The Influence of China on the Development of Early Global Trade, and the Role of Silver


Korean Minjok Leadership Academy
SSH



Table of Contents


Second Draft (Final Draft), Nov. 21st 2012
Revised Bibliography, Oct. 17 2013
First Draft , June 2012



Second Draft (Final Draft) . . Go to Teacher's Comment

I. Introduction
I.1 The Role of China in Interregional and Global Trade
I.2 Definition
I.3 Approach of Study
II. First Phase: The Germination of the global silver trade (1570s-1610s)
II.1 The silver trade before the change in Chinese monetary system
II.1.1 Intra-Asian silver trade
II.1.2 Trans-Atlantic silver trade
II.1.3 Engagement of Portugal in Intra-Asian trade
II.1.4 The foundation of Manila as a capital of the Spanish East Indies
II.2 The change in Chinese monetary system
II.3 The influence of China on the involved powers
II.3.1 Spanish Empire
II.3.2 Japan
III. Second Phase: Interruptions in the global silver trade (1610s-1650s)
III.1 Causes of interruption
III.1.1 Decline in the value of silver
III.1.2 Conflict with other countries
III.1.3 War of Ming-Qing transition
III.2 The influence of China on the involved powers
III.2.1 Spanish Empire
III.2.2 Japan
IV. Third Phase: Resurgence of global silver trade (1650s-1750s)
IV.1 The domestic renovation took in Qing dynasty
IV.2 The influence of China on the involved powers
IV.2.1 Spanish Empire
IV.2.2 Japan
V. Conclusion
Notes
Bibliography

I. Introduction

I.1 The Role of China in Interregional and Global Trade
            According to Euripides, a renowned tragedian of classical Athens, silver and gold are not the only coin; virtue too passes current all over the world. Considering that interaction between countries to countries was mostly initiated by the trade, this quote by Euripides is valid. The relationship in the trade can further imply the relationship between the two sides.
            There are a lot of papers and books describing the worldwide silver trade throughout sixteenth century to eighteenth century. However, most of them highlight the role of European countries on the global trade or the impact of global silver trade on China. The impact of China on the global silver trade is rarely focused on the conventional publications.
            This paper would investigate the influence of the domestic situation in China on the formation or the development of the global silver trade.

I.2 Definition
            Before presenting the idea, it is better to define some terms that would frequently appear in the paper.
1. Global trade
            Global trade means the trade where all or most of the continents are involved. In this paper, the silver trade during the late 16h century to 18th century is global in that Asia, Europe, America, even Africa (1) are connected in the matter of commerce and trade.
2. Value of silver
            The value of silver in China compared to other countries would be determined according to the bimetallic ratio (gold: silver) in China and in other parts of the world.
3. Spanish Empire
            Spanish Empire in the late sixteenth century to eighteenth century includes not only Spain but also numerous viceroyalties like those in South America or in Philippines.

I.3 Approach of Study
            The silver trade, like other trades, consists of three powers: countries in the demand side, countries in the supply side, and the countries as middlemen. Although there was also India in the demand side, as China was the more influential one, this paper would focus on the impact of China on the countries in the supply side: Spanish Empire and Japan.
            The three phases investigated in this paper is as the following: first phase, the formation of the global silver trade in 1570s-1610s, second phase, the interruptions in the global silver trade in 1610s to 1650s, and the third phase, the resurgence of global silver trade in 1650s to 1750s.

II. First Phase: The Germination of the global silver trade (1570s-1610s)
            From 1570s when China approved the silver-based tax to 1610s when several factors like the domestic situation in China impeded the silver trade, the silver trades which used to be regional events were integrated and the countries involved in the global trade started to prosper from the profits.

II.1 The silver trade before the change in Chinese monetary system
            Before China's imposition of a silver-based tax in the 1570s (2), the silver trade throughout the world had been regional. There had been two major regional trades before the engagement of China: Intra-Asian silver trade and trans-Atlantic silver trade.

II.1.1 Intra-Asian silver trade
            At first, the major currency during the Ming dynasty was a paper currency that had been utilized in China. However, as people already lost their faith in paper money since the hyperinflation which occurred in the late Yuan dynasty (3), the policy to rely on paper currency failed (4). As the new method of refining silver, "Haifuki Ho", was introduced to Japan, the silver mines like the Iwami silver mines were developed. Due to the high demand of silver from Chinese people despite of strict prohibition regulations (5) set by China, the intra-Asian silver trade via smuggling (6) developed. This increase of the private trades is meaningful that the Japanese trade with China had been mainly tributary relationship (7).

II.1.2 Trans-Atlantic silver trade
            Along with the development of silver mines in Japan, silver mines in Peru, especially Potosi (8), and those in Mexico were also developed by Spanish Empire during the early sixteenth century.
            Most of the silver produced in the New Spain went to Europe (9) before the foundation of Manila as a capital of the Spanish East Indies, encouraging the prosperity (10) in European countries.
            The production of silver in Spanish America further boomed after the mercury amalgamation process of refining was spread throughout Spanish America. Below graphs show the dramatic increase in silver production after the new method was introduced.


-Annual Silver registrations by cajas- Mexico (11)


-Annual Silver registrations by cajas- Peru (12)


            In the graph of Mexico, there occurs a sharp increase in the production in the late 1560s. And As in the graph of Peru, around 1570s, there is a sharp boom in the silver production in Peruvian mines. These two data indicate the increase in the production due to the application of the mercury amalgam process, which was first utilized in the 1560s in Mexico and in the early 1570s (13) in Peru.

