(JWH) Cycles of Silver - Global Economic Unity Through The Mid-Eighteenth Century Dennis Flynn Arturo Giráldez
(JWH) Cycles of Silver - Global Economic Unity Through The Mid-Eighteenth Century Dennis Flynn Arturo Giráldez
(JWH) Cycles of Silver - Global Economic Unity Through The Mid-Eighteenth Century Dennis Flynn Arturo Giráldez
Century*
Flynn, Dennis Owen, 1945-
Giraldez, Arturo.
* An early version of this paper was presented at a conference in October 1999 at the
University of California (UC), Davis—“On the Origins of the Modern World: Compara-
tive Perspectives from the Edge of the Millennium”—organized by Jack Goldstone, and
sponsored by the All-UC Group in Economic History, the Division of Social Sciences, and
the Center for History, Society, and Culture at UC Davis. A subsequent version was pre-
sented in Boston at the Ninth International Conference of the World History Association
in June 2000. We are grateful to a number of scholars who criticized versions of this essay,
including Sushil Chaudhury, David Christian, Jan de Vries, Oscar Geldenblom, Jack Gold-
stone, Seong-ho Jun, Akinobu Kuroda, Jay Lewis, Brian Moloughney, John Marino, Robert
Marks, John R. McNeill, Ken Pomeranz, Fred Spier, Kaoru Sugihara, Richard von Glahn,
and an anonymous referee. The authors alone are responsible for remaining errors.
1 Terms like “Western,” “European,” and “Asian” are used here in conventional—
although logically questionable—ways. See Lewis and Wigen (1997) for criticism of unsci-
entific geographical terminology in numerous scholarly fields.
2 Emphasis on early Asian development was proposed by prominent scholars of Asian
history, such as Balazs (1964), Elvin (1973), Needham (1955–86), and others, as well as
world historians like Abu-Lughod (1989) and McNeill (1982). The recent wave of revi-
391
392 journal of world history, fall 2002
sionism includes Blaut (1993), Frank (1998), Goldstone (1998), Marks (1997), Pomeranz
(2000), Sugihara (1996), von Glahn (1996a), Wong (1997), and many others. Goldstone
(2000, 178–180) labels a subset of the new wave of revisionism the “California School.”
See Landes (1998) for a recent restatement of the conventional “European exceptionalism”
argument.
Flynn and Giráldez: Global Economic Unity 393
3 Our logic for specifying 1571 as the birth of global trade is contained in the follow-
ing excerpt (Flynn and Giráldez 1995a, 201): “For our purposes, global trade emerged when
all important populated continents began to exchange products continuously–both with
each other directly and indirectly via other continent s —and in values sufficient to gener-
ate crucial impacts on all the trading partners. It is true that there was important inter-
continental trade before 1571, but there was no direct link between America and Asia, so
the world market was not yet fully coherent or complete.”
4 A look at gold and silver prices today helps clarify the usefulness of bimetallic ratios
as indicators of the value of silver. Assume that the price of gold today is $300 /oz and the
price of silver is $5 /oz. This means that gold is fifty times more valuable than silver; the
bimetallic ratio would therefore be 60:1. If the price of silver were to double to $10 /oz,
however, while the price of gold remained the same, then gold would only be 30 times more
valuable than silver; the bimetallic ratio would fall to 30:1. Clearly, a fall in the bimetallic
394 journal of world history, fall 2002
Commonly a peso of gold is worth five and a half silver pesos, and if
there is a shortage of silver [in China], it is brought from other parts
and the price rises to six or six and a half silver pesos for one peso of
gold; and the most expensive that I have seen and bought gold in the
city of Canton in China was seven pesos of silver for one of gold, and
I never saw it go beyond this price, and here in Spain a peso of gold is
commonly worth twelve of silver; therefore it is easy to see that bring-
ing gold from China means a gain of more than seventy-five or eighty
percent. (quoted in Boxer 1970, 461)
From one perspective, at least, the Dutch East Indian simply acted as
a European way station for the flow of New World silver and pumped
this out to its trading stations in the east as a commodity. More often
than not reales valued by weight remained in their original boxes
packed at the Mexican or Peruvian mints set up adjacent to the mines.
