Adam Smith called the crossing of the Atlantic by Columbus and rounding of the Cape of Good Hope by Vasco da Gama the greatest events in human history. They led to, for the first time, a truly global trading economy, where the Eurasian trade economy was extended to, and profoundly changed by contact with, the Americas. The also led to the Age of Silver, when silver flows dominated world trade.
The Silver Age
Outside sub-Saharan Africa, silver was, and had long been, the dominant medium of exchange, and medium of account, in the major economies; especially China, the world’s largest economy up to 1800. The pound (the oldest currency still used) was originally a pound of silver, hence pound sterling. With the European conquest of the Americas, the silver mines of the Americas, controlled by the conquering Spanish and Portugese, rapidly dominated world silver production.
Much of the silver was extracted directly by the Spanish and Portugese crowns. The crowns of Castile and Portugal were thereby freed by their income independence and role as fount of wealth from the need to conciliate their subjects. Iberia degenerated from the pioneering centre of Parliamentarism it had been to sluggish, obscurantist autocracies–religious conformity being a mark of loyalty. (Nowadays, oil generates much the same dynamic in Middle Eastern Islam, particularly Saudi Arabia.)
Adding to the previous surge in production by the silver mines of central Europe, this flood of silver meant that the goods of Europe became (and remained) silver-dear, while the goods of Asia, particularly China, were silver-cheap. So, significant amounts of the silver (and gold) of the Americas flowed to East and South Asia–either across the Atlantic to Europe, or directly across the Pacific–to purchase Asian goods. The high cost of transport and regulatory barriers blocked prices from equalising; this was a period of rising global trade but not of globalisation. Trade was still largely luxury goods. From the expansion of the Central European silver mines in the mid C15th to the second third of the C19th, silver flows dominated world trade.
It was also a period of trading monopolies, when:
the key political question for (mercantilist) statesmen was who would get those rents, their own monopolists or those of other nations. Thus … the 16th and 17th centuries saw violent conflict over who would control the South East Asian spice trade. … a world in which monopoly rents, mercantile intervention, and better warships played such an important part in international trade.
Trying to find an alternative to goods-for-silver in the Chinese trade, the British East India company hit upon opium. The fading Qing dynasty attempted to block a trade they judged deleterious to the health and good order of their tax-base. [Actually, the pattern was more complicated than that.] So came the Opium Wars, the first of the “foreign humiliations” that are such a central motif in school history and public rhetoric in contemporary China. (The genocidal wars the Qing dynasty fought against the Central Eurasian nomads are not allowed to upset this celebration of resentment.)
The Industrial Age
The Opium Wars were, however, the last sputtering of the Silver Age, as the Industrial Revolution‘s dramatic lowering of transport costs (due to railways, steam ships and the Suez Canal) accompanying trade liberalisation (the lowering of tariffs, the ending of trading monopolies) and the accelerating increase in British, and then Atlantic, production transformed global trade, beginning the first great period of globalisation (c.1830-1914). Western goods were increasingly no longer silver-dear and trade stopped being dominated by luxury goods. Silver no longer dominated global trade flows. With the US, German and French adoption of the gold standard in the 1870s, silver lost its role as the dominant monetary metal.
Lowered transport costs also meant great expansion in international population movements. Domestic politics became far more dominated by matters of trade and labour flows. In the temperate zone settler societies, for example, blocking “tropical zone” labour flows from merging with the “temperate zone” labour flows became a major issue (pdf). While clashes over trade policy became central to domestic politics in major economies:
free-trading slave and land owners in the cotton South opposed [protectionist] capitalists in the industrial North in the ante-bellum United States, free-trading labour and capital opposed protectionist landowners in mid-century Britain, and protectionist coalitions of land and capital opposed labour in Germany after 1879. The fact that trade policy frequently gave rise to major political debates, and that those debates seemed to evolve along class lines, is in itself powerful evidence of significant 19th century globalization.
These patterns being in accordance with economist Ronald Rogowsk’s application of (pdf) the Heckscher-Ohlin analysis and Stolper-Samuelson theorem of international trade. (I.e. that with three factors of land, labour and capital, free trade helps the abundant factor[s] and harms the scarce: so in the UK, with abundant capital and labour but scarce land, landowners lose out and free trade wins: in the US, with abundant land but scarce capital and labour landowners lose out and protection wins; in Imperial Germany, with abundant labour but scarce capital and land, labour loses out and protection wins: hence the pattern of C19th politics in the three countries.) With genuine globalisation came the politics of globalisation.
China remained on the silver standard until 1935 (pdf)–driven off it by FDR‘s subsidising of silver production, though this was the end of a period of economic instability transmitted by (pdf) fluctuating silver prices. But China’s role in the world economy shrank dramatically from the beginning of the C19th until Deng Xiaoping‘s reforms begun in December 1978 headed China back toward its historical norm in economic significance.
Gold did not, however, dominate world trade flows even during the 1873-1914 apotheosis of gold; the products and inputs of factories, and workers in factories, did. Gold’s reign as the dominant monetary metal was brief, just a passing feature of the Industrial Age.