II.1.3 Engagement of Portugal in Intra-Asian trade
            As Portuguese merchants discovered the silver trade between Japan and China, they started to participate in the trade, acting as a middleman. The Portuguese effort to enter the trade took almost from 1514 to 1542 (14), and after the series of effort, Portuguese got involved in the illegal trade centered on Yueh-kang harbor (15). Unlike the conventional Euro-centric thoughts about the trade between China and Western countries, the role of Portuguese in the Intra-Asian trade was not significant (16).

II.1.4 The foundation of Manila as a capital of the Spanish East Indies
            While the South American viceroyalties of Spain developed the silver mines, the Spanish colonization and settlement took place in Philippines. After the arrival of Miguel Lopez de Legazpi's expedition in 1565, the Spanish conquered Philippines further and realized the potential Manila had as a trade center. In 1571, they established the city in Manila. It soon became the important entrepot stimulating the Trans-Pacific trade between America and China (17).

II.2 The change in Chinese monetary system
            Even after the abandonment of paper money system in the 1450s, the Ming tried to resist the influx of silver into the trade centers in China. However, the intrusion of silver was so great that some local governments in maritime regions required that taxes be paid in silver (18). After all, Ming rulers established the Single-Whip system in the 1570s. The system consists of two rules: first, numerous taxes should be merged into a single tax; second, all tax should be paid in the form of silver (19).

II.3 The influence of China on the involved powers
            As it is said that the population in China was perhaps one-fourth of the total population in the seventeenth century, the Chinese imposition of silver taxation meant an enormous demand of silver. The need of China for silver (20) stimulated the global interaction between countries to countries.

II.3.1 Spanish Empire
            Along with the establishment of city in Manila and the development of silver mines in Spanish America, the enormous demand of China fostered the trans-Pacific trade between Spanish Empire and Ming China.
            The extent of Spanish export of silver to China is not definite. Some historian says that at least half of the silver from America went into China from 1527 to 1821. Pierre Chaunu, on the other hand suggests one-third, including the direct exports from New Spain to the Philippines across the Pacific (22). Regardless of exact percentage, it can be seen that the silver trade between Ming China and Spanish Empire was significant. The silver trade with China brought Spain a huge profit and it might be responsible for the rise of Spain in Europe (23).

II.3.2 Japan
            As the trade between Japan and China had been done even before the official approval of silver as a medium for tax, there might not have been dramatic profit increase in Japan.
            However, still, the benefit gained from the silver trade was crucial to the development of Japan. For example, it was instrumental in Japan's withdrawal from China's tributary system. After Tokugawa Japan achieved Pax Tokugawa (24) from the market-orientated reforms effectively implemented due to the silver trade with China, it officially refused the tributary relationship with China (25).

III. Second Phase: Interruptions in the global silver trade (1610s-1650s)
            The greatly intense silver trade however temporarily suffered from several hindrances during the first half of seventeenth century.

III.1 Causes of interruption

III.1.1 Decline in the value of silver
            As tens of thousands of tons of silver hoarded on China, the value of silver gradually fell to the production cost. The evidence can be found in the bimetallic ratio of gold over silver. By around 1635, 13 ounces of silver are needed to buy an ounce of gold in China, while a half century earlier only 6 ounces of silver were necessary (26). The dramatic increase in the value of silver during the late sixteenth century didn't continue until the early seventeenth century.
            As the value inevitably declined, the profit the supply side had gained would have started to vanish.

III.1.2 Conflict with other countries
            There had been also numerous conflicts between China and other countries regarding the silver trade. For the case of Japan, there occurred the major conflict around 1610. The Japanese invasions of Korea around 1590s strengthened Chinese perceptions of the Japanese as dangerous foes. Nevertheless, Macao, a prosperous port city for the silver trade between 1590 and 1610, was still attractive as a neutral area for obtaining Japanese silver without allowing Japanese on the Chinese coast or worrying about Chinese traders to Japan having conflict with the Japanese (27).
            However, in 1608, Japanese sailors and warriors returning from a trading voyage to Vietnam intruded into Macao heavily armed, and there occurred serious fighting broke out where numerous Japanese were killed (28). After that incident, by 1636, the Japanese conflict was solved and all Japanese ocean voyages were prohibited (29).
            China also had a lot of conflicts with Spanish Empire (30). From the very start, the Spanish settled down to mutually lucrative but uncomfortable and occasionally violent relations with the Chinese in Manila (31). There had been conflicts in 1603 (32) and 1639 (33). Although both massacres were regional conflicts, those troubles contributed to a brief halt to the silver trade.

III.1.3 War of Ming-Qing transition
            In the late 1630s to early 1640s, there occurred series of battles regarding the Ming-Qing transition. As the Ming China had to manage those battles, it was hard for Ming dynasty to continue the trade: those battles seriously disrupted the trade between China and other countries (34).

III.2 The influence of China on the involved powers
            As the silver trade where Ming China was the major demand power was intensely linked, various disruptions to the silver trade influenced the involved countries.

III.2.1 Spanish Empire
            Spanish Empire had been very heavily dependent (35) on the mine profits and the silver trade with China.
            Thus when there were both natural decline in the profit and two revolts in Manila, there were economic hardships (36) in Spain. Spain experienced multiple bankruptcies (37) in the late sixteenth and early seventeenth centuries, during a peak of silver production (38). The interruption during 1610-1650 was so influential that the interest payments on Castile's federal debt alone after all exceeded total crown receipts (39).

