How Mexico’s Silver Peso Died a Quiet Death

Mexico switched from the silver standard to the gold standard in 1905. This apparently unremarkable event represented, in fact, the funeral of one of the world’s oldest, most-esteemed and storied currencies, the Spanish silver peso.

The world 500 years ago had little species currency. Most exchanges were barters. Into that older world came the wealth of the New World. The gold and, later, silver that crossed the Atlantic on Spanish galleons vastly increased the medium of exchange and stimulated European commerce. They also helped spark a price revolution in Europe that facilitated the accumulation of wealth in the Northern European countries and launched the Industrial Revolution.

After the Spanish melted down Incan and Aztec golden images, masks and jewelry, and after alluvial deposits of gold panned out, silver replaced gold. In the sixteenth century, Peruvian silver—extracted from the Potosí mountain of silver—dominated global exchange.

By the seventeenth century, however, Mexico’s peso became the world’s currency, capturing the world’s imagination as it attempted to slake the thirst for silver. The peso lured thousands of Caribbean pirates and helped finance some of the largest armies Europe had ever mounted. To protect the peso’s passage to Europe, the Spanish built the world’s largest navy and the most extensive system of fortresses anywhere.

And, while the peso bound the Americas to Europe, it strengthened European links to Asia as well. Europeans, with their foul cuisine and coarse clothes, were desperate for Asian spices and silks. But Europeans owned little that Asian peoples valued. Except silver. Silver provided the means to pay for the Oriental trade, for it was highly prized in the East. Indeed, the Mexican peso, coveted for its purity of silver and consistent weight, was circulated widely in China, India and the Philippines, often serving as the local currency. Although there were several devaluations of the peso’s silver content in the eighteenth century, it remained throughout most of the world the dominant currency, playing much the same role that the dollar does today

Nothing lasts. The peso’s decline came in the nineteenth century when other nations followed the yellow brick road to the gold standard. The British were first: In 1821, the pound sterling (based on sterling silver) went to gold. As the British became the world’s dominant commercial power and London the world’s financial center, the gold pound slowly became the preeminent currency.

The adoption of the gold standard—and the demise of silver—was made easier by great gold rushes in California and Australia in the 1840s and 1850s. More gold was produced in the 25 years after 1849 than had been mined in the previous 358 years. The abundance of specie sparked an unprecedented boom in world trade between 1848 and 1873. Later in the century, finds in South Africa, Alaska and the Yukon—as well as the adoption of the cyanide process that made the recovery of gold from low-grade ores viable—augmented the gold supply. By the beginning of the 20th century more gold was being produced each year than had been mined in the entire period between 1493 and 1600.

Not everyone was pleased. Several nations worked to forge an international bimetallist agreement. Napoleon III wanted the agreement based on the French franc, hoping to seize through diplomacy the supremacy the pound won through commerce. The United States sought to defend its own silver miners who began producing enormous amounts from the Comstock Lode in Nevada and the Rocky Mountain strikes after the 1870s. The United States hoped that a stable silver coin would enable it to wrest away some of the Asian trade.

But the British were unwilling to don Dorothy’s silver slippers. (Samuel Goldwyn painted them ruby red for Technicolor appeal). London’s financial district remained firmly goldbug; no international bimetallist agreement was reached.

Eventually the mountain came to Mohammed. With the growth of international banking and commerce, it became clear that a single, stable monetary standard was necessary. The Germans were the first to capitulate, taking French gold in reparations after the German victory in the Franco-Prussian War in 1871; Germany was soon on the gold standard. The United States and other European powers quickly followed suit.

The result was a dramatic drop in demand for silver and for the peso at precisely the time Mexico and the United States were employing more sophisticated techniques to exploit rich new veins. Silver prices dropped by one-half between 1873 and 1900.

