The June 2009 issue of Journal of World History has an enlightening bit of historical revisionism by Alejandra Irigoin entitled The End of a Silver Era: The Consequences of the Breakdown of the Spanish Peso Standard in China and the United States, 1780s–1850s (Project MUSE subscription required). Here are her conclusions (pp. 238-239).
This article argues for revision of traditional views of the global silver trade with China in the late eighteenth and early nineteenth centuries. Section I shows that the existing historiography tends to ignore that silver imports into China continued for longer than normally acknowledged and at increased levels up to the 1820s. New evidence shows that the structure of the silver trade changed substantially when US merchants became central intermediaries between Spanish American silver “producers” and Chinese “consumers,” when Chinese imports of silver consisted increasingly of Spanish American coins, the so-called pillar and bust dollars.
Section II explores the role of Americans as intermediaries who increased trade with Spanish America in order to obtain silver coins needed to trade with China. The timing of the flow of silver out of China to pay for opium purchases is challenged, as is opium as a cause for the desilverization of China. This article also questions received wisdom that reduction in the supply of silver owing to Spanish American independence was the root cause of silver scarcity in China in the early nineteenth century. This received wisdom ignores a fundamental fact: Spanish America itself was a significant reservoir of silver coins in the world. Thus, (relatively minor) interruptions in the production of silver—at different points in time and in distinct places—in South America during Independence were unlikely to account for supply shortages in China, and continued exports of silver into the United States confirm this view. Hence, the fall in Chinese silver imports must be a function of demand-side forces in addition to supply-side problems.
Spanish American independence presented a different problem to the global economy. The Spanish Empire broke up into a multitude of distinct states in the wake of independence, each fiscally and monetarily autonomous. In other words, the largest monetary union of the premodern world had collapsed. The resulting fragmentation of coinage and seigniorage across postindependent Spanish America terminated a silver standard that had organized international trade throughout the early modern world, East and West and in between. New republican governments, especially in regions with silver endowments, took over mint houses in the service of local and regional interests. Coins minted in various mint houses began to diverge in quality and fineness, whereupon the universal standard of the Spanish silver peso was definitively lost.
Section IV advances the central argument of this paper, namely that Chinese demand for silver, at least since the late eighteenth century, involved demand for a certified and reliable means of payment, as opposed to silver in some generic sense. “Good” colonial Spanish American coins traded at a premium over the sycee [ingot] equivalent, clearly confirming this point. Fragmentation of the Spanish monetary standard after independence had a devastating influence on Chinese demand. The impact of Spanish American independence on China’s economy operated through deterioration of coin quality, not through quantities of silver per se. By contrast, the United States used Spanish dollars as legal tender under the control of central monetary authorities, thereby succeeding in keeping new peso coins in circulation for a decade or more.
The end of the silver standard following independence in Spanish America during the 1810s and the 1820s had major consequences for development of the global economy before the gold standard. On one hand, termination of the silver era contributed to the poor economic performance of the Chinese economy. A lack of high-quality, reliable Spanish pesos between the 1820s and the 1850s, rather than insufficient silver mining, largely explains the fall in Chinese silver imports. Hence, I argue that the Chinese silver trade in these decades was demand-side rather than supply-side (mining) driven. Consequences for the internal market in China were manifold, including increased transaction costs, fragmentation of markets, and credit shortages. On the other hand, the United States reacted differently—and with a different timing—to termination of the silver standard. Immediate detrimental effects were weathered by workings of a well-integrated banking system, a quasi–monetary authority, and assay by the mint. Ultimately, this article poses an important comparative question for economic historians: in light of the US response, why did the Chinese empire never monopolize seigniorage, and why did it fail to provide reliable control of its currency system in the face of high costs for the domestic Chinese economy? Answers fall well beyond the scope of this article, of course, but the question should at least be framed in a global context.