III.2.2 Japan
            Although Japanese silver mine profits also declined, the Tokugawa put much effort to finance consolidation of Japan and to be independent from Chinese control (40).
            First, Tokugawa Japan had built a solid infrastructure mainly on agriculture. The main source of the economic strength that maintained the regime was the huge amount of land under its direct control (41). The continuous growth of domestic market economies stimulated commercial development. Secondly, the lower demand for imports of critical military supplies was resulted from the Pax Tokugawa (42). Moreover, Japan gained even more self-sufficiency in the production of raw silk thread, which had been the main import item from China (43). Thus, Japan did not get much influence from the decline of silver trade.

IV. Third Phase: Resurgence of global silver trade (1650s-1750s)

IV.1 The domestic renovation took in Qing dynasty
            After the establishment of Qing dynasty in 1644, in 1661, the Qing government evacuated all population and closed all ports near the coastal area of the Empire in order to isolate the Ming loyalists in Taiwan from mainland supplies (44). Following the fall of the Taiwan regime in 1683, the Manchu rulers soon ended the evacuation policy and reopened coastal ports for maritime trade. Four custom offices were founded in the Guangdong, Fujian, Zhejiang, and Jiangsu provinces. Guangzhou (Canton) city became the official trading port in Guangdong, where a Hong system (45) was institutionalized in 1685 (46).

IV.2 The influence of China on the involved powers
            After the dramatic transition from Ming to Qing, eighteenth century China had a stable socio-political environment for earning wealth. This helped Qing China to full-fledge the connection between China and other countries.

IV.2.1 Spanish Empire
            Although not as dramatic as the development in late 16th and early 17th centuries, the economic development in the first two-thirds of the 18th century was quite hopeful for Spanish Empire. Although it is said that the economic development (47) should be attributed mainly to the agricultural expansion, the overall stimulation on the Spanish economy could be related to the revival of the silver trade.

IV.2.2 Japan
            Although Japan was operated under sakoku policy, a policy which prohibits the interaction with the foreign powers, through few channels left open, Japan didn't entirely exclude itself from the foreign power. After the conflict with China, it had trade with Portuguese and then with Dutch (48). And when the situation in China was settled, Japan experienced some degree of economic development. The degree was not that conspicuous as the Japanese economy during the Edo period was mainly focused on agriculture, unlike Tokugawa Period focused on the interaction with other countries. However, considering that western ships in Nagasaki port were recorded in 1771, 1778, and 1792 and that the six western castaways arrived in Satsuma in 1704 remained for a long time, Japan would have engaged in the global trade and would have been influenced to some extent from the revival of the global trade.

V. Conclusion
            The conventional world history book had interpreted the work of establishing the global trade as the sole work of Europeans- their explorations and their "superior" items that "helped" the trade work. However, in fact, the establishment of the global trade could happen due to the multiple factors other than a sole cause like Europeans' exploration. Furthermore, as one of those multiple factors, China stimulated the creation of the global trade network, temporarily discouraged the silver trade, and led the resurgence of the silver trade.


Notes :

