“Silver in global context, 1400-1800”
Dennis O. Flynn
Abstract
Specialists in monetary/precious metals history frequently claim that silver has always been valued highest in China. Yet, unification of trade across Afroeurasia under thirteenth-century Mongols involved substantial exports of Chinese silver westward due to surging in West Asian/Mediterranean silver prices twice as high as those prevailing in China. Silver gravitated to most lucrative markets, like any transportable commodity, but this time away from Chinese markets.
Reversal of this pattern occurred during the 15th century when disintegration of China’s paper money system (previously backed by silver) prompted massive private-sector increase in Chinese silver demand (followed by local and regional governments). Fifteenth-century Central Europe’s silver mining boom was at least partly in response to surging Chinese demand for silver, in light of evidence that silver prices escalated eastward toward Chinese markets. And certainly the unprecedented explosion of Spanish American and Japanese silver mining from the 1540s was stimulated by Chinese demand-side forces, given that silver’s price premium within China soared to 100% above silver prices elsewhere. It took a full century of global trade (until 1640) for silver prices to equilibrate globally during this Potosi-Japan Cycle of Silver. Meanwhile, inadvertent introduction of AfroEurAsian diseases caused demographic collapse throughout the Western Hemisphere, leading to trans-Atlantic migrations, prominent among which were millions of African slaves. Also, dissemination of plants unique to the Americas subsequently led to population explosions across AfroEurAsia, including doubling of China’s landmass and more than doubling Chinese population during the eighteenth century. Given previously-established Chinese ‘silverization’, surging demand for silver again led to a Chinese silver price premium (50% this time) vis-à-vis the rest of the world by 1700. Silver consequently flooded global trade channels until equilibration of prices worldwide by 1750 ended the Mexican Cycle of Silver. Global price equilibration notwithstanding, American silver continued to flood into Chinese markets into the twentieth century. Why?
Conventional economic theory presents obstacles to understanding the global history of silver outlined above. In response, a non-standard Unified Theory of Prices (UTP) was created to describe/explain events consistent with the sort of historical evidence outlined above. UTP Laws of Supplies and Demands incorporate Inventory Supply and Inventory Demand concepts that are absent from conventional Laws of Supply and Demand. A Hydraulic Metaphor version of the model offers visualization of mechanisms involving production and relocation of silver – indeed, any good – at a global level. Similar to demographic analysis, the model focuses upon mechanisms such as birth (production), migration (trade), death (consumption/wear and tear), and population concentrations (accumulation in specific end-markets). This type of dynamic analysis is required in order for economics to become a physical science built to incorporate historical evidence.