding and exploiting of mines in

the New World had some effects to the overall economy of the Old World. American’s precious

metal was somewhat important to the European stock of bullion. In order to finance the many

activities that were taking place in the late 16th century Europe needed new capital to expand

its ever-growing assets. In other words, the flow of precious metals from America into Spain

increased the stock of European bullion and allowed Spain to grow. However, in the long run

the expanding precious metal that integrated into the circulation in Europe increased faster

than the real output of goods and services.

The exact output of American precious metals is impossible to determine. Surviving

records from the 16th century is not complete, nor do they paint the full picture. Historians try

to estimate precious metal output by sifting through old mine records, mercury imports, and

official Spanish records. All these attempts paint a clear picture of what was produced but fall

short in coming up with real substantial data. For example, operators and owners of mines

were subject to understating their production to avoid the 20% tax in Peru and 10% tax in New

Spain (modern day Mexico).1 Another way to estimate the output of precious metal in America

was to measure the amount of mercury being imported. It is important to know the amount of

1Barrett, Ward. “World Bullion Flows, 1450–1800.” Chapter. In The Rise of Merchant Empires: Long Distance Trade in the Early
Modern World 1350–1750, edited by James D. Tracy, 224–54. Studies in Comparative Early Modern History. Cambridge:
Cambridge University Press, 1990.

1
mercury because it is used in the amalgamation process to isolate silver. Therefore, by counting

the mercury coming in to the colony one could gain a rough estimate of how much silver was

being produced. Using this method to count the output of silver falls short due to the fact that

not every piece of silver in production used this process; an unknown amount of silver was

smelted.2 Lastly, trading houses in Seville and ports of Cadiz kept records of official bullion

entering the empire but this does not tell the full story, a huge amount of bullion was smuggled

and not reported to officials.3 Although these sources are not perfect historians have combined

them to come up with estimates that help us understand what was going on during this period.

According to Barrett, from 1493 to 1800, 85 percent of the world’s silver came from the

Americas.4 In the 1540’s there was a surge in American mining this allowed them to surpass

European production by the 1550’s.5 This is historically important because now Spain did not

have to rely on silver coming from southern Germany anymore. Up until the 1600s, mining in

America continued to surpass and outproduce Europe but at a decreasing rate. In the 1650’s

European exports accounted for two thirds of Mexican and Peruvian silver output.6 As silver

exploitation started to deplete the new world; gold was struck in Brazil. At the end of the 1600s

Brazilian gold revived the imports of precious metals into Europe.7 The average estimate of

2, 3, 4
Barrett, Ward. “World Bullion Flows, 1450–1800.” Chapter. In The Rise of Merchant Empires: Long Distance Trade in the
Early Modern World 1350–1750, edited by James D. Tracy, 224–54. Studies in Comparative Early Modern History. Cambridge:
Cambridge University Press, 1990.

5, 6, 7 Pieper, Renate. American Silver Production and West European Monetary Supply in the Sixteenth and Seventeenth
Century in Economic Effects of the European Expansion, 1492-1824. Stuttgart: Steiner, 1992.

2
silver produced in America was roughly 50 to 100 tons the bulk of it coming from the Potosi and

Zacatecas mine—modern day Bolivia and Mexico.8 Output of precious metals developed

substantially ever since the discovery of the new world.

It is uncertain to what extent precious metals from the Americas contributed to the

stock of bullion in Europe. Gold and silver in the 1500’s were used for ostentatious purposes.

For example, gold being used to build grand cathedrals and silver for actual silverware and

accessories. Also, the flow of precious metals to various parts of the world did not contribute to

the European bullion. The Spanish Empire, under King Philipp II, exported bullion directly from

the Americas to China to balance the trade deficit. Furthermore, Spain was expanding and in

order to expand they needed to invest new capital into their new colonies we need to consider

the amounts of precious metals that stayed in America and the amount that was shipped to the

Philippines. According to Barrett, the annual shipment of bullion to the Philippines was 15 tons

from 1560-1599, this was used to cover the defense expenses on the islands. While his

estimates for the bullion exported to China was 10 tons from 1560-1599 and then increasing to

22 tons from 1600-1640’s.9 Depending on whether the Americas were producing 50 or 100

tons of silver each year this could make these shipments substantial.

This argument is weak because the main reason for expeditions to the new world was to

benefit the old world. Therefore, the bulk of precious metals had to find its way back to the

8, 9 Barrett,
Ward. “World Bullion Flows, 1450–1800.” Chapter. In The Rise of Merchant Empires: Long Distance Trade in the Early
Modern World 1350–1750, edited by James D. Tracy, 224–54. Studies in Comparative Early Modern History. Cambridge:
Cambridge University Press, 1990.