(1)      "Centred on Lisbon, extending to both the African and the American sides of the Atlantic, with connections in the Pacific and the Far East, the Portuguese trading system was a huge network which spread throughout the New World in a matter of ten to twenty years." - Braudel 1982 III p.162 : Portuguese trading system then was involved in silver trade.
(2)      "Gradually Ming rulers abandoned their resistance to silver and implemented the Single-Whip tax system around the 1570s." - Flynn/Giraldez 1995 p. 8: Exact date is not known about the Single-Whip tax system.
(3)      In the later course of the dynasty, facing massive shortages of specie to fund their ruling in China, the Yuan Dynasty began printing paper money without restrictions on duration. This eventually caused hyperinflation. By 1455, in an effort to rein in economic expansion and end hyperinflation, the new Ming Dynasty ended the use of paper money. Wikipedia : "Fiat money"
(4)      It is said that the hyperinflation was also resulted from people's preference to cash currency over the paper currency. That preference is from the old theories of the "real" (shi) and the "empty" (xu) which first appeared in Han dynasty. According to those theories, goods were regarded as "real", whereas cash was "empty". And when paper currency first appeared during the Song dynasty, the concepts of "empty" and "real" shifted to paper money versus cash currency. The rich families and merchants stored copper cash privately, not wanting to spend them cheaply. As a result, day by day the old cash currency was getting scarcer and paper currency cheaper. The increase in paper currency also resulted in the hyperinflation in the society. - Kuhn 2009
(5)      It is clear that a very important determinant of early Ming policies toward maritime foreign relations was the court's reaction to the menace of the "Japanese pirates," many of whom were actually Chinese. Private maritime trade by Chinese was entirely prohibited, and foreign trade in Chinese ports was limited to trade in connection with tribute embassies, the size and frequency of which also were regulated. - Mote/Twitchett 1998 p.334
(6)      "They [the villagers] immediately came down on Mr. Hsun for half the money, and made up the rest between them. In this way they raised two or three taels of silver, a record of the contributors being made." This part in the satirical novel "The Scholars" (1750) by Wu Ching-Tzu shows that the silver was used privately in China. Considering that the time period of the novel is the last year of the Cheng-hua period (1464-1487) of the Ming Dynasty, the silver was used even before the silver was approved by Single-Whip taxation.
(7)      "The Muromachi shogunate's trade with China had taken the standard form of sending tribute to the Ming emperor. But this ended in the 1540s, and with the decline of the Ming empire and its antimaritime policies, the East Asian seas witnessed the expansion of private trade." - Hall 1991 p.62
(8)      The Cerro Rico (Rich Hill) in Potosi is considered the world's largest silver deposit. - Showcaves
(9)      "By 1537 silver was so abundant in Spain that Charles V's government was forced to revalue gold (1:10.11 to 1:10.61) Habsburg dynasty- master not only of Spain but of the Netherlands, the empire and Italy which had been firmly under its control since 1535" - Braudel 1982 I p.150
(10)      "From 1535 to 1557, the city never had been so prosperous. It was constantly expanding: the population had been no more than 44,000 to 49,000 in 1500 in the early days; by 1568 it was probably 100,000 and the number of houses had virtually doubled from 6800 to 13,000." - Ibid.
(11)      Garner 2011 : Replication data for: Annual Silver Registrations by Cajas: Mexico
(12)      Garner 2011 : Replication data for: Annual Silver Registrations by Cajas: Peru
(13)      Mote/Twitchett 1998 p.389
(14)      Ibid. pp.335-336
(15)      "There are stray references in the 1530s to royal or viceregal grants of voyages to China, and the first Portuguese ship to reach Japan, in 1542, was blown there on a voyage to "Liampo", presumably the Shuang-yu trading center on Lien-kang Island in the Chou-shan Archipelago on the Chekiang coast. In the 1540s this area became a flourishing center for illegal or semi-legal trade between China and Japan, and between China and Southeast Asia. Portuguese also were involved in the illicit trade centered on Yueh-kang harbor in the Chang-chou estuary of Fukien, the "Chincheo" of the European sources, and on the nearby island of Wu-yu." - Mote/Twitchett 1998 p.341
(16)      "In the rise and fall of these centers the Portuguese were not so much independent actors as they were marginal participants in a Sino-Japanese process." - Ibid.
(17)      Flynn/Giraldez 1995 p. 1
(18)      "Silver's penetration was irresistible, however, and local governments in maritime regions began specifying that taxes be paid in silver." - Flynn/Giraldez 1995 p. 8
(19)      Ibid.
(20)      China had produced some amount of silver. However, as silver production in China was not enough to fulfill the needs, it was necessary to trade with other countries for silver.
(22)      Braudel 1982 III p.198
(23)      "In the absence of the "silverization" of China, it is hard to imagine how Castile could have financed simultaneous wars for generations against the Ottomans in the Mediterranean; Protestant England and Holland and the French in Europe, the New World, and Asia; and against indigenous peoples in the Philippines." - Flynn/Giraldez 1995 p.11
(24)      Kawakatsu 2013
(25)      "It was also during the Tokugawa period that Japan officially refused China's tributary power and system (in the earlier days of the Ming), whilst attempting contrarily to obtain tributary rights from a weakening China towards the end of the Ming Dynasty." - Swanstrom/Kokubun 2008 p. 20
(26)      Flynn/Giraldez 1995 p.11
(27)      Mote/Twitchett 1998 p.348
(28)      Ibid. p.350
(29)      Ibid. p.371
(30)      Spanish Empire was also prohibited to trade with China in 1593. In 1593, the restrictive policy "pancada" by the local Philippines government was enacted in order to limit the volume of trans-Pacific trade, to close Peru to Chinese imports, and to forbid Spanish voyages to China and the importation of Chinese goods consigned to specific Spainards. However, the pancada policy was soon weakened. - Mote/Twitchett 1998 p.356
(31)      Ibid.
(32)      The Sangley uprising happened in October 1603. The motives range from the desire of the Chinese to conquest Manila, to their wanting to protect themselves from the Spaniards' actions that seemed to lead to their elimination. Regardless of this uncertainty, the rebellion was suppressed by the Spaniards who, together with Filipino and Japanese troops, massacred some 20,000 Chinese. - Borao 1998 p.22
(33)      Similar to the case of 1603 uprising, Chinese who lived in Manila rose against the Spanish and resulted in another massacre on their heads in 1639. The 1639 rebellion of the Chinese of Luzon only briefly occupied the Manila Parian and threatened the Spanish walled city. - Mote/Twitchett 1998 pp.360-361
(34)      "Factors at work (regarding taxes on the trade of Chinese) here included declining silver production in the New World and the disruption of trade by the wars of the Ming-Ch'ing transition." - Mote/Twitchett 1998 p.362
"The volume of trade remained in this range until production and trade in China were disrupted by the Ming-Ch'ing wars" - Mote/Twitchett 1998 p.371
(35)      "Mine profits were enormous, and there was no comparable profit center elsewhere." - Flynn/Giraldez 1995 p.10
(36)      There had been numerous bankruptcies in 1557, 1560, 1576 and 1596. "However, Spain did not renounce or refuse to pay its debts. It merely rescheduled them. In view of the enormous income to be expected from the New World and the terrible losses if they refused to advance further money, the bankers and financiers continued to lend and the Crown continued to borrow." - Pendrill 2002 p.111
It can be interpreted that as the Spanish Empire lost credit due to the temporary decline in the silver trade, it suffered more intensely from the bankruptcies after 1610s.
(37)      They, however, might have been influenced from the Thirty Years' War (1618-1648).
(38)      Flynn/Giraldez 1995 p.12
(39)      Ibid.
(40)      Ibid. p.16
(41)      Hall 1991 p. 63
(42)      Cullen 2003 p. 120
(43)      Ibid.
(44)      Hung 2001 p.4
(45)      Hong merchants were the people who connected the foreign trades and the Chinese. - HBS : Canton Trade
(46)      Hung 2001 p.4
(47)      It is hard to express the turning point in the Spanish economy: some say it is located in 1660s while others situate it on 1730s. Either time period suggests that the revival of the Spanish economy occurred after the resurgence of the global silver trade.
Information from Ringrose 1998 p.60