Only after arrival at Batavia or any of the other Dutch trading stations
did the reales pass into circulation or bullion enter local mints. In
other words, at least part of the copious New World treasure flow was
a direct transfer from the point of production and working to its even-
tual, far distant, point of monetary circulation in Asia.
ratio implies a higher value of silver relative to gold. Therefore, a 6:1 bimetallic ratio in six-
teenth-century China does indeed imply that silver was twice as valuable there as in Europe
(and elsewhere) where the bimetallic ratio was 12:1.
Flynn and Giráldez: Global Economic Unity 395
century. It was not until around 1640 that bimetallic ratios converged
worldwide. 5 In other words, the price of silver in China had finally sub-
sided to its price in the rest of the world by the 1640s. Lesser (but still
huge) quantities of silver continued to flow into China during the sec-
ond half of the seventeenth century, during a time of relative stability
of silver prices around the world, but global shipments of silver were no
longer motivated strictly by arbitrage considerations.6 By the beginning
of the eighteenth century, however, another arbitrage phase emerged
when the value of silver within China once again surged above its
value in the rest of the world; a 50 percent premium existed this time,
rather than the 100 percent premium during the 1540–1640 period.
As had occurred by the middle of the seventeenth century, silver prices
once again converged globally by the middle of the eighteenth century.
But this second time around, the equilibration process took only 50
years (half as long as during the previous cycle): “In the first half of the
eighteenth century the gold:silver ratio in China remained fairly con-
stant at 1:10–11, in contrast to a ratio of 1:15 in Europe, but from 1750
onward the gold:silver ratio in China leapt above 1:15, while in Europe
it declined to 1:14.5–14.8” (von Glahn 1998, 57). 7 Well-known con-
temporary observers were aware of the phenomenon alluded to by
Dermigny and von Glahn. Sir Isaac Newton, in Representation to the
Lords of the Treasury (1717), says that “in China. . . the [silver:gold]
ratio is 9 or 10 to 1 and in India 12 to 1, and this carries away the sil-
ver from all Europe”; Magens’ notation to this passage by Newton,
states that “such quantities of silver went to China to fetch back gold
that the price of gold in China rose and it became no longer profitable
to send silver there.” 8 Magens’ statement is clearly true for the middle
of the eighteenth century; indeed, between 1776 and 1779 bimetallic
ratios indicate a lower value of silver in China than in Europe (Carriere
1975, 17). China soon thereafter regained leadership as the world’s
greatest importer of silver, but these data do clearly indicate that what
5 See, for example, Yamamura and Kamiki (1983, 352). Atwell (1982, 82) shows clearly
that bimetallic ratios in China, Japan, and Spain had converged by 1644.
6 See Flynn (1991) for discussion of the arbitrage versus nonarbitrage phases of the
global silver trade. Essentially, the silver trade yielded unusually high profits between 1540
and 1640 and again between 1700 and 1750, compared with more pedestrian profit rates
before and after these two silver cycles.
7 These figures are consistent with those reported by Dermigny (1964, Vol. 1, 431),
whose bimetallic ratios for China are 1:9.5–10 from 1700 to 1720, 1:11.83 around 1740,
1:14.15 around 1750, and 1:15.20 in 1775.
8 Both of these statements can be found in Edwin Cannan’s note 142 in Adam Smith,
An Inquiry into the Nature and Causes of The Wealth of Nations (1994 [1776]), 238.
396 journal of world history, fall 2002
we call silver’s Mexican Cycle had indeed ended by the middle of the
eighteenth century.
Two issues surface immediately when confronting these trends. The
first issue —having to do with forces responsible for such high values
of silver in China relative to the rest of the world —is discussed in the
next section of this essay. The second issue concerns global market
reactions to these unusually high values of silver within China—thus
propelling us into the topic of arbitrage trade. Since arbitrage trade
simply involves the purchase of an item cheaply in one area and sub-
sequent sale of the same item at a higher price in another area, it may
initially seem a trivial matter. But this arbitrage issue is crucial and
nontrivial when placed in the context of monetary and trade history at
the global level. Indeed, application of arbitrage reasoning to the global
history of silver has forced us to reject a fundamental tenet of modern
monetary theory.
Arbitrage reasoning wreaks havoc with the conventional explana-
tion for the flow of “precious metals” from Europe to Asia throughout
the period under discussion. We are normally told that thriving Euro-
pean demand for Asian exports, in combination with languid Asian
demand for European wares, was responsible for a substantial European
trade deficit vis-à-vis Asia. Thus, precious metals (as monetary items)
had to flow to Asia in order to pay for Europe’s trade deficit with Asia.
