If Gomara had little doubt as to the superiority of New Spain, ‘although Peru has the reputation’, Garcilaso de la Vega was firm on the other side:

It is true that El Inca himself bewails the rise in the price of everything since he arrived in Spain fifty years earlier, and has to concede that some think that this flood of wealth has done more harm than good, making the rich richer and the poor poorer; in fact, he hardly knows what to think about inflation, in which he has not been alone, then or since. On the main point he was wildly wrong: the treasure of Peru was a debilitating gift to Spain. Yet the silver tides did ‘bathe all the nations of the world’, even as far as China, bringing to some much wealth, if not contentment. But tides ebb.

The present writer is perhaps not much better equipped to deal with monetary theory than was the innocent Garcilaso, and though he is generally not averse to extra-mural forays beyond the bounds of his own discipline, a foray into a maze is daunting. Nonetheless, any discussion of the Spanish imperium, even or perhaps especially of its activities on Pacific shores and waters, cannot avoid reference to the intricate and shifting background for the ‘conjuncture’ of the ‘long’ sixteenth century in Europe: a general inflation, in Spain amounting to some 400 per cent by 1600, followed by recession.^[72] Averaged over a hundred years, 400 per cent seems ludicrously mild in our own day; but of course it was not an even rise, and it came as an inexplicable phenomenon to societies lacking not only the expertise to control inflation (who has yet gained it?) but even that needed to recognise the mechanisms of the problem—and that at least has been painfully learnt over the centuries.

Earl Hamilton's straightforward approach, a direct relation between treasure flowing in and prices rising, is to some extent démodé: Braudel for instance ‘turn[s] the hour-glass’ and reverses the explanation: ‘the economic surge created the rise in prices and provoked and stimulated the import of metals from the New World’.^[73] Even so, if the already initiated expansion of European capitalism called forth silver, this expansion itself could hardly have proceeded so far and so fast without the reasonable expectation of yet more; its advance would have been more halting. The capitalists of Europe would have had to cut their coats according to their cloth, as in fact they had to do in the next century, until after about 1690 Brazilian gold came to the rescue. Even before the definite down-turn began—say in the 1590s for Spain and the Mediterranean, by 1640 for the Netherlands and England—there had been difficult periods, when for one reason or another the inflow of treasure fell short of expectations. One such was in the later 1550s, when the patio process was just being introduced in New Spain and before Potosi had really boomed. This precipitated the bankruptcy of 1557—the year after Philip II's accession, a gloomy augury—and brought on, for sheer lack of resources, peace with France at Cateau-Cambrésis.

Although the inflationary syndrome was more complex in its causes than Hamilton seems to allow, it is still agreed that the injection of treasure, especially when silver imports became really massive, could not fail to have had a marked- 198 -effect on the volume of monetary circulation and its velocity. There were some offsetting factors—for instance, the much lesser handiness of silver as against gold for transport and storage—but this was itself to some extent offset by the development of credit devices. As might be expected, the relationships between treasure imports, prices, and economic activity were neither smooth in time nor regularly distributed in space.

In view of the use of bullion to adjust international trading balances, ‘a ridge of high monetary pressure’ developed over Spain,^[74] and although ‘In theory at least nothing entered Spain, nothing left, without the consent of a suspicious government, relentlessly watching over all outgoings of precious metals’,^[75] an outflow from this anticyclone was inevitable. One way was by commodity supply. In 1594 treasure formed 95·62 per cent of cargo from the Indies (the balance was in cochineal, hides, and indigo); about a quarter of this was on public account.^[76] Of the rest, some would be accounted for by remittances, including those of returning officials or fortune-hunters (very often the same persons) who had made their piles, and of this much would be invested in land or spent on conspicuous consumption or building; little would be invested industrially. But much also of the total would be on trading account, to pay for a variety of consumer goods, from books to wine, and some raw materials, such as iron. This new demand certainly played a part in forcing up Spanish prices, an old complaint; but except in some lines such as textiles (still in good form in the 1590s) Spain had difficulty in meeting her own needs, let alone in finding a surplus for the Indies. Hence increasingly her exports across the Atlantic were really re-exports which had to be paid for, and preferably in silver—whether the transfer was licit, by government licence, or by smuggling; and by the end of the seventeenth century the genuinely Spanish share in legal exports from Seville was almost derisory—sometimes only about 5 per cent.^[77]

