GLOBALIZATION may seem like a new phenomenon but it is as old as maybe the Silk Road from China to Europe in the 13th and 14th century, as well as the Manila Galleon trade from 1565 and on for the next 250 years.
I just read through a recently launched (in Hong Kong, this week) Penguin Express book, The Silver Way by Peter Gordon and Juan Jose Morales, about the Manila Galleon trade and its repercussions.
As we are all aware, trade relations or exchanges of goods do not stop at the goods but include culture, religion, philosophy, geography, anthropology, etc.
The Silk Road between China through Central Asia and Europe had an impact particularly in the inner world of Central Asia and as well as on the Europe that was part of it. It ended when the Ottoman Empire began, and the trade was adversely affected by wars and perhaps suspicion or defensive attitudes to foreigners and their goods in times when conquest was the purpose of nations. But during the period of its existence and beyond, it awoke the countries and peoples concerned to each other in that pre-Anglo-Saxon-dominated world of Old Europe and the countries in between.
But the subject of The Silver Way is the more integrated, cohesive and enduring trade between Asia and Spanish America and from there to High Renaissance Europe when Spain was dominant and the Philippines was ruled by it via Mexico.
Much that we know of the Manila Galleon trade is that Manila was the entrepot where goods from China principally, but also from India, Southeast Asia, Japan and the Philippines (cotton, indigo, abaca, indigenous fabrics, etc.) were consolidated for export to the West via Acapulco in Mexico.
It all began when Andres de Urdaneta, a survivor of one Spanish expedition to the Philippines that failed to find its way back, who had eventually retired to a monastery in Mexico, was requested by King Philip II to return to the Philippines from Mexico with Miguel de Legaspi and find the tornaviaje or way back. Previously, about three Spanish expeditions had sailed for the Philippines and had not found their way back (Loaisa, Villalobos, Saavedra). Urdaneta had come with Loaisa but returned to Spain on a Portuguese ship after 10 years in the Moluccas, after the Loaisa expedition had failed and its ships and crew were lost. Urdaneta was a navigator but all his maps and charts were confiscated upon arrival in Portugal.
But it was Urdaneta who, having come to the Philippines with Legaspi in 1564-1565, found the tornaviaje in 1565 by sailing way north to the 40th latitude and then crossing the Pacific to Acapulco in Mexico, as against coming from Acapulco through the middle of the Pacific on dependable tradewinds. Of course, his ship brought goods from Manila which were goods from China (initially silk but eventually, as the trade materialized, everything else). He also made the maps and charts for those who came after to take the tornaviaje.
From here evolved what is still the longest trade route in the history of the world–250 years of shipping between Manila and Acapulco and from Acapulco to the rest of Spanish America terminating and beginning again in Western Europe. The trade impacted on all the economies along the way.
China had invented paper currency but the Manila Galleon trade dealt in silver which had been discovered and mined in quantity in Spanish America (Bolivia and then Mexico). The Ming Empire was one of the biggest, if not the biggest, economy in the world. It manufactured much that became in demand at the other end of the Pacific (passing through Manila, the starting point of the Manila Galleon) – silk, porcelain, furniture, ivory goods, Chinese “gewgaws”, etc. In turn those who bought paid in silver found and mined and traded in their countries (Potosi, a mountain 4,000 meters high in Bolivia that was the richest silver mine in the world). Nominally, it belonged to the King of Spain as the colonizer but it was mined in Bolivia with an attractive percentage for those who did. Thus, there was much affluence in the country and its neighbors that brought on consumption of foreign goods, particularly from China but also India, Japan, other Asian countries.
On China’s side was a self-sufficient country with a strong economy that did not need or crave foreign goods but soon craved silver. Thus, silver became the currency of the Manila Galleon trade. From Spanish America came ships laden with silver, soldiers and monks, and from Manila came the Asian goods that Chinese junks, Armenian ships (from India which was under British colonization and could not use the British flag in Spanish Philippines), even Cambodia and Japan, brought.
The Silver Way (la ruta de la plata) discusses silver as a commodity and as a currency. China’s paper currency gave way to silver for practical reasons. Paper currency was rampantly overprinted, gold coins were too large in denomination to be practical and copper coins had their own problems (the only way to test them was to melt them down). Silver was just simpler. It was supposed to have a certain weight though the first crudely made coins could have bits carved out.
As the trade flourished, silver was worth more gold in China than in Spain. When there are differences in prices for the same thing from distinct areas, arbitrage or an exchange rate rule comes in. As one Spanish writer and obviously a business mind wrote, one could use arbitrage between the price of gold in China and the price of gold in Spain (a peso of gold in China was worth 5 ½ to 6 ½ pesos of silver while a peso of gold in Spain was worth 12 ½ pesos of silver) and make an 80 percent profit.
The real point is that silver became not a regional currency but a world currency, demanded and accepted at both ends of the Manila Galleon trade. Eventually, the silver-gold exchange in China collapsed for explainable economic reasons to approximate the silver-gold exchange in Spain which, according to the authors, made financial markets for the first time global. China’s adoption of silver as a currency affected everyone that traded with her or with her through others.
The importance and dominance of the Manila Galleon trade affected everyone. If a ship sank (at first two ships per port per year, later only one ship from each), the world’s economy being so much smaller than today’s, resonated. Particularly China, whose money supply at that time with reliance on the galleon trade could suffer from external shocks. In 1648, three ships sank, followed by Potosi silver going through problems, and the Japanese restricting trade and, consequently, silver to China (Japan had silver mines), causing an economic downturn and the ability to pay taxes. A decade later, the Ming Dynasty presiding over this was overthrown (not proven to be cause and effect but a theory that it had some influence on the course of history).
In Spain, silver lost its value because of years of oversupply bringing inflation and loss of buying power. On the other hand, if China had not been absorbing so much of that silver over the decades, it would have been worse not only for Spain but for Europe bringing with it the more prevalent political and economic problems that such downturns cause.
This happened in the mid-17th century but as the cycle turns, whether economic or political, things improved in the l8th century. Spain stopped trying to rule the world and overreach, China’s population grew and demand for silver increased bringing its price up. This demand was met by Mexican silver mines which introduced a financial innovation – the milled Spanish dollar. Not the first Spanish dollar which was crudely minted in Spain and the New World (real de a ocho and peso de ocho) each worth eight reales (thus the phrase “piece of eight”), supposedly 3.44 grams of silver but prone to be clipped because of their irregular shape. The milled Spanish dollar’s blanks were made in a milling machine which made size and weight consistent. The edges were raised and serrated to prevent clipping off bits of silver. With this regularity and security features, the milled Spanish dollar (the word comes from thaler, a German coin of the 16th century) became the most accepted currency in the world (even against the Chinese silver tael minted in China which varied).
It was an influential coin that may have the yuan and yen attributed to it (both mean round like the milled Spanish dollar). Other trade dollars were the Vietnamese piaster (using the same specifications), the Hong Kong dollar (introduced by the British to the same specifications) and the Malaysian ringgit (meaning jagged referring to the milled Spanish dollar’s serrated edges). The US dollar is derived from the same which was legal tender in the US till the mid-19th century.
The authors end their currency discussion with the idea that the US dollar and the Chinese yuan having derived from the same model are cousins, if not siblings. Thus, globalization in terms of financial markets based on trade.
(Next week: What the Manila Galleon trade meant to Mexico City, Potosi, Bolivia and Manila as well as the rest of the world led by China in terms of social contact.)