“Europe tended to import more from Asia, in the form of spices, silk,
textiles, and other goods, then it exported to the east. The difference
was paid in the form of specie. . . . They [the Ottomans] could not pre-
vent the outflow of specie to the East arising from the trade deficits in
that direction” (Pamuk 2000, 132–134). 9
We have argued elsewhere that this conventional trade-deficit
explanation for East-West monetary relations is contradicted by his-
torical facts, however, because it was only silver—not “money” in the
abstract—that consistently flowed eastward through Europe (e.g.,
Flynn and Giráldez 1997). Gold—also an important monetary sub-
9 The same type of reasoning can be found in Landes (1998, 155), who says the eigh-
teenth-century “European appetite for Chinese goods grew rapidly . . . [which] posed a pay-
ments problem. The Europeans would like to pay with their own manufactures, but the Chi-
nese wanted almost nothing they made. . . . So the Europeans paid in bullion and specie.
. . .” Similarly, Spence (1990, 129) states that “the growing demand in Europe and Amer-
ica for Chinese . . . goods had not been matched by any growth in Chinese demand for
Western exports. . . . The result was a serious balance-of-payments problem for the West.”
We cite these particular authors, not to single them out for criticism, but because the words
of these prominent historians represent received thinking on the subject of global monetary
flows.
Flynn and Giráldez: Global Economic Unity 397
10 Another example of gold flowing in the opposite direction of silver involves Asian
gold flowing via the Acapulco-Manila galleons to America: “Cavendish found to the value
of 658,00 livres of it [gold] upon the galleon that was sailing toward Mexico” (Raynal 1772,
205). K. N. Chaudhuri (1978, 156) has long recognized the need to conceptually separate
intercontinental movements of gold from intercontinental movements of silver. Chaudhuri
urged a return to the reasoning of Classical economists like David Ricardo; the model pr e-
sented in Doherty and Flynn (1989) follows in this Classical tradition.
11 In a recent issue of this journal, Vries (2001, 415) mischaracterizes us in saying that
“Pomeranz . . . subscribes to the thesis of Flynn and Giráldez that the silver that the Euro-
peans exported should not be regarded as money but as just some economic good, one that
many Asians, especially Chinese, wanted desperately and that the Europeans were glad to
sell, as it earned them huge arbitrage profits.” In fact, silver flowed to China in both mon-
etary and nonmonetary forms. We have never claimed that silver should not be considered
money; rather, we insist that silver responded to demand and supply pressures both in its
nonmonetary—as well as its commodity-money— forms.
398 journal of world history, fall 2002
12 It is worth noting that 2 million pesos in silver per year equals the combined quan-
tity of silver shipped from Europe to Asia by the Portuguese Estado da India, the Dutch
VOC, and the English East India Company combined during the seventeenth century. (See
Flynn and Giráldez, 1995b, for calculations.) Scholarly neglect of this vast trade across the
Pacific for centuries is yet another example of a systematic failure to view economic events
in global terms.
13 Note that Chinese exports of gold were small relative to Chinese silk and ceramic
exports. We call attention to the direct and protracted exchange of gold for silver in order
to emphasize the futility of conceptually combining gold and silver as a singular product
called “money.”
Flynn and Giráldez: Global Economic Unity 399
Once Japanese silver mines played out during the last third of the sev-
enteenth century, however, then Japan became an important exporter
of gold and also (as previously mentioned) of copper as well. (Recall
that Japan imported gold from China during the 1540–1640 cycle!)
The pointonceagain is thateach monetary substance clearly responded
to distinct supply and demand forces around the globe. The theoreti-
cal practice of aggregating diverse monetary substances into a category
called “money” has shackled attempts to understand the histories of
individual monetary substances in global (as opposed to a nation-state)
perspective. Moreover, sweeping statements about intercontinental
flows of monetary substances over the centuries are fraught with dan-
ger. In addition to specification of the particular monetary substance
under discussion, the analyst must state explicitly the time period
under consideration. As mentioned above, for example, Japan was an
importer of gold up to the middle of the seventeenth century, but an
exporter of gold late in the seventeenth century. Failure to pay atten-
tion to periodization has led to widespread misunderstanding in global
monetary history.