The Royal share of American treasure, which included the net proceeds of taxation and of the sale of mercury as well as the quinto or diezmo, was a much smaller proportion of total revenue than was and is generally supposed—perhaps 10–12 per cent in the mid-sixteenth century, 20–25 in the 1590s, 10 per cent or less under Philip III—but it was a critically important fraction: negotiable bullion ‘with no strings’, it was unconditionally the King's, to do with as he would.^[78] It was therefore, or it seemed, ideal security, and the international financiers of the day were normally willing enough to lend on it: first the Fuggers and the Antwerp bankers, then as the troubles of the Netherlands mounted in the 1570s the Genoese (always a strong element in Seville) became dominant. Since there was naturally a feeling that ‘there is always plenty more where it came from’, financiers and Crown alike were tempted and fell, until the Prudent King imprudently slid into a costly imperialism. The first major event after the marriage of Huancavelica and Potosi was the rape of Portugal in 1580. This was an immediate gain in strength, and in the Pacific meant an end to possible complications;- 199 -even though attempts had soon to be made to bail out the Portuguese who were in trouble in the Moluccas, it was not until the surge of Dutch aggression some thirty or forty years later that the Portuguese holdings began to be liabilities. But the Armada of 1588 was a most costly disaster, and as for the Low Countries themselves—to yield them was unthinkable, to attempt to keep them ruinous. It meant a double drain—money spent on fighting the rebels, money to pay those cheerful Dutch traders with the enemy who alone could supply such essentials as Baltic grain, and who turned their profits to more insurgency by land and sea.^[79]

In principle, to be sure, this Spanish imperialism was defensive, the maintenance of inherited legal rights—even in Portugal, where Philip's claim was more than plausible, the other pretendants being a bastard Prior and a woman, albeit a Duchess. But from 1567 there had been religious riots, finally risings, in the Netherlands; by 1572, despite or because of the Duke of Alba's ruthlessness, the rebels had a firm territorial base in Holland and Zeeland (though Amsterdam and some other towns still held for the King). They also had a leader of political genius in William the Silent. Spain was now committed to a war of conquest over difficult terrain and at the end of long and fragile lines of communication. The standard route for men, money, and supplies was by the Atlantic to Antwerp, but this was ceasing to be safe; apart from the Dutch Sea-Beggars, there were Huguenot privateers—it was some of these who in 1568 forced Alba's pay-ships into Plymouth and Southampton. Here the treasure was seized by Elizabeth's authority, under cover of a simple transfer of a loan, the money technically belonging to Genoese bankers until delivered at Antwerp.^[80]

Except for occasional shipments by fast zabras or ‘frigates’, the Atlantic route was abandoned in favour of shipping silver from Barcelona to Genoa, whence it was forwarded by various routes under Spanish control or influence. This naturally strengthened the Genoese hold; her bankers had the resources to make advances, even monthly, against the annual (and sometimes less frequent) arrivals of treasure at Seville. It goes without saying that the Genoese charges were very high: in crises over 50 per cent interest might be exacted. The inevitable result was the hypothecation of treasure long before its actual arrival (four years ahead in 1607), sequestration of private bullion against copper or bonds, finally bankruptcies or suspensions, forced conversions accepted by the bankers as salving something. Such operations took place in 1557, 1575, 1596, 1607, 1627, 1647; that of 1607 shook out those old and faithful backers the Fuggers, who ‘settled on their Swabian estates as Imperial counts’; the Genoese hung on.^[81]

The decline in bullion registered at Seville, after 1620, comes close together with the end of the Twelve Years’ Truce (1609–21) with the Netherlands and the initiation by Olivares of a ‘forward policy’ which by 1640 led to revolt in Catalonia and successful revolution in Portugal. Waning resources, waxing expenditures; the silver, coming more slowly, ran out of Spain as fast as ever. The official response (and many nations have seen much the same in our time) ‘was neither policy nor logic but only a kind of fiscal desperation that contradicted- 200 -every kind of sense and ignored all advice’.^[82] Spain's own currency needs were met in a fashion by the reckless coinage of copper money or vellón; and this base currency was itself devalued more than once. By mid-century entire fleets and armies were financed to over 95 per cent in vellón; one wonders how the pay-chests left room for the ammunition-boxes. The acme, or nadir, of price-fixing was surely reached in 1627, when copies of a price-fixing ordinance fetched 36 per cent over the legal maximum it set for itself. Finally, a crushing comment, the Indies guard-ships of 1643 brought to Seville a cargo of copper for the mint. This went on until in 1680 drastic deflation brought prices down by nearly 50 per cent: Spain was left dazed, shaken, purged, but set for recovery, however agonisingly slow.^[83]

For the Pacific, this melancholy story had a peculiar significance. The virtual paralysis of the metropolis forced the Indies more and more on to their own resources. There was another side to this chronicle of coinage. While these extraordinary debasements were going on in the mints of Old Spain, those of New Spain were turning out ‘piezas de plata de a ocho reales’—the ‘pieces of eight’ of pirate lore—in which the silver content fell by only 5.9 per cent from 1535 to the turn of this present century. This coin became a standard medium of exchange, if not the medium, ‘along the coasts of Asia, from Siberia to Bombay’; it was only rivalled in geographical range (though not in longevity) by the Maria Theresa or ‘Levant’ dollar and became father, or at least godfather, to the United States dollar itself. Not until the 1890s was it displaced in the western Pacific, partly by gold and partly by the British Indian ‘Straits dollar’.^[84] Long before Canning, a New World had been called upon to redress the balance of the Old; the domination of Atlantic Seville over the Pacific was weakening.