3
colonizer in this case, Spain. Pieper states that, silver left colonial mining centers in exchange

for services and goods and as a remittance for the gains of the great mine owners…thus, metal

entered the colonial economies, but to a greater extent bullion was exported. The main cause

for export of bullion to Europe was from taxes. Although the Spanish empire was expanding

and the colonize were economically settling into new lands the bulk of payments still had to go

back to the motherland.10 The expansion to the East and the expense of roughly 15 tons of

silver per year Philippines was not a hindrance to the Spanish Empire if it was, they would not

have colonized the islands for three hundred years if that were the case. The major flows of

bullion from Europe (not only China and the Philippines) were not large and were easily

covered by the Americas alone.11 Moreover, the ostentatious use of gold and silver in the Holy

Roman Empire should not be seen as a take away from the stock of bullion but as a surplus.

Meaning that there was too much cash chasing too few goods at some point that ultimately led

the Spanish to use more precious metals for sentimental reason instead of minting them.

Since the discovery in the 1490’s, American precious metal started to contribute to most

coins in Europe. Direct proof of this is scarce but developments came about which could only be

explained through an influx of bullion from America.12 Neuron Activation Analysis shows that at

least 50 percent of the metal coins in Europe proceeded from Upper Peru. In Spain alone, the

mint contribution from Peru was greater reaching 60 percent.13 Likewise, American issued

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mints started to become more valuable. Silver coins became heavier and finer, around the

1640’s, and could now be traded long distance displacing come gold coins.14

The importance for the new surge of precious metals to the European stock of bullion

was short lived. In the short-run, like debasement, the Spanish Empire was able to gain quick

capital and were able to do substantial things. They expanded their colonies, financed new

industries, settled deficit payments, and more importantly paid for wars. All of these could not

have been done without the new capital from America. They literally go hand-in-hand because

without new land the economies would not have sprung up and new trade routes and

industries would not have been born. It is important to look at time frames when analyzing the

importance of the import of American Bullion. In the early 16th century, Spain was very

powerful and was able to capitalize on their new riches. Other countries also benefitted in the

short run this is seen through the increase in government spending to build walls for protection

and spend on copper to be used for military purposes.

As time went on the amount of bullion in Europe which was increase by the Americas

production of precious metals cause problem. There was too much money chasing too few

good in the macro economy. Spain started to use precious metals for other uses like decorating

churches with extravagances. David Hume’s price-specie-flow mechanism states that as the

Spanish increase their stock of bullion, export prices rise, thus reducing exports and increasing

imports, which creates a balance of payment deficit and a bullion outflow to the trading

10, 11, 12, 13, 14

Pieper, Renate. American Silver Production and West European Monetary Supply in the Sixteenth and Seventeenth
Century in Economic Effects of the European Expansion, 1492-1824. Stuttgart: Steiner, 1992.

5
countries in Europe which then causes inflation.15 In the long run the increased stock of bullion

was not that importance and was even a hindrance. The European economy in the late 16th

century was already very integrated with one another and the increase of bullion to all major

trading ports caused the whole of Europe to experience a slight inflation.

The precious metal output in America progressed really quickly, mines were being

exploited and year to year production of silver was important for the rest of the world

especially Europe. Although the exact amounts are unknown, we do know that production was

large enough to make an impact on the overall money supply in Europe. With silver being the

main product from Mexico and Peru from the 1490’s until the late 1600’s followed by the gold

that was struck in Brazil. The precious metal entering the Old World was important in the sense

that with new capital more could be achieved (aside from debasing currency) and new

industries sprung up but in the long run the increase of money supply results in inflation.

15Munro, J.H. (1991). The Central European Mining Boom, Mint Outputs, and Prices in the Low Countries and England, 1450 –
1550, in: E. van Cauwenberghe, ed., Money, Coins, and Commerce: Essays in the Monetary History of Asia and Europe from
Antiquity to Modern Times, Leuven (Leuven University Press), pp. 119-183.

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 Bibliography

Barrett, Ward. “World Bullion Flows, 1450–1800.” Chapter. In The Rise of Merchant Empires: Long
Distance Trade in the Early Modern World 1350–1750, edited by James D. Tracy, 224–54. Studies in
Comparative Early Modern History. Cambridge: Cambridge University Press, 1990.
doi:10.1017/CBO9780511563089.010.

Munro, J.H. (1991). The Central European Mining Boom, Mint Outputs, and Prices in the Low
Countries and England, 1450 – 1550, in: E. van Cauwenberghe, ed., Money, Coins, and Commerce: Essays
in the Monetary History of Asia and Europe from Antiquity to Modern Times, Leuven (Leuven University
Press), pp. 119-183.

Pieper, Renate. American Silver Production and West European Monetary Supply in the
Sixteenth and Seventeenth Century in Economic Effects of the European Expansion, 1492-1824.
Stuttgart: Steiner, 1992.