Between 1514 and 1662, the people and government of China were
involved in, and affected by, the first stages of the development of a
“modern world system.” This involvement was implemented via the
sea routes linking all continents except Antarctica and Australia in
exchange of trade goods, food plants, diseases, people, and ideas. (Wills
1998, 333)
14 Although Japanese silver production was exceedingly important during the 1540s–
1640s global cycle, we refer to this period as the “Potosí-Japan cycle” simply to indicate that
Upper Peru (Bolivia today) was unquestionably the leading silver producer in the world at
that time. See Barrett (1990) for a survey of works on world bullion flows from 1450 to 1800.
400 journal of world history, fall 2002
berry trees to maturity. And while it is true that for “more than a thou-
sand years Chinese porcelain was the most universally admired and
most widely imitated product in the world” (Finlay 1998, 143), distant
markets could be temporarily glutted with imports from China, creat-
ing severe commercial problems for merchants. Silver did not face the
same level of uncertainty when entering China, on the other hand,
because China’s vast reservoir of silver could not normally be disrupted
so violently by the presence or absence of a few shipments of the white
metal (although individual merchants could certainly be devastated by
interruptions of silver shipments). Essentially, European (and other)
merchants only had to ship standard forms of the white metal to mar-
kets that offered higher prices the closer the proximity to China. 18
Scholars of European commerce in Asia understandably emphasize
the fact that European ventures in Asia were exceedingly profitable at
times. And the existence of lively European profits indeed makes per-
fect sense in light of silver’s unusually high price in China relative to
anywhere else. But we should keep in mind that massive Chinese silk
exports were swapped directly for China’s silver imports, and these Chi-
nese silks also commanded exceedingly high prices in foreign markets
compared with China’s domestic market. 19
18 Silver was not itself homogenous, of course, and particular types of silver dominated
trade circuits ending in China. Probably the single most successful money in history, for
example, were the Mexican Dos Mundos and bustos pesos, by far the dominant form of sil-
ver entering China during the eighteenth century (Perez, 1955). Flynn and Giráldez (2000)
state that Spain’s global monetary policy was rational from the sixteenth through the eigh-
teenth centuries; the Crown profited both by debasing its domestic currency and by refus-
ing to debase the most successful of all global monies, its peso. Combined seigniorage prof-
its were immense.
19 Borah (1954, 122), for example, cites a letter written to Philip II in 1594 from Lima
that claims that Chinese silks were sold for one-eighth the price of comparable Spanish silks
in Peru. This price disparity is probably an exaggeration (but 3-to-1 price advantages ar e
common in the literature), especially in view of the fact that Chinese silk prices in Spanish
America were high compared with Chinese silk prices in Manila (which, in turn, were high
compared with Chinese silk prices in China itself ).
402 journal of world history, fall 2002
20 According to Sugihara (2001, 61), “recent literature generally confirms that mone-
tization, commercialization of agriculture and the development of proto-industry were all
present in India and China. Feudal restrictions are likely to have been more severe in Con-
tinental Europe and Japan than in China and India. It was much easier for the Chinese
peasant to become a merchant than the German or Japanese peasant, while Indian capital
appears to have traveled long distance just as freely as its most mobile European counter-
part.”
21 Anthony Reid (1993, 16) describes the Southeast Asian “boom years, 1570–1630”
as “the most rapid period of expansion of tropical Asian exports; Europe and Japan joined
China and India as the major external catalysts for growth.”
Flynn and Giráldez: Global Economic Unity 403
22 The Doherty and Flynn (1989) microeconomic model shows the mechanisms
through which accumulated silver stocks drove its world price down to its cost of produc-
tion by 1640. This fall in the purchasing power of silver implies price inflation (the Price
Revolution) for silver-standard regions worldwide up to about 1640.
23 Even larger quantities of silver reached China via the Philippines during the eigh-
teenth century. Writing in the 1770s, Guilluame Raynal (1971, 206 –207) points to advan-
tages involved in sending silver via the Pacific route: “All the nations in Europe use the sil-
ver they get from America to trade with India. Before this precious metal can reach the
place of its destination, it must have paid considerable duties, taken a prodigious compass,
and have been exposed to great risks; whereas Spaniards by sending it directly from Amer-
ica to the Philippines would save duties, time, and insurance; so that while they furnished
the same sum as the rival nations, they would in reality make their purchases at a cheaper
rate.”