The fluctuations in the value of the peso relative to gold caused grave concern among silver’s remaining Asian users. Asia’s retreat from the peso came when European powers began minting their own gold coins for Oriental commerce. With the accelerated trade and lowered transportation costs between Europe and Asia caused by the opening of the Suez Canal in 1869, Europe was able to pay with goods what it had previously paid with silver. While in 1873 almost half the people in the world still considered the peso legal tender, by 1900 only the Mexicans and the Chinese still recognized it.

The paradox of a backward, dependent country producing one of the world’s premier currencies was solved in 1905. Mexican monetary reform that year was part of a larger effort by the United States to convince Mexico and China to join the newly won U.S. colonies of Cuba, Hawaii, Panama, Puerto Rico and the Philippines in a currency based on the dollar. In return for accepting the gold dollar as the basis of value for the peso, Mexico would receive U.S. aid in propping up the international commodity price of silver. Mexico agreed. The silver peso died a quiet death.

HOW CHINA’S SOUTHEASTERN TRADERS SPANNED THE GLOBE AND LEVERAGED HOMETOWN CONNECTIONS [By Kenneth Pomeranz]

Any trader knows that personal contacts matter. But before the age of telecommunications, enforceable commercial codes and standardized measures, it was even more important to have some non-business ties with your partners, agents and opposite numbers in other ports. So all over the world, trade was organized through networks of people who shared the same native place—and thus a dialect, a deity (or several) to swear on, and other trust-inducing connections. Genoese, Gujaratis, Armenians, Jews (though for the latter the shared “native place” had long been lost) and others fanned out across the world and linked its cities to each other.

The Fujianese diaspora, based on China’s Southeast Coast, has been among the largest and most durable of these. (In 1984, Fujian’s Pujiang county had 1,026,000 residents—and more than 1,100,000 known descendants abroad.) It also has an unusual feature. While most other trading diasporas were purely urban, Fujian also sent millions of its children to clear land and grow crops elsewhere—from the Chinese interior to Southeast Asia, the Caribbean and California. Yet, oddly enough, the two diasporas had little to do with each other until the late nineteenth century, and then largely under the aegis of Western colonialists.

Fujian has long been crowded and rocky, so that, as one Chinese official put it, “men have made fields from the sea.” It has been a center of boat-building, fishing and trade for more than 1,000 years. Even after deforestation forced boat-building to move to places like Thailand, Fujianese remained the principal shippers and traders of Southeast Asia. Many also became tax collectors, harbor masters and financial advisers in the region’s kingdoms, and later in Europe’s colonies there. As transportation improved in the nineteenth century, the networks extended farther—most of the Chinese who came to gold-rush California, for instance, came not from the counties hardest hit by poverty and violence, but from counties in Fujian and neighboring Guangdong whose commercial networks gave their sons access to superior information and start-up capital for venturing abroad.

Fujian also produced agricultural migrants who fanned out across both China and Southeast Asia. Here, too, the home base’s resources could help in getting started, and important skills could be transferred to new locations. Fujian has grown sugar for hundreds of years, and Fujianese brought the crop (and/or new ways of growing it) to many new places: Jiangxi and Sichuan in the Chinese interior, Taiwan, Java and parts of the Philippines. Indeed, Fujianese were so known for their skill in growing sugar that Europeans deliberately sought them out as sugar growers for their plantations, from Sri Lanka to Cuba to Hawaii.

Where Fujianese farmworkers went, a few Fujianese merchants usually followed—providing retail goods (including the right kinds of rice and condiments, and sometimes opium), credit and help sending money back home. But given how strong Chinese merchant groups were in Southeast Asia, the vast undeveloped tracts of potential farmland, and the crowded conditions back home, what is striking is that the two diasporas weren’t more tightly linked—in particular that Chinese merchants very rarely tried (except on Taiwan) to develop overseas farms with labor from home. As early as 1600, Chinese Manila was as big as New York or Philadelphia would be in the 1770s, and there was plenty of unused farmland nearby but no significant rural Chinese settlement. Why?