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Pendrill 2002      Colin Pendrill, Spain 1474-1700: The Triumphs and Tribulations of Empire, 2002
Stein 2000      Stanley J. Stein, Barbara H. Stein, Silver, Trade, and War: Spain and America in the making of Early Modern Europe, 2000
Kaplan 1997      Edward Kaplan, Chinese Economic History from Stone Age to Mao's Age, 1997
Swanstrom/Kokubun 2008      Niklas Swanstrom, Ryosei Kokubun, Sino-Japanese Relations: The Need for Conflict Prevention and Management-Understanding Sino-Japanese Relations from the Historical Perspective, 2008



Revised Bibliography

Bibliographical Sources
1. Oxford Bibliographies : Mining, Gold, and Silver, http://oxfordbibliographiesonline.com/view/document/obo-9780199730414/obo-9780199730414-0084.xml
2. The World's Cumulative Gold and Silver Production http://www.gold-eagle.com/article/worlds-cumulative-gold-and-silver-production
3. WHKMLA: History of Warfare: By country http://www.zum.de/whkmla/

Encyclopedic Sources
4. Bridging World History, http://www.learner.org/courses/worldhistory/
5. Showcaves, http://www.showcaves.com/
6. Article: Chinese Currency, from Wikipedia, http://en.wikipedia.org/wiki/Chinese_currency
7. Article: Iwami Ginzan Silver Mine, from Wikipedia, http://en.wikipedia.org/wiki/Iwami_Ginzan_Silver_Mine
8. Article: Ming Dynasty, from Wikipedia, http://en.wikipedia.org/wiki/Ming_Dynasty
9. Article: Economy of the Ming Dynasty, from Wikipedia, http://en.wikipedia.org/wiki/Economy_of_the_Ming_Dynasty
10. Article: Fiat Money, from Wikipedia, http://en.wikipedia.org/wiki/Fiat_money
11. Article: List of famines, from Wikipedia, http://en.wikipedia.org/wiki/List_of_famines

Academic Papers
12. Dennis O. Flynn and Arturo Giraldez, Cycles of silver Global Economic Unity through the Mid-Eighteenth Century, Journal of World History, Vol. 13, No. 2 2002
13. Song, Jeeun, The history of Metallurgy and mining in the Andean region, 2009
14. Dennis O. Flynn and Arturo Giraldez, Born with a 'silver spoon': The origin of world trade in 1571 http://www.questia.com/googleScholar.qst?docId=97925030
15. Niv Horesh, Silk, Tea and Treasure: Maritime Trade in Eighteenth-Century Literature, 2008
16. William S. Atwell, Some observations on the "Seventeenth-Century Crisis" in China and Japan, The Journal of Asian Studies, Vo1. 45, No. 2, 1986
17. Ho-fung Hung, Imperial China and Capitalist Europe in the Eighteenth-Century Global Economy, Review (Fernard Braudel Center), Vol. 24, No. 4 (2001)

Websites
18. Iwami Silver Museum Website, http://fish.miracle.ne.jp/silver/english/role.html
19. Richard Cowen, My Geology Page, Chapter : Gold and Silver. Spain and the New World http://mygeologypage.ucdavis.edu/cowen/~GEL115/115ch8.html
20. China and Europe- 1500-2000 and Beyond: What is "Modern"? http://afe.easia.columbia.edu/chinawh/index.html
21. The Columbian Exchange and Global Trade http://cdaworldhistory.wikidot.com/the-columbian-exchange-and-global-trade
22. Silver deposits http://technology.infomine.com/articles/1/546/silver.sulphidation.epithermal/silver.deposits.?.aspx
23. Bridging World History, http://www.learner.org/courses/worldhistory/

Statistics
24. Richard L. Garner, 2011-09-30, "Replication data for: Silver Series from Mint and Other Records", http://hdl.handle.net/1902.1/16810 World-Historical Dataverse [Distributor] V1 [Version]

Videos
25. The Origin of Paper Money in China: http://www.youtube.com/watch?v=UnHJuXg9598 Made by http://www.goldmoney.com/money-history

Books
26. Leslie Bethell, Colonial Spanish America, 1987, Google Books http://books.google.co.kr/books?id=ozE7AAAAIAAJ
27. Dennis Owen Flynn, Arturo Giraldez, Richard von Glahn, Global Connections and Monetary History, 1470-1800, 2003, Google Books http://books.google.co.kr/books?id=8LXHpX0l7R4C
28. Dieter Kuhn, The age of Confucian rule, The Belknap press of Harvard University Press
29. Clarmont J Daniell, The industrial competition of Asia; an inquiry into the influence of currency on the commerce of the Empire in the East, 1890
30. Angus Maddison, The World Economy: A Millennial Perspective, 2001
31. Fernand Braudel, Civilization and Capitalism, 15th-18th Century: The perspective of the world, 1982
32. Fernand Braudel, Civilization and Capitalism, 15th-18th Century: The structure of everyday life, 1982
33. Fernand Braudel, Civilization and Capitalism, 15th-18th Century: The Wheels of Commerce, 1982
34. Thomas Mohide, The International Silver Trade, 1992
35. Jean Gimpel, The Medieval Machine: The Industrial Revolution of the Middle Ages, 1976
36. James D. Tracy, The Political Economy of Merchant Empires: State Power and World Trade, 1350-1750, 1991
37. Frederick W. Mote, Denis Twitchett, The Cambridge History of China: Volume 8 The Ming Dynasty 1368-1644 Part 2, 1998
38. Willard J. Peterson, The Cambridge History of China: Volume 9 Part 1 The Ch'ing Dynasty to 1800, 2002
39. Nicholas A. Robins, Mercury, Mining, and Empire: The Human and Ecological Cost of colonial silver mining in the Andes, 2011
40. Chun-shu Chang, Shelley Hsueh-lun Chang, Crisis and Transformation in Seventeenth-Century China: Society, Culture, and Modernity in Li Yii's World, 1998
41. Ray Huang, Taxation and Governmental Finance in sixteenth-century Ming China, 1974