404 journal of world history, fall 2002
Chinese empire. The other was a doubling of the Han Chinese popu-
lation. The interplay of these three factors has set the direction of
China’s history in modern times. (Fairbank 1978, 35)
28 Chinese population figures vary widely in the literature. We cannot determine the
merits of particular positions within this debate, but all parties seem to agree that Chinese
population in the eighteenth century grew significantly. See Ping-Ti Ho (1959, 270), Mote
(1999, 744–745), Heijdra (1998, 436–439), and Naquin and Rawski (1987, 25).
29 The importance of American crops in Chinese agriculture is widely acknowledged
in, for example, Ping-Ti Ho (1959, 268), and Naquin and Rawski (1987, 23). See Mazum-
dar (1999) for an insightful contrast between introduction of New World crops into China
versus India. Spence (1990, 95) says that “because the crops also grew well in poor, hilly,
or sandy soil, they enabled the population to rise rapidly in areas of otherwise marginal pro-
ductivity, where alternate sources of food or gainful employment were rare.”
Flynn and Giráldez: Global Economic Unity 407
There has been vigorous debate over the supply-side cause of this min-
ing resurgence. Some attribute the mining surge to spontaneous mar-
ket forces, while others emphasize deliberate attempts by the Crown to
promote the mining sector (Fisher 1998). Without wishing to diminish
in any way explanations based on Mexican supply-side considerations,
we wish to also focus attention on the Chinese demand side of the sil-
ver market. When viewed from a global perspective, in other words,
demographic and economic changes in China must be integrated into
the story. Already huge and silverized, the Chinese market for silver
must have increased dramatically in size during its population expan-
408 journal of world history, fall 2002
30 Von Glahn (1998) states that copper monies made a comeback in demographically
expanding noncoastal areas of China from the middle of the eighteenth century; silver
monies were thereby proportionately displaced. We are aware that China was on a bimetal-
lic system and that the “prevalence of cash over silver [for tax payments by people in the
countryside] was largely due to enormous expansion of copper production in Yunnan in the
last two-thirds of the eighteenth century. . . . On the other hand, local officials were obliged
by regulation to send to the government at higher levels the part of the tax known as ch’i-
yun in silver” (Wang 1973, 60). Thus, China remained on a silver standard throughout the
eighteenth century. We contend that Chinese demand for silver must have risen dramati-
cally during the eighteenth century, although not as dramatically as would have been the
case had copper monies not become so readily available.
31 On Mexico’s dominance in world silver production, see Garner (1988) who docu -
ments rising Mexican silver production during the eighteenth century. According to Cross
(1983, 403), Mexico alone produced 57 percent of the world’s silver during the eighteenth
century. A crucial distinction is made by Coatsworth (1986, 26–27), however, when he says
that “Mexico did not experience an unprecedented mining boom at the end of the [eigh-
teenth] century, but at the beginning. . . . In fact, the late colonial mining industry was in
such deep trouble that it survived by draining the public treasury and diverting resources
from other sectors.” High production levels during the second half of the eighteenth cen-
tury kept silver prices depressed worldwide; thus, high production was coupled with bad
times then. Authors too often focus on production quantities, when in fact profit is the cen-
tral issue.
Flynn and Giráldez: Global Economic Unity 409
32 “In 1730 at Canton the price was 10.5 tales of dollar silver (94 percent fine) for 1
tale of gold (93 percent fine), and at this rate the coining of gold at the Madras mint could
yield a profit of upwards of 30 percent. The Madras records contain many references to the
private import and minting of both Sumatran and Chinese gold at the local mints” (Chaud-
huri 1978, 181–182).
33 Hamilton (1934, 89–91) estimated that all forms of Crown revenue swallowed up
27.5 percent of the gross volume of legal imports, while Steele (1986, 151–152) estimates
an even higher 40 percent during the sixteenth and seventeenth century period.