One simple but important factor was that the Chinese state would not support such ventures. It appreciated that commerce helped keep South China prosperous, but distrusted those who would leave the center of civilization for long. The compromise was a ban on people staying abroad over a year—a mere inconvenience for merchants (who sometimes had to pay bribes to return after two trading seasons), but a very strong deterrent for farmers, who would have to stay abroad much longer before their travels paid off and they could return home rich (as sojourners generally hoped to).

Just as importantly, the Chinese state’s indifference to colonization meant that its subjects overseas had little security. Anti-Chinese violence was not infrequent, and though the Qing occasionally made gestures in support of their “good” subjects who were abroad temporarily, they would not even do that for “bad” subjects who had been gone longer. The best security for Chinese overseas was the ability to run and/or make payoffs—both much easier for a relatively liquid merchant than for even a very successful farmer.

Not only was the Chinese state unwilling to flex its muscles to provide law and order for its subjects abroad, but neither would it help merchants do so themselves. European countries, of course, licensed private companies (the East and West India Companies, for instance) to themselves use force, conquer overseas areas, provide government and move in settlers. And as the Zheng family showed, Chinese merchants had the skills to do that, too. What they didn’t have, though, was any incentive. European companies that bore the high start-up costs of creating a colony could recoup those costs because they had a guaranteed market back home for whatever exports they could generate: tobacco, sugar and so on. Even when high taxes and profit margins were tacked on, the goods faced very little competition in Europe. Revenue-hungry governments gladly kept out other countries’ colonial exports, and climate and geography decreed that there would be no home production of sugar or tea. But the Chinese state was under less pressure to increase its revenues—it had no neighbors of comparable might and ran big budget surpluses through most of the 1700s. Even if it had wished to work with overseas merchants to create a stream of heavily taxed colonial imports, it would have found this difficult: China had tropics within its borders and grew plenty of sugar and other overseas goods. Faced with domestic competition, people exporting back to China could not charge spectacular mark-ups, and so had no reason to risk lots of money starting overseas settlements that would eventually increase their supplies.

Things changed after 1850, when European colonial rule became more secure and demand back in industrializing Europe soared. Then a new generation of overwhelmingly white investors took the steps to match sparsely populated tracts of the tropics—from the newly drained Mekong Delta to Hawaii—with vast numbers of Chinese (and Indians) whose farming skills were cheap since they had so little land back home to farm. Fujianese traders were involved again—as labor recruiters, grocers, pawnbrokers, writers of letters home—but not as the prime movers, and not as the people who profited most from the sweat of their countrymen. Having lost the chance to create new “homelands” for themselves, these two Chinese diasporas would both spend the next century as essential but underpaid helpers of those who were aggressive enough to do so—for a while.

How International Grain Markets Took Root [ By Kenneth Pomeranz ]

What forces create a world market for a commodity? Transporting it more efficiently might help, enough so that, say, iron from Minnesota could compete in Europe with the stuff from Sweden. Or governments could have a change of heart and reverse protectionist policies that inflate prices. But would-be global commodity barons may discover that another kind of barrier is harder to eliminate: indifferent or hostile consumer tastes—tastes that make people think, for instance, that Indian rice and Chinese rice are entirely different commodities.

Of course, “grain” has a cold, biological definition as well—a set of starchy crops that share certain nutritional characteristics. And contemporary Americans might not blink if asked to substitute corn for wheat in their diets. But try telling that to eighteenth-century Neapolitans, who in 1770 rioted against attempts to feed them potatoes—a “slave food” in their eyes—even during a famine.

Looking back, creating a global market for the world’s most basic commodity group—grain—involved convincing millions of people that foods often basic to their cultural identities were interchangeable with the “weird” stuff eaten by foreigners—a task that proved to be particularly challenging. For as long as such strident feelings were widespread, there could be no commonality among the prices of different grains, and thus, no world market in “grain.”

For a world market in “grain” to come into being, then, certain events had to take place: first, the emergence of unified markets in wheat—the great staple of the Atlantic world—and rice, the main grain of the Pacific and Indian Ocean worlds; second, people from all three regions had to alternate their consumption from rice to wheat and vice versa depending on price. None of these conditions existed in 1840, yet all of them existed by 1900.

