In the last few issues of "A minus x" we talked about goods flowing from the East to the West: silk, pearls, cotton, spices, lapis lazuli, steel etc. and Europe's unsatisfiable demand for luxury goods. But since trade requires off-setting flows in the absence of credit, what was flowing West to East to pay for the goods? The answer is: silver.
China and India had very little natural silver and were eager to get their hands on this precious metal. Whilst the gold to silver value ratio in Europe hovered for centuries around 1:15, it was closer to 1:12 in China (have no data for India). Gold - silver arbitrage was thus a driver in world trade. Usually not expressed in direct trading pattern it was visible in the triangular trading systems in the Indian Ocean. Europeans would buy ivory in Africa with silver and sell it for gold in Asia. The gold was then shipped home and converted at a higher price back into silver.
The Price of Silver over the Centuries - Industrial Production is behind the Drop in Price
To get back to our silver story - during Roman times, Europe was chronically short of silver. The Roman Emperors had to continuously debase their silver coins to keep the empire running but eventually drowned it in hyperinflation. At that time, most of Rome's silver mines were in southern Spain but depleted by the year 250 AD already.
Silver Nuggets
Medieval Europe was a bit more lucky. Several silver mines were discovered in central Europe, the most productive mine was in Joachimsthal ( Valley of Joe) in Bohemia and belonged to the Habsburg Empire of Austria and Spain. The valley lent its name to the silver money coined there, which was called Joachimsthaler. The Genius of American pronunciation then converted Thaler into Dollar - it was still the same coin with the same weight and the same purity. Today's Dollar though is pure fiat money and not backed by any precious metal any longer.
Petosi, the World's largest Silver Mine, which financed the Spanish Empire and inflated Europe's Prices in the 16th and 17th Century
With the conquest of Latin America in 1515 by Pizarro, Spain also gned access to the huge silver mines of Petosi in Bolivia. Every year after 15.., a huge treadure fleet left the carribean for Cadiz and then Seville. In was this massive inflow of silver that financed Spain's 200+ years wars against the Ottoman Sultans and the French Kings. It also financed the ever growing imports of Asian luxury and technology goods.
The mighty Spanish Silver Fleet of up to 30 Vessels crossing the Atlantic every Year
Eventually, a lot if the silver from Bohemia and Bolivia ended up in China and India were it lubricated the local payment system in the form of new coins - often with holes I the centre to attach them to a string. On its was to Asia, silver indeed made the world go round.