First Draft . . Go to Teacher's Comment

Table of Contents

I. Introduction
I.1 The Role of China in Interregional and Global Trade
I.2 Definition
I.3 Approach of Study
II. The Overall Mechanism of Global Trade during the Japan & Potosi Cycle
II.1 Change in China's Monetary System
II.2 Development of Silver Mines in Japan
II.3 Development of the Silver Mine at Potosi
II.4 China's Impact on Global Trade
III. The Overall Mechanism of Global Trade during the Mexican Cycle
III.1 Changes in China
III.2 Development of Silver Mines in Mexico
III.3 The Impact of the Mexican Cycle on the Development of Global Trade
IV. Conclusion
Notes
Bibliography



I. Introduction

I.1 The Role of China in Interregional and Global Trade
            Conventionally, early historians used to interpret that the global trade started because of the "dynamic West European foundation". However, recent historians insist that the mechanism of the global trade is not that simple. Actually, a "highly integrated global economy" existed since sixteenth century and it was mainly influenced by China (1).
            Until the fifteen century, China was in a superior position in trade compared to any other countries. It produced a lot of prized commodities Europeans wanted like silk, jade, tea, and porcelain. And through three kinds of trade (which are domestic trade, long-distance land-based trade, and tributary trade with nearby states), China could easily obtain items, feeling no necessity for the opening of additional trade routes.
            However, in the mid-fifteenth century, after Chinese people started to use silver as a private system of currency in the Ming dynasty, there came the explosion in demand of silver. For fulfilling its demands of silver, Chinese people started to find the other routes for silver trade. And in the late 16th century to 17th century, China through indirect trade obtained its silver from Japan and Potosi. China's domestic policy affected the silver production in Japan and Potosi throughout the 16th century (2).
            After a period when bimetallic ratios converged worldwide, in the beginning of the 18th century, another phase appeared when the value of silver in China once again surpassed the value in other countries. In that period, China's population boomed and consequently, Mexican silver mines also saw a boom in production. This also contributed to a change in global trade.
            As it can be seen, China was crucial in the creation and the development of the global trade in the context of silver.

I.2 Definition
            Before presenting the idea, it is better to define some terms that would frequently appear in the paper.
            1. Japan & Potosi cycle
                The Japan & Potosi cycle means the period spans the 1540 to 1640 when the production of silver mainly from Japan & Potosi affected the global trade. Elsewhere, this cycle is referred to as the Potosi & Japan Cycle (2a). Here the placenames are inverted, in order to stress that China the imported quantities of silver first, indirectly, from Japan, and then, equally indirectly and in greater quantity, from Potosi.
            2. Equilibrium phase (2b)
                Equilibrium phase refers to the phase between 1640s to the 1700s when the bimetallic ratios (ratio of gold to silver) converged worldwide.
            3. Mexican cycle (2c)
                Mexico cycle means the period covers the first half of 18th century when the silver production in Mexico influenced China and the global trade.

I.3 Approach of Study
            This paper analyzes the influence of China on the global trade in the context of silver. It mainly focuses on two big cycles which are related to China and global trade : the Japan/Potosi cycle and the Mexican cycle.
            First, for the Japan/Potosi Cycle, the reason why that cycle appeared is explained first, the explanation for Japan and Potosi mines would come next, and lastly, China's impact on the global trade is discussed.
            Then, for the Mexican Cycle, the sudden increase of the value of silver in China would be introduced, the development of the mines in Mexico would come next, and the change occurred to China according to that would be discussed. Lastly, the overall impact on the global trade would be discussed.

II. The Overall Mechanism of global trade during Japan& Potosi cycle

II.1 Change in China's Monetary System
            The change in the Chinese currency occurred during the Ming Dynasty. At first, the Ming Dynasty attempted to use paper currency that had been utilized in China. However, as people already lost their faith in paper money since the hyperinflation which occurred in the late Yuan Dynasty (3), the policy to rely on paper currency failed (4). Instead, people started to use silver, which flowed into China, as a substitution currency. More and more provinces used silver as a private system of currency, and Ming accepted silver as a major means of exchange.
            After the Ming Dynasty accepted silver as a major currency, the demand for silver became so extraordinary that China became a major consumer of world silver. This change occurred to China's currency stimulated the silver mines in Japan and Potosi.

II.2 Development of Silver Mines in Japan
            In the 16th century, silver was a major trading item for Japan. Especially, after "Haifuki Ho", the new method of refining silver, was introduced to Japan, Japan started to develop the silver mines like the Iwami Silver mines. And simultaneously, Chinese people started to demand silver a lot despite of strict prohibition regulations set by China (5). Thus, the production of silver in Japanese silver mine, especially Iwami Silver mine, increased. For example, Iwami Silver mine produced 32,000-40,000 kg of silver a year at that era, which is about the one-fifth of the total silver production in the world (6). (Japanese production of silver was one-third of the total silver production in the world (7)).