Given that the long-run ratio of the price of gold to silver has tended to hover around the 15:1 ratio at which they occur in the Earth’s crust, a society had to reach a considerable level of prosperity before a gold standard became practicable. That the C13th century saw the first gold coins minted in Latin Christendom in commercial quantities since the collapse of the Western Roman Empire was a sign that trade in Europe was finally recovering to Roman levels. They were not, however, signs of an adoption of a gold standard, but of moving from silver money to bimetallism.
Explicit adoption of a gold standard by a major economy had to wait until the UK in the early C19th (technically, in 1844, though silver stopped being the legal standard in 1816)–Great Britain had been functionally on the gold standard for most of the C18th and some of the C17th, due to setting mint exchange ratios of gold to silver that over-valued gold and under-valued silver, so gold flowed in and silver flowed out.
Nor is it surprising that gold’s reign was only a passing feature of the Industrial Age. Production had to reach high enough levels to make a gold standard practical in the first place. But, as production of goods and services continued to expand, any rising ratio of goods-and-services production to gold supply would create an upward tendency in the price of gold, which meant driving down the price level (P). This was because, as gold, and therefore money (since, in a gold standard, the price of money is set in gold), increases in value, prices fall and, as gold, and therefore money, loses value, prices rise–i.e. monetised gold sets the price of money and the price of money is the inverse of the price level (or 1/P). Any such upward tendency in the price of gold would make the goldzone increasingly vulnerable to catastrophic monetary contractions.
The greater integration of economies also made goldzone economies much more vulnerable to the policies of other countries. As was demonstrated in the Great Contraction of 1929 to (whenever a country left the gold standard). That particular catastrophic monetary contraction was the consequence of major upward shifts in price levels during the Dynast’s War and the subsequent policies of (especially) the Bank of France, the Fed and, to a lesser extent, the UK.
The potential significance of ratios of production of monetary metal to goods and services production was dramatically demonstrated at beginning of the Silver Age with the Great Inflation aka Price Revolution from the late C15th to early C17th, started by the expansion of Central European silver production (which followed a period of “bullion shortage”) then aggravated by the flood of American silver. The supply of silver expanded much faster than goods and services production, with predictable downward effects on the price of silver, the dominant monetary metal, so upward effects on the price level. An effect somewhat aggravated by the first significant use in Europe of paper as a medium of exchange, with the increasing use of bills of exchange decreasing the tendency to hold money, as well as various coinage debasements.
It takes considerable ignorance of monetary history to not realise that, historically, silver has been a much more important monetary metal than gold. The irony is that the explosion in productive capacity which made a gold standard practicable also quite likely doomed it. Prices are a matter of supply and demand–something gold is not magically immune to. Even if the supply of monetised gold had kept up with goods and services production, the increased economic integration demonstrably meant increased vulnerability to the policies of other countries.
If the gold standard was a passing phase in the Industrial Age and the Silver Age proper was c.1500 to c.1830, what was before the Silver Age?
The Age of Spices and Silk
The Selenium Age. Or, more accurately, the Silk-and-Selenium-deficit Age.
Selenium is a trace metal, small amounts are a necessary part of our diet. A somewhat higher amount is needed to raise healthy horses. The soils of China have sufficient selenium for healthy humans but not so for raising healthy horses. [Actually, in some areas, not quite enough for humans either.] Which meant that the world’s largest economy had to continually import horses, generation after generation.
If China needed to buy horses, it had silk to sell. Silk was an almost ideal trade good: light, durable, both useful and luxurious, easy to make beautiful (it readily absorbs dyes). The Chinese trading their silk for the horses of the Central Eurasian nomads became the great driver of Eurasian trade flows from the third century BC onwards, the Chinese demand for horses being increased by the shift from chariot warfare to cavalry. This Silk Road system operated from the beginning of the imperial system under the Qin and Han dynasties until the Qing conquered the Central Eurasian horse breeding regions in the C18th.
The Chinese never, of course, admitted they were trading, that was beneath the dignity of the Son of Heaven. The acquisition of horses was, however, far too important to be other than under Imperial control. So, the Son of Heaven received tribute in the form of horses and generously provided gifts in the form of silk. Vast quantities of silk. The “tribute” to “gift” ratio was in the range of 25 to 38 bolts of silk per horse. (There were also specific gifts to nomad rulers, to encourage them, as fonts of wealth, to keep the other nomads in line and discourage raids on the Son of Heaven’s taxpaying peasants and merchants.)
This meant that the Central Eurasian nomads had far more silk than they needed. Which they traded westwards. Hence the Silk Road. Managing the trade flows through Central Eurasia was the central interest of nomad rulerships. As the Eastern Roman Empire shrank, Constantinople (and Trebizond) managed to retain economic significance by being the Western end of the Silk Road system.
Much earlier, it may not have been coincidental that the Roman Empire’s Crisis of the 3rd Century–which was marked by a dramatic drop in internal trade, particularly in the Western Empire–followed shortly after the collapse of the Han Dynasty at the other end of the Silk Road trade system.