410 journal of world history, fall 2002
For some time after the first discovery of America, silver would con-
tinue to sell at its former, or not much below its former price. The prof-
its of mining would for some time be very great, and much above their
natural rate. . . . Silver would gradually exchange for a smaller and
smaller quantity of goods. Its price would sink lower and lower till it
fell to its natural price; or to what was just sufficient to pay. . . [costs]
in order to bring it from the mine to the market. In the greater part of
the silver mines of Peru, the tax of the king of Spain, amounting to a
tenth of the gross produce, eats up . . . the whole rent of the land. This
tax was originally a half; it soon afterwards fell to a third, then to a
fifth, and at last to a tenth, at which rate it still continues. In the
greater part of the silver mines of Peru, this, it seems, is all that
remains, after replacing the stock of the undertaker of the work,
together with its ordinary profits; and it seems to be universally
acknowledged that these profits, which were once very high, are now
as low as they can well be, consistent with carrying on the works.
(Smith 1776, 201)
34 Captain George Anson became a national hero in England in 1743 when (near the
Philippines) he captured an Acapulco galleon that contained almost 40 tons of silver
(equivalent to 1.5 million pieces of eight). What we find interesting is that this American
silver was not swapped for Asian products destined for European and American markets;
instead, Anson shipped the silver back to London. With great fanfare, the “silver, it was
Flynn and Giráldez: Global Economic Unity 411
Adam Smith was perhaps too close to perceive a subsequent cycle that
began unfolding during his lifetime.
The trends outlined above help to clarify a sea change in foreign com-
merce in the middle of the eighteenth century in Asia. Silver-based
trade at the global level was in trouble, while subsequently British
entrepreneurship in Asia became increasingly influential in the global
marketplace.
The western trade was thought to be in serious decline by the 1740s.
. . . The shift from west to east is perhaps an indication of the impor-
tance which the British were beginning to acquire in Asian trade at
the end of the eighteenth century. . . . After the conquest of Bengal,
the wealth which the British acquired and the control which they
won over some of Bengal’s commodities, such as opium, enabled them
to begin to carve out routes of their own. (Marshall 1976, 105)
The Battle of Plassey in 1757 led to British control of Bengal and rep-
resents a fundamental change in Asian trade patterns. British profits
from the China trade solidified Britain’s position “in the East during
the three decades of the 1750s, 1760s, and 1770s,” according to Furber
(1976, 176), “decades of rising British power and of French and Dutch
decline.” The point we wish to emphasize is simply that so much sil-
ver had flooded into China by the middle of the eighteenth century,
that super-profits had been (once again) eliminated. Traditional long-
distance trade based upon silver suffered relative decline. Meanwhile,
the British managed to gain control of a new, rapidly growing market
involving the importation of Bengali opium into China in exchange,
in part, for Chinese exports of tea. The point is not that silver discon-
tinued its journey into China during the second half of the eighteenth
century—it did not—but rather that opium and tea became the high-
profit markets, with silver playing a complementary role in terms of
profitability. According to Dermigny (1964, Vol. II, 688–689), during
the first half of the eighteenth century silver comprised 90 percent of
announced, would be melted down into coins bearing the inscription ‘Acapulco’ (when
issued by the Mint in 1745 the silver shillings were more appropriately inscribed ‘LIMA’)”
(Williams 1999, 206). We assert that a similar silver prize in the year 1700 would have been
sold in Chinese markets and certainly not shipped to Europe (because the price of silver in
Chinese markets fetched a 50-percent premium vis-à-vis European markets in 1700).
412 journal of world history, fall 2002
the value of British exports to Canton, whereas for the 1775–95 period
35 percent of British exports to Canton were in the form of merchan-
dise and only 65 percent in silver.
Dermigny (1964, Vol. 1, 432–433) refers to a “cycle of tea” in
describing British trade in Canton from 1760 on. Furber (1976, 257)
adds that “[t]raffic in opium did not greatly influence the course of the
East India trade until it began to replace silver as the means of buying
tea at Canton in the eighteenth century.” Furber (1976, 175) also states
that the “key to all these developments lies in the ever-rising European
demand, especially the British demand, for tea from the 1750s onward”;
he specifies on the same page that London tea imports reached 2.5 mil-
lion pounds by 1760, 9 million pounds by 1769–70, 14 million pounds
in 1785–86, and 23 million pounds by the end of the century.