II.3 Development of Silver Mines in Potosi
            Along with the development of silver mines in Japan, Silver mines in Potosi also developed. In the 16th century, the Spanish conquests were driven by the European desire for wealth. They sought for mines where precious metals like gold or silver come from. Although they failed to find rich gold mines like El Dorado, in 1545 they discovered what would become the most important source of wealth in Spanish America - the silver mines of Potosi, "Cerro Rico" (the "Rich Mountain") (8).
            Silver from Potosi mines flowed into India was exported to China and Southeast Asia in exchange for exports from these regions. It also flowed through the Pacific trade route (9). And after 1571 - the year the city of Manila became a Spanish entrepot trade hub -, China was able to import its demand also from Potosi in Peru, and from Mexico.

II.4 China's Impact on Global Trade
            During the Japan & Potosi cycle, China stimulated the birth of global trade for two ways.
            First, by importing silver from Japan and Potosi, China developed the new trade routes and influenced the countries that were near to the routes.


Main trade routes in 1400-1800 (10)


            The conventional trade routes related to China were domestic trade route, long-distance land-based trade route, and tributary trade route with nearby states. Those routes were almost limited to the trade routes with Asian countries. Other trade routes were not developed as China didn't feel the necessity to obtain products from other routes. However, after China used silver as a private system of currency, as it can be seen in the above picture, three more routes appeared or enhanced; trade route that connects Japan and China (11), the route that connects through India and China, and the route that stretches on Pacific Ocean. These new routes not only connected the world more intensively but also they affected the surrounding countries in many ways. For example, the purchasing power of silver within India decreased when a lot of silver flowed into India for being a "middle man" of silver trade (11a).
            Not only that, after China imported of silver, the status of China in trade changed a lot. Before the import of silver, China was in a superior position in trade compared to other countries. However, after China needed a large amount of silver from other countries, the trade relationship between China and other countries (especially European countries) became more equal (12). No countries are in a superior position over other countries. This horizontal relationship in trade helped a lot of countries to trade more, making more intense global network.

III. The Overall Mechanism of Global Trade during the Mexican Cycle

III.1 Change in China
            For 1640s to 1700s, China experienced the equilibrium phase. This happened due to the serious repercussions for private traders who committed smuggling, the long-term fall in silver's price in relation with rising mining costs which all contributed to the squeeze in profits for the private sector. At that time, the bimetal rates of gold to silver were converged.
            However, starting from 1700, another phase when the value of silver in China rose for half of the century. The main reason for this phase is the dramatic population increase in China. No matter how much silver existed in China previously, as the population almost doubled compared to 1500s, the demand for silver also increased in a dramatic rate (13). This demographic change occurred to China contributed to increased commercialization of the economy and further ecological changes.


Population Growth in China (14)


III.2 Development of Silver Mines in Mexico
            Along with the dramatic population increase in China, silver mines in Mexico also developed a lot. More Spanish American silver was produced in the eighteenth century than in the sixteenth and seventeenth centuries combined.

            "Mexican [silver] industry experienced a boom in the first quarter of the [eighteenth] century that was followed by successive spurts of growth that propelled registered output between 1801 and 1810 to over 200 million pesos, more than four times the amount for 1701-10. Although Peru's production more than tripled in the eighteenth century and even surpassed its seventeenth-century apogee, Mexico's production was well over twice as large as Peru's for most of the 1700s." (14a) (Burkholder and Johnson 1998, 140)

            The cause for the sudden increase in productivity in Mexican silver industry is unclear. Some say that the spontaneous market forces inflicted the productivity while others say that the Crown (the Spain) deliberately attempted to promote the mining sector (15). But it is obvious that the silver mines developed more after the population of China increased.


World Silver Production, Exports and Receipts. (16) Mexico was a major silver producer.


III.3 The Impact of the Mexican Cycle on the Development of Global Trade
            To compare with the impact of first silver cycle to global trade, the impact of the second silver cycle was weaker than that of the first cycle. It can be inferred from the statistic that the bimetallic ratio of gold to silver was converged to near 1: 15 in 1750. It only lasted half of the century while the increased bimetallic ratio during the first cycle lasted for a century. This also indicates that the global business community's response during the eighteenth century became more rapid than that during the sixteenth century.
            Still, Mexican silver cycle had an impact on the global trade and other countries.
            First, the Spanish economy flourished during the eighteenth century by selling its New World silver on world markets. It is not a coincidence that the extensive royal buildings that grace Madrid today were constructed during the eighteenth-century Mexican cycle of silver production.


Manara Palace, Seville in 17th century (17)



La Granja de San Ildefonso in 18th century (18)


            Second, again, India played an important role in this trade, as a route for silver traveling to China during the first half of the eighteenth century (19). Not only Spain and India got a profit but also other European, Asian, American, and African entities that participated got an immense profit. And along with those trends, the global trade network became more and more intense.

IV. Conclusion
            The conventional world history book had interpreted the work of establishing the global trade as the sole work of Europeans- their explorations and their "superior" items that "helped" the trade work. However, in fact, the establishment of the global trade could happen due to the multiple factors other than a sole cause like Europeans' exploration. And as one of those multiple factors, China contributed to, stimulated the creation of the global trade network. Although China is not the only factor worked in the whole process, for both two cycles, the Japan & Potosi cycle and the Mexican cycle, China worked as a key factor which stimulated the silver industry and further, global trade.




