Silver

& Growth Of World Trade Essay, Research Paper

In what ways did American silver facilitate the growth of world trade.

The discovery of American silver and its subsequent influx into Europe and Asia had a significant impact on the growth of world trade, to the extent that it is accurate to say that the growth in trade at this time laid the foundations for a world economy. In the Early Modern Period there was a world market for silver, and silver was a product produced for profit just like any other commodity. The discovery of silver in the Americas led to an increase in trade between the silver markets of the world. In particular, silver was widely used by Europeans to acquire goods from Asia. This increase in trade and the routes through which it was conducted, laid the foundations for a world economy. In the context of this essay, the concept of a world trade in the 16th and 17th centuries refers to the trade that took place between parts of Europe, Asia, and the Americas. It is necessary to be specific about the areas that engaged in this world trade , as many regions of the world were not involved. However, in the world of the Early Modern Period, Western European expansion was facilitated by American silver in a number of respects. Unquestionably, the primary benefit of the silver to Europe was that for the first time it gave Europeans a commodity that could be traded in Asia. Subsequent consequences of the discovery of silver were an increase in the practicality of new, European controlled sea-trade routes connecting parts of America, Asia and Europe; the accumulation of capital in Europe allowing the shift from feudalism to capitalism to take place; and ultimately, an increase in the power of Western European nations. The importance of Silver to the World Economy will first be described. Other important consequences of American silver will then be examined, as will the impact of these on World Trade .

The discovery of American silver was made in a world that wanted precious metals. In 15th century Europe, the cost of producing silver was declining. According to Dennis O. Flynn, between 1460 and 1530 the cost of silver production in central Europe fell dramatically as the result of technological improvements in the mining and manufacturing of silver. At the same time, demand for silver increased and its market value rose. This may have been a result of demographic factors. At this time in Europe, the population as a whole was increasing only slowly, but there were large increases in the size of the cities. According to Flynn, the movement of people to a more highly monetized sector of the economy would surely imply an augmented demand for money to hold. In other words, the move towards urbanization in Europe would account for an increase in the price of silver. And in combination with the lower production costs, silver was increasingly becoming a more attractive commodity to produce. Flynn goes on to argue that the increase in value of precious metals contributed to early European colonization efforts in eastern Africa, and was an incentive behind much of Columbus s explorations in the Americas.

Within Europe the discovery of silver in the Americas led to a decline in silver prices in the 16th century. There was a high demand for silver in Asia and this slowed the decline in the value of silver in general after the discovery of new-world metals. In Europe however, unprecedented price inflation was experienced. As theorized by John Perkins, this was the result (to a degree) of an increase in money supply and / or its velocity of circulation. There has been much debate as to whether or not the influx of American silver led to this inflation, however that is irrelevant to this discussion. The point is that the inflation in Europe or the price revolution as it is known, did cause the value of silver to decrease further. The obvious result of this was an incentive to take silver to Asia where it retained a higher value. In contrast, the higher value of silver in Asia existed prior to (and during much of) the influx of American silver. There was particularly high demand for silver relative to the demand in Europe. For example, in the 16th century in Europe there was a gold-silver ratio of 1:12. In contrast, in China this ratio was 1:4. The unusually high demand for silver in Asia was primarily driven by demand from China. Chinese desire for silver was mainly the result of the 15th century Ming government s decision to switch from paper money to precious metals after the collapse of China s paper-money system. In China there was also a lack of productive silver mines, and with the adoption of the new currency system this resulted in a huge demand for silver.

Before American silver began to arrive, Japan was the only significant contemporary source of the metal in Asia. Even after the arrival of American silver, Japanese silver remained important, and gold from eastern Africa also become important. Silver from the Americas however, was by far the largest source of silver the world had ever seen. Between 1550 and 1800, Mexico and South America contributed more than 80% of the silver and more than 70% of the gold produced in the world. A substantial amount of this silver flowed eastward from Europe in exchange for Asian commodities and gold (which was worth less relative to silver in Asia). The commodities for which there was the most demand in E