The emergence of an Atlantic wheat market is the simplest and best-known story: Mid-nineteenth-century industrializing Europe was experiencing soaring demand for wheat, demand that fueled the settlement of the American Great Plains. Barges plying the newly constructed Erie Canal passed the grain to trains, which then unloaded in New York City; and advances in ocean shipping cut the cost of taking wheat across the Atlantic by two-thirds in 30 years.

But even the creation of “wheat” was tricky—and in part accidental. When grain moved by boat from the Midwest to Manhattan, it made the journey in the same sacks in which it left the farm. It reached New York Harbor still identified as farmer Jones’ or Smith’s wheat, and still belonged to that farmer; the middlemen up to this point were commissions agents. New York traders would sample the wheat, appraise it, and only then would they buy it from the farmer. Jones and Smith might get very different prices depending on quality; no set price for “wheat” as such existed.

Railroads changed all that. Because it was very expensive to keep a train sitting under a full head of steam while it was being loaded or unloaded, the process needed to be completed quickly. Thus, before long, shippers had made the switch from hauling individual sacks to using grain elevators that opened and released a torrent of grain into a boxcar. But this meant that Jones’ and Smith’s wheats were hopelessly intermixed in the elevator. Thus, grain had to be sold by the time it reached the railhead, and one farm’s output became interchangeable with that of another.

While wheat continued to be graded, it was now divided into just a few classes, within which one load was assumed to be exactly the same as another. “Wheat” was born; and because now a ton of this year’s “number 2 spring wheat” was also interchangeable with a ton of next year’s, wheat futures trading, options and the Chicago Board of Trade were born.

The story of rice is more complex. Because it stores and ships better than wheat, it had been traded across long distances for centuries: the rice trade along the 1,000-plus miles of China’s Yangtze River, for instance, dwarfed the famous trade in grain from Eastern to Western Europe. But the rice tide flowed within rigid cultural boundaries because people had strong preferences for the particular kind of rice they were used to. Most rice exports, in fact, were built around those preferences and followed human migrations. India’s Kaveri delta sent rice to the tea plantations of Sri Lanka, many of whose workers were also from the delta; labor contractors who supplied Chinese workers for the tobacco plantations of Sumatra also imported the kind of rice those workers were used to.

So, although the mid-nineteenth century saw a huge boom in international rice trading—fueled by the growth of cash crop plantations in Southeast Asia and the creation of “rice bowls” for these plantation workers in the recently drained Mekong (Vietnam), Irrawaddy (Burma), and Chaophraya (Thailand) river deltas—no one rice market existed.

But as more and more rice was used as a source of industrial starches—mostly in continental Europe—a consumer emerged who would “eat” rice based on price alone. Now, when a bad harvest in South China raised prices in Vietnam (which produced a similar variety of rice), European purchasers would abandon Saigon and buy more Burmese rice, raising its price. Cantonese still might not touch the rice that Sinhalese preferred, but now price swings affected what consumers paid, regardless of where the commodity was originally cultivated. And before long, rice futures traded in Singapore much as wheat futures did in Chicago.

To achieve a truly global grain market, that vital connection between rice and wheat had to be made—and that link was forged in India. Though we tend to forget it today, nineteenth-century India was one of the world’s major grain exporters. This reflected both a genuine surplus and British colonial policies that promoted exports at the expense of peasant and working-class consumption. Indeed, India exported both rice and wheat and consumed both. Millions of Indians were accustomed to a cuisine that used both grains—and were too poor not to base their purchasing decisions on price. Thus, when world rice prices rose in the late nineteenth century, Indian exporters responded. And since India’s internal rice prices rose too, consumers shifted to wheat. That meant less Indian wheat made its way to London—and farmers in Kansas faced that much less competition.

For the first time, a worldwide market existed in the most basic of commodities, and for the first time—like it or not—the impact of harvests in Saskatchewan was felt in Sichuan, no matter what the local population grew, or ate.