Channeling Silver: Fleets and Regulated Trade
The Spanish Atlantic system, which guaranteed a regular flow of money to the royal treasury, became indispensable in sustaining the Crown's interventionist politics in Europe. This was achieved through parallel and complementary procedures.
The tributary system transformed slave and Indian labor (along with the production and trade of the colonies) into tax revenue in the form of silver. This fiscal framework, in turn, operated on the principle of royal sovereignty over the wealth and the inhabitants within its domains. This was guaranteed by a set of institutions— of which viceregal and provincial audiencias were key—that settled most of the conflicts among local elites, as well as conflicts between Spaniard and Amerindian. It is worth remembering that within its colonial sphere, the Spanish Empire—from the sixteenth to the late eighteenth centuries—was an empire of jurists, magistrates, and bureaucrats. Its military presence in the New World was very limited. Apart from the tribute paid by its original American inhabitants and their descendants, the rest of the colonial state's income was extracted also from the settlers of European origin: the royal fifth, a sales tax—the alcabala— import/export duties such as the almojarifazgo and averias (a convoy tax), as well as the derechos de armada. The Crown's ordinary incomes were supplemented in the eighteenth century with the consolidation of monopoly royalties, which included the production and sale of official stamped paper, tobacco, and certain alcoholic beverages and stimulants—for instance, pulque (maguey liquor), sugarcane aguardiente, or nipa wine. The imperial treasury also had extraordinary sources of income that became important in times of war, when military costs exponentially increased its needs. Income from the sale of public offices stood out among these, as well as pardons sold to traders charged with avoiding taxes, and the so-called patriotic loans, which the Crown forced lenders to provide in exceptional situations.The gross income owed to the Royal Treasury went first to the American Royal treasury. Their main function was to finance the costs of the imperial administration at the regional level, and to apply account balances among the provinces where fiscal income failed to cover costs. These were the famous situados, a redistributive mechanism that became fundamental to imperial strategy, for several reasons: it guaranteed that the state at its various levels could pay its debts, including those owed to providers; it ensured that regional economies had liquidity; and it made certain that civil and military employees got their pay.[1969] On the other hand, since silver (plata fuerte) was the only currency accepted in Atlantic trade, pesos from Mexican or Liman mints gave regional elites across the empire the capacity to acquire European merchandise, as well as the mercury that they used in silver refining. Within this imperial logic, trade was not an end in itself, but instead a means to guarantee the regular flow of precious metals to Europe. For a long time, securing the arrival of silver-laden ships constituted the main objective of this complex institutional framework.
The need for these safeguards began in 1523, after the Norman corsair Jean Fleury attacked the three ships transporting the Aztec treasure captured by Hernan Cortes, and it reached maturity in the 1560s with the consolidation of the system of two annual fleets. From that point forward, the framework of Spanish Atlantic trade changed very little until so-called free trade was instituted between 1759 and 1788. Two fleets were fitted in the ports of Seville and Cadiz, the first of which departed for Veracruz in the spring, and the second for Cartagena de Indias and Portobelo (present-day Panama) in the summer. Sailing in convoy, the fleets' ships returned together from Havana to the metropolis in the spring of the following year. The intermediate period was filled with intense activity. First, the viceroys of New Spain and Peru decreed trade to be officially open between peninsular and American subjects.
In order to guarantee that there would be enough means of payment to acquire European goods, measures were taken to make available to the Mexican and Peruvian traders the minted silver that had been coming in from the mining districts since the departure of the previous fleet. Once the market fairs were officially inaugurated in Mexico City (these were transferred to Xalapa after 1720) and in Portobelo, negotiations between the silver-carrying American wholesale traders and the so-called flotistas, or fleet traders who had brought European merchandise, would begin. Although the sale of European products was carried out under monopoly conditions, the position of the Spanish traders was not as solid as one might think, for they had a very limited time to complete their sales. Once the viceroy decreed the closing of the market fair, whatever remained unsold would be shipped back. At first, the positions of buyers and sellers were quite distant: the gains of Americans and Spaniards depended on the losses of their counterparts, and few sales were carried out in such a context. However, after the first few days of sounding each other out, the background economic conditions by which each party came into the negotiations determined their final positions, setting upper and lower price limits. From the point of view of the Lima- and Mexico-based merchants, these conditions were dictated by the silver production registered during the months that preceded the fair. These determined their capacity to pay. Their position was also influenced by whether they had had access to foreign imports through alternative means, such as the Acapulco-Manila galley, which brought Chinese goods, contraband, slaves, and so forth. The strength of the flotista position was premised on the costs of the expedition, which could be broken down into three major factors: the price of the merchandise purchased; the financing of the voyage itself; and, related to this, any tariff duties levied thereon. All of these determined how profitably they could sell their merchandise on the American market. Risk and uncertainty increased their transaction costs and gave a clear competitive advantage to traders with better information. Flotistas also wanted to be able to reinvest part of their profits in the purchase of raw materials and tropical fruit that they could sell at high prices on the European markets: indigo, cochineal, sugar, cacao, furs, and so on. Thus, transactions, slow and infrequent in the initial phase, accelerated near the announcement of the fair's end. Once closed, Spanish traders returned to Spain in the great fleet that set out from Havana in April or May, before the start of the wet season and the onslaught of hurricanes.For more than 200 years, the system of fleets and galleons generally guaranteed the arrival of American silver remittances to the metropolis. An exception to this occurred in 1628, when Dutch corsairs managed to capture a return fleet, a loss attributed to mistakes by the expedition's leader, Juan de Benavides, who was executed in 1634. Other fleets were heavily damaged by hurricanes—for instance, in 1622, 1715, and 1735. However, many more crossed the Atlantic without sustaining losses.
For the private actors who operated within this Spanish monopoly, Atlantic trade was not always a profitable bet. The monarchy restricted their business by keeping direct control over the slave trade until 1789, as well as by imposing royalties on the production and sale of tobacco. Spanish traders therefore had to concentrate their activity on re-exporting European manufactured goods to the Spanish colonies. During the second half of the seventeenth century, to this end, Spain signed bilateral agreements with Holland, France, and Great Britain that allowed foreign merchants to settle and operate in Seville and Cadiz, as well as granting them the right to corporate representation and the privileged status of extraterritoriality. Placed at a disadvantage, Spanish re-exporters soon began to specialize as frontmen and intermediaries, working for commissions in the service of large northern European firms. The only ones to escape this fate were those who supplied the fleets with the so-called tercio de frutos: a third of a galleon's cargo was supposed to be Spanish agricultural produce. Most of this tercio consisted of wines, grape alcohols (aguardiente), and oil (usually from Andalusia, but also from Valencia and Catalonia), along with Basque iron and paper from the peninsular northeast. As we said at the start, then, the terms “free trade” and “mercantilist monopoloy” cannot fully describe—or even accurately represent the tensions inherent in—this commercial complex, whose outlines survived practically unchallenged for two centuries.