Silver Symbiosis: ReOrienting Mexican Economic History

The worst error of all is to suppose that capitalism is simply an economic system.

--Fernand Braudel

In 1904 Finance Minister José I. Limantour ordered a monetary census in preparation for Mexico's conversion to the gold standard. In it, Porfirian bean counters found only one hundred million of the four billion-plus pesos of various sorts reportedly minted over the centuries. Even assuming a significant undercounting, in that time Mexico had exported at least 3.5 billion pesos; in short, the peso was the most widely circulated coin in history. ¹ In a previous study, I suggested that the economies of nineteenth-century Mexico and China were linked in what I termed a Sino-Mexican symbiosis in which Mexican miners seemed to coin silver in response to Chinese demand for specie. ² While commodity peso prices followed those of silver bullion, I cannot find a clear correspondence between peso exports and silver prices; rather peso exports increased when the Porfirian economy slowed and declined when it grew. This relationship is revealed in figure 1.

In effect, every peso export peak indicates a slowdown in the Mexican economy and vice versa. Indeed, this relationship was commonly known at the time and no one was surprised that Limantour found it necessary to negotiate with the Manchu government in making the conversion to gold. ³ But my initial work left the hows and whys of the Sino-Mexican symbiosis unanswered.

This article extends my earlier analysis of Mexican economic history to the longue duree from the sixteenth to the mid-twentieth century. In tracing the evolution of the silver symbiosis, I assume a Sinocentric perspective on the early modern world system popularized by Andre Gunder Frank in his cleverly titled ReOrient in which he emphasizes the role of silver flows in organizing the world economy around China. ⁴ Despite Richard Von Glahn's caution that estimates of Chinese silver imports are "significant more as an order of magnitude than as a precise measure of quantity," from the seventeenth century it seems that over half of Europe's American silver went east to China, with another 2 million pesos (over 50 tons) arriving annually from the west by way of Manila. ⁵ The rise of Western industrial capitalism from 1800 recentered the world system on the Atlantic nations, dissolved the old silver price structure, and reduced the Sino-Mexican symbiosis to a commodity trade in pesos. Mexico's 1905 conversion to the gold standard shredded even this vestige, depriving Mexico of a major market for its silver, eroding the living standards of its popular classes, and paving the way for the 1910 revolution. It is this process that John Mason Hart termed "global causation" in his controversial classic subtitled The Coming and Process of the Mexican Revolution. ⁶

My argument is guided by stock demand monetary theory and describes how silver flows linked the world's fragmented regional economies. Stock demand is an updating by Dennis O. Flynn and other economists of Adam Smith's observations about money and its circulation. In The Wealth of Nations, Smith treats money as a commodity, which although used to denominate the prices of other commodities, responds to market forces like any other commodity. "Wealth does not consist in money, or in gold or silver, but in what money purchases [for] if gold and silver should at anytime fall short . . . there are more expedients for supplying their place, than that of almost any other commodity." ⁷ Stock demand (also called the buffer stock model) describes specie movement as the consequence of a dynamic conjunction of international and domestic demand for money. Thus a country's monetary stock reflects a balance between its real income (GDP) and world demand for its money. That is, when the money supply exceeds the needs of the domestic economy the surplus will be spent abroad and replaced with domestic instruments of exchange for which there is little international demand...