But in exchange for what was Chinese tea to be exported? We have
already discussed the decline in profits associated with importing silver
into China by the middle of the eighteenth century, and the fact that
opium became an increasingly profitable Bengali export to China: 35
“This [opium] traffic grew more than twentyfold between 1729 and
1800, which helped stanch the flow of bullion from Britain to China”
(Pomeranz and Topik 1999, 103). But the Chinese history of opium
consumption was itself linked to American tobacco introduced via the
Philippines in the sixteenth century (Heijdra 1998, 552). Crude opium
mixed with shredded leaves called madak was smoked, as was tobacco
dipped in opium solution; Spence (1992, 233) considers “plausible”
the suggestion that the smoking of pure opium in China began around
the 1760s. Once again, an important biological exchange involved an
American crop. This time, tobacco was tied to the consumption of
opium, a more lucrative Chinese import (for the British) than was
(complementary) American silver during the second half of the eigh-
teenth century. It was Britain that took the lead this time around,
squeezing out European competitors in the process:
[The Dutch East India Company, the VOC] was denied the profits the
British company gained because they had to export silver from Europe
to pay for their tea and porcelain purchases. . . . The British had found
a way of overcoming this problem by virtue of their [opium] position
in India. (Trocki 1999, 42)
35 Although China was by no means opium’s only destination: “By the end of the
eighteenth century, nearly a third of Bengal’s opium production was going to Southeast
Asia. Some part of that may have been going on to China via the junk trade, but it is impos-
sible to say exactly how much . . .” (Trocki 1999, 56).
Flynn and Giráldez: Global Economic Unity 413
Conclusions
36 By 1836 opium flowed freely from all parts of India to Canton, according to Fairbank
(1978, 172), when “total imports came to $18 million, making it the world’s most valuable
single commodity trade of the nineteenth century.”
414 journal of world history, fall 2002
On the contrary, there were highly developed global trade networks for
silver, gold, copper, cowries (e.g., Flynn and Giráldez 1997), as well as
for porcelain (e.g., Finlay 1998), silks (e.g., Ma 1999), and many other
products. This is not the place to continue this argument, but our allu-
sion above to the interchange between intercontinental trade and eco-
logical exchanges alone forces us to reject the trade-GDP-ratio line of
reasoning advanced by O’Brien and other economic historians.39 Trade
37 Note that zero “economic profits” by around 1640 does not mean that silver mines
were unprofitable. Zero economic profit implies the existence of “normal profit” in eco-
nomics jargon. In other words, silver mining profits declined to a level typical of other indus-
tries. Various entities (including the Spanish Empire) depended upon above-normal eco-
nomic profits in order to function, however, so a status of zero economic profit proved
devastating for numerous enterprises around the world.
38 For arguments contrary to O’Brien concerning relationships between global trade /
ecology and the Industrial Revolution, see Frank (1998) and Pomeranz ( 2000).
39 On the other hand, we have no quarrel with the arguments of O’Brien and Prados
(1999) concerning declining profitability of European empires during the nineteenth cen-
tury.
416 journal of world history, fall 2002
40 “Finally, in former times New Guinea’s available root crops were limiting for calo-
ries as well as for protein, because they do not grow well at high elevations where many New
Guineans live today. Many centuries ago, however, a new root crop of ultimately South
American origin, the sweet potato, reached New Guinea, probably by way of the Philip-
pines, where it had been introduced by the Spaniards. Compared with taro and other pre-
sumably older New Guinea root crops, the sweet potato can be grown up to higher eleva-
tions, grew more quickly, and gives higher yields per acre cultivated and per hour of labor.
The result of the sweet potato’s arrival was a highland population explosion . . .” (Diamond
1997, 149).
Flynn and Giráldez: Global Economic Unity 417
ing down river from Hunan to feed mulberry growers. The point is,
global trade transforms local ecologies, a central message in the work of
Marks and others. China was transformed as a result of interaction with
a global network; international trade as a percentage of GDP alone is
a poor indicator of the complex global relationships involved.
Crosby’s (1972, 1986) pioneering works on biological exchanges at
the global level imply trade-and-ecology interactions all over the
world. It must be true, for example, that the small number of cattle first
introduced to the Americas comprised but a fraction of any European
or American GDP, but it is difficult to imagine the landscape of, say,
Argentina subsequently in the absence of these nonnative animals.