Notes
           
(1)      Flynn/Giraldez 2002. Terms like "Dynamic west European Foundation" or "a highly integrated global economy" were from this source.
(2)      To clarify the meaning, at first, in Ming dynasty, using silver as a currency was forbidden due to the Ming dynasty's effort to re-establish the paper currency. However, as a lot of people used silver as a private system of currency, China after all chose silver as a major currency.
(2a)     
(2b)     
(2c)     
(3)      In the later course of the dynasty, facing massive shortages of specie to fund their ruling in China, the Yuan Dynasty began printing paper money without restrictions on duration. This eventually caused hyperinflation. By 1455, in an effort to rein in economic expansion and end hyperinflation, the new Ming Dynasty ended the use of paper money. From Wikipedia article "Flat money"
(4)      It is said that the hyperinflation was also resulted from people's preference to cash currency over the paper currency. That preference is from the old theories of the "real" (shi) and the "empty" (xu) which first appeared in Han dynasty. According to those theories, goods were regarded as "real", whereas cash was "empty". And when paper currency first appeared during the Song dynasty, the concepts of "empty" and "real" shifted to paper money versus cash currency. The rich families and merchants stored copper cash privately, not wanting to spend them cheaply. As a result, day by day the old cash currency was getting scarcer and paper currency cheaper. The increase in paper currency also resulted in the hyperinflation in the society.
(5)      At that time, silver was transported via smuggling route through Japan, Korea and China.
(6)      Iwami Silver Museum Website
(7)      Ibid.
(8)      The Cerro Rico (Rich Hill) is considered the world's largest silver deposit. - Showcaves
(9)      With the founding of Manila in 1571 in the recently conquered Philippines, the Spanish established a Pacific trading base between China and Mexico. The voyages that began in the year 1571 - called the Manila Galleon - mark the beginning of the first truly global trade between the Americas, Europe, Asia, and Africa.- from "Bridging World History"
(10)      http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/img/tradeflows14001800.png
(11)      After Japan started to export silver to China, the trade route that connects Japan and China became more than just a conventional tributary route.
(11a)     
(12)      Some might think that China would have only imported silver. Of course, silver did flow constantly toward its high market in China, but Chinese exporters also sought out lucrative foreign markets for silks and other Chinese exports.
(13)      The reason for the sudden increase in population is to be said as an introduction of new crops from the New World (America) to China like sweet potatoes, peanuts, and maize. The new crops spread rapidly in the seventeenth and eighteenth centuries.
(14)      Vaclav Smil, China's Environmental Crisis, 1993
(14a)      Burkholder and Johnson 1998, 140
(15)      Fisher, John R. "Mining and Imperial Trade in 18th century Spanish America", 1998
(16)      Frank, Andre Gunder. Reorient : Global Economy in the Asian Age. Univ. of California Press, 1998 (Map 6)
(17)      Fotografias de Sevilla, Espana http://www.fotografias-sevilla.com
(18)      www.shutterstock.com
(19)      "The inflow of silver into India from the Middle East and the Philippines and its re-export to the Far East, where it was exchanged for both commodities and gold were perhaps a perfect example of the bimetallic flows in world trade during this period" Chaudhuri, K.N. 1978. The Trading World of Asia and the English East India Company, 1660-1760.


Bibliography

Websites listed below were visited in June 2012

Bibliographic Sources

1.      Oxford Bibliographies : Mining, Gold, and Silver, http://oxfordbibliographiesonline.com/view/document/obo-9780199730414/obo-9780199730414-0084.xml

Encyclopaedic Sources

2.      Bridging World History, http://www.learner.org/courses/worldhistory/
3.      Showcaves, http://www.showcaves.com/
4.      Article : Chinese Currency, from Wikipedia, http://en.wikipedia.org/wiki/Chinese_currency
5.      Article : Iwami Ginzan Silver Mine, from Wikipedia, http://en.wikipedia.org/wiki/Iwami_Ginzan_Silver_Mine
6.      Article : Ming Dynasty, from Wikipedia, http://en.wikipedia.org/wiki/Ming_Dynasty
7.      Article : Economy of the Ming Dynasty, from Wikipedia, http://en.wikipedia.org/wiki/Economy_of_the_Ming_Dynasty
8.      Article : Fiat Money, from Wikipedia, http://en.wikipedia.org/wiki/Fiat_money

Academic Sources

9.      Leslie Bethell, Colonial Spanish America, 1987, Google Books http://books.google.co.kr/books?id=ozE7AAAAIAAJ
10.      Dennis Owen Flynn, Arturo Giraldez, Richard von Glahn, Global Connections and Monetary History, 1470-1800, 2003, Google Books http://books.google.co.kr/books?id=8LXHpX0l7R4C
11.      Iwami Silver Museum Website, http://fish.miracle.ne.jp/silver/english/role.html
12.      Dennis O. Flynn and Arturo Giraldez, Cycles of silver Global Economic Unity through the Mid-Eighteenth Century, Journal of World History, Vol. 13, No. 2 2002
13.      The Origin of Paper Money in China: http://www.youtube.com/watch?v=UnHJuXg9598 Made by http://www.goldmoney.com/money-history
14.      Richard Cowen, My Geology Page, Chapter : Gold and Silver. Spain and the New World http://mygeologypage.ucdavis.edu/cowen/~GEL115/115ch8.html
15.      Dennis O. Flynn and Arturo Giraldez, Born with a 'silver spoon': The origin of world trade in 1571, http://www.questia.com/googleScholar.qst?docId=97925030
16.      Dieter Kuhn, The age of Confucian rule, The Belknap press of Harvard University Press