If trade’s Silver Age lasted about 3.3 centuries, its Silk Age lasted most of 2 millennia. The exchange of silk for horses was the dominant driver of Eurasian trade, as spices were of trade along the Indian Ocean, until the Portugese led the European penetration of the Indian Ocean–bypassing both Islam and the Central Eurasians–and American silver came to dominate trade flows.
The Ottoman Empire‘s conquest of Constantinople in 1453 and of Trebizond in 1461 gave it control of the Western end of the Silk Road. This, combined with the fading Mamluk Sultanate of Egypt‘s attempts to squeeze more out of the spice trade, encouraged the Portugese attempts to find a route around Africa and Isabella of Castile‘s support for Columbus attempt to go straight westwards to Asia, thereby outflanking Islam for the glory of God and access to trade (especially spices and silk). Prince Henry the Navigator and Isabella were both crusaders–Isabella even met Columbus in the camp where she and her husband Ferdinand II of Aragon oversaw the conquest of Granada, thereby completing the Reconquista.
So, the attempt to get more direct access to the silk of China and the spices of the Indies led to the discovery of the Americas and the seizure and exploitation of its silver wealth. Thus did Iberian response to Ottoman expansion and Mamluk expedience lead to the end of the Silk (and Spice) Age and the birth of the Silver Age.
The Silver Age as an Age of Bondage
The disease depopulation of the Americas from Transatlantic contact with the Eurasian disease pool, and the expulsion of raiding nomads from the flatlands of Eastern Europe, also made the Silver Age a great Age of Bondage. The vast increase in the supply of arable land compared to labour led to the creation of the slave plantations of Brazil, the Caribbean and American South as well as the enserfments in Prussia, Poland and Russia.
The demand for labour in the European colonies of the Americas provided the slavers of West Africa a huge new market. West African chiefs had long sold slaves to the Islamic Middle East; the Saharan passage of slave caravans was every bit as horrible as the Atlantic passage of slave ships, and lasted centuries longer. With the added horror of the demand for eunuchs, created by processes whose death rate (depending on the completeness of the process) ranged up to 90%. The demand for eunuchs, plus the tendency to take slave woman as concubines and raise their children as family, meant the Middle Eastern Islam did not generate the same ex-slave populations as did the Americas. Though there is a long history of Arab denigration of black Africans as natural or inherent slaves–the Arabic word abd means ‘slave’ but also, colloquially, black person.
One of the puzzles of the history of bondage is why the dramatic drop in population in medieval Europe after the Black Death failed to lead to re-enserfments. Possibly because the increasingly taxes-on-trade financed Crowns of Western Europe were no longer sufficiently dependant on knightly service for their armies to be willing to provide the necessary legal enforcement–especially in the face of difficulties such as the Peasants’ Revolt, part of a wave of popular revolts–and because the commercial and legal sophistication of medieval Europe provided alternative income strategies for landlords.
The Industrial Age saw the retreat of bondage, with successive abolitions of Silver Age bondage. First the slave trade was abolished in the British Empire and in the US. Then slavery was abolished–the major abolitions being the British Empire 1832, the Thirteenth Amendment of the US Constitution 1865, and Brazilian Empire 1888. Russian serfdom was abolished in 1861. Though there was some use of indentured labour (pdf) for “tropical zone” labour flows.
This general pattern of the retreat of bondage went into reverse in the C20th, with a new wave of state bondage. The Leninist states reintroduced state slavery–aka labour camps–Stalinism created industrial serfdom and the Nazis used wartime forced labour. In a law of 26 July 1940, the Presidium of the Supreme Soviet decreed that no worker could leave their job without the permission of their workplace, the essential characteristic of serfdom. Soviet records show almost 4 million convictions of workers for unauthorised leavings from 1940 to 1952 plus almost 11 million convictions for absenteeism. (Yes, taking a “sickie” was a criminal offence.). The law was repealed in 1956. The new bondage turned out to be pathologies of ideology rather than harbingers of things to come.
Centrality of trade
Trade gives us access to something other than local resources–including going beyond local labour effort and skills. It enables us to specialise, making us far more productive. To a large degree, the history of trade is the grand history of us. Starting with the trade within foraging bands of men hunting and women gathering. But even if we restrict trade to exchange with outsiders, it has a history of great antiquity–the Bronze Age, requiring the bringing together of copper and tin, was fundamentally based on trade; and that was far from the origin of trade.
The Industrial Age has seen trade reach astonishing levels; foreign trade becoming far more part of everyday life rather than being mostly trade in luxuries and the tax concern of princes, the profit hope of adventurers. But silk and spices drove the trading dynamics of Eurasia for over one-and-a-half millennia (c.220BC -c.1500), silver for over three centuries (c.1500-c.1830). The Industrial Age is, as an engine of mass prosperity, less than two centuries old. The reign of gold as the dominant monetary metal was even briefer–merely a few decades interlude within the Industrial Age. (As for the eurozone’s attempt to create an artificial gold standard, how is that working for them?)
We are on the roller-coaster ride of trade. But, then, in one sense or other, we homo sapiens, the trading ape, always have been.