The value of sugar plants first introduced into the Americas was no
doubt a negligible fraction of any country’s GDP, yet we doubt that any-
one would argue that sugar cultivation was unimportant in the eco-
nomic history of the Americas. The same could be said about the intro-
duction of oranges into the Americas by Spaniards, or the spread of
innumerable crops and diseases accompanying the explosion of global
trade networks since the sixteenth century. Smallpox may have been
transmitted by an individual (or small number of individuals) from
Europe into the Americas, yet its demographic and economic impacts
were both catastrophic and immense. The global economy is inextri-
cably intertwined with ecological and epidemiological factors with
important feedback mechanisms into economic spheres.
It may be tempting to view a remote mining center like Potosí—
at an altitude above 13,000 feet and a thousand miles (2.5 months by
pack animal) distance from Lima on the Pacific—to have been rela-
tively detached from other areas of South America. Helmer (1953,
206) informs us, however, that around 1610 Tucuman in Argentina
sent timber, 4,000 cattle, and 60,000 mules per year to Potosí (some
600 mountainous miles away) in support of that mining city of 160,000
people. The fact is that the economies of most of South America, Cen-
tral America, and Mexico were deeply affected by the silver industry,
an industry with economic tentacles penetrating into the social fabric
of all populated continents.
The intercontinental trade in monies—silver, gold, copper, and
cowrie shells—involved people of all classes, not just the rich. The Sin-
gle Whip tax reform in China during the 1570s, for example, replaced
numerous taxes with a single tax, while also specifying that most Chi-
nese (including peasants) must pay taxes annually in silver. Conversion
to a silver system was also strong in relatively sparsely populated South-
east Asia:
418 journal of world history, fall 2002
41 While not couched in fully global terms, as we attempt to do in this essay, much of
Flynn’s (1984) early criticism of Wallerstein’s mistreatment of silver in European history
remains valid.
Flynn and Giráldez: Global Economic Unity 419
ery] and Europe would have been merely an axis of three arenas—
America, Europe, and Asia—obtaining its Asian luxuries at the price
of goods sent to the Americas.” It turns out that most New World sil-
ver did in fact gravitate to end-markets in Asia. And Europe was one
axis of four arenas, not three, if African imports and exports are prop-
erly integrated into the story. The fact is, division of the world into
independent cores with their exclusive peripheries simply does not
correspond with global trade evidence. Nor is Wallerstein’s labeling of
Asian exports as “luxuries” accurate; it is misleading to label cowries,
copper, low-quality silks, teas, and many ceramics as luxury items. 42
Indeed, Wallerstein’s (1974, 302) exclusion of Asia from his isolated
European world system contrasts sharply with the singular global trade
system outlined in this essay. Our research suggests (a) that global trade
networks involved Europeans as important middlemen in the trade of
American and Japanese silver destined mainly for China, and (b) that
deeply integrated trading relationships involved biological exchanges
that led to fundamental restructuring of societies throughout the world.
Our analysis is mostly compatible with the vision proposed in
Andre Gunder Frank’s controversial R e O R I E N T (1998). Yet, we dis-
agree with Frank’s contention that China was enriched as a result of its
importation of silver. We argue (Flynn and Giráldez 2000) that China’s
multicentury absorption of tens of thousands of tons of foreign silver
involved an immense drain of wealth from Chinese society. 43 Our argu-
ment essentially states that the multicentury “silverization” of China
involved substitution of a resource-using money (silver) in place of a
money that had been nearly costless to produce (paper); China’s
immense exports (of mainly nonmonetary items in exchange for silver
imports) can be viewed as a measure of the social cost of maintaining
a silver-based economy. Ironically, acceptance of our position that
China’s silver imports involved immense social costs, rather than social
benefits, actually supports Frank’s main emphasis on the global eco-
nomic significance of China prior to the nineteenth century. China’s
ability to absorb the immense cost of converting its monetary and fis-
42 Chinese exports were often destined for consumers of modest means. For example,
(Ho 1994, 37) reports that the Dutch East India Company (VOC) alone exported 629,759
pieces of Chinese ceramics each year during the seventeenth century, 112,646 pieces of
which were destined for the European marketplace.
43 Adam Smith’s (1776) famous polemic against “bullionists” ridiculed policies
designed to accumulate precious metals within a domestic economy. He reasoned that such
policies required expending domestic resources to produce the exports with which foreign
bullion was purchased; resources tied up in this manner would then be unavailable for pur-
poses of domestic development. Our argument follows similar logic.
420 journal of world history, fall 2002
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