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The First City of Capitalism

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The Guardian has been running an interesting set of stories on world cities. This one highlights Potosí, the Bolivian silver city I have been utterly fascinated by ever since visiting it in 2008. Potosí created great Spanish wealthy but at a huge cost in human lives.

Potosí was “the first city of capitalism, for it supplied the primary ingredient of capitalism – money”, notes the author Jack Weatherford. “Potosí made the money that irrevocably changed the economic complexion of the world.”

The production of silver in the city exploded in the early 1570s after the discovery of a mercury amalgamation process to extract it from the mined ore, coupled with the imposition of a forced labour system known as the mita. Native Peruvians from hundreds of miles away were forced to travel to Potosí to labour in the mines, then given the back-breaking task of carrying the daily quota of 25 bags of silver ore, each weighing around 45kg, to the surface .

Temperature and humidity differences between the depths of the mine and the surface meant pneumonia and respiratory infections were rife, with one mining boss noting: “If 20 healthy Indians enter on Monday, half may emerge crippled on Saturday.”

The mita imposed by Viceroy Toledo in Alto Peru caused demographic collapse, earning the hill in Potosí a Quechua name meaning “the mountain that eats men”. Writing about a group of 7,000 native Peruvians – taken from their homes far away to work in the mines – one Spanish observer wrote: “Only some 2,000 people return: of the other 5,000, some die and others stay at Potosí or the nearby valleys because they have no cattle for the return journey.”

longside the mita, Toledo’s other reforms were the first serious attempt to organise this boom city. Marshland was drained to open up more space for construction, dividing Potosí into a Spanish and a local district, and creating an intricate system of dykes and drains to fill five artificial lagoons that fed the mills – an extraordinary feat of hydro-engineering that guaranteed a steady supply of silver.

The ore mined by the native workers and African slaves made many Spaniards exceedingly wealthy. Drunk on “the mere fumes of silver”, an author of the time noted that the city’s residents “nurtured such elevated thoughts” – exemplified by mining boss Domingo Beltran, who reportedly proclaimed himself to be among the world’s most important figures: “The Pope in Rome, the King in Spain, and Domingo Beltran in Potosí …”

The city did not just prove fatal to the thousands who died in the mines. Despite Potosí’s flamboyance, it was plagued by murderous disputes between warring Spanish miners, natural disasters and the perils of living at 4,000m, where very little grows. The first Spanish boy to survive birth in Potosí was born in 1584, nearly 40 years after the city’s foundation; in 1624, much of the city’s native Peruvian sector was washed away as the San Salvador dam broke, killing around 200 and causing extensive destruction.

But hey, it allowed the Spanish to spend huge sums of money killing Protestants in Europe, so it all was totally worth it!

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  • Ahuitzotl

    of course, silver from the new world also destroyed the spanish economy gradually & did an amazing amount of longterm damage to their monarchy/government (of course, after a quick look at their government, it’s hard to call that outcome a bad thing)

    • Hogan

      Four sovereign defaults under Philip II and six more in the next few decades. If only they’d let him raise the debt limit . . .

      • Fiat money!!!

      • tsam

        If they raised the debt limit, they’d still be paying it off in like 2016.

    • DrDick

      Not to mention all the gold exported from the Americas to Europe.

      • Wapiti

        For much of this time, silver was valued at something like 1/12 to 1/16 of gold. So the value of the silver from the Americas dwarfed the value of the gold, and Potosi was the huge producer of silver.

  • Potosí was “the first city of capitalism, for it supplied the primary ingredient of capitalism – money”, notes the author Jack Weatherford.

    I thought the primary ingredient of capitalism was exploitation.

    • DrDick

      Greed.

      • Right. I don’t think the primary ingredient of capitalism is money at all. I thought it was credit and labor exploitation. Credit to buy capital assets, labor to work the assets.

        • tsam

          Well, it all centers around the accumulation of capital and wealth, so if left unchecked, results in worker exploitation and all manner of other bad things for everyone besides those who managed to get all the wealth.

        • Scott P.

          Labor exploitation has existed in all times and places, so you’d have to reduce that down to credit.

        • wengler

          The primary ingredient of capitalism is control of the means of production by the capitalist class.

          • Linnaeus

            What are you, some kind of communist?

  • rea

    Result: Spain declares bankruptcy in 1557, 1560, 1569, 1575, 1598, and 1607.

    • Ahuitzotl

      dont tell Trump, he’ll get ideas. Well one idea.

      • los

        Well one idea.
        “Let me tell you, Spain will pay for my US bankruptcy in 2019, believe you me!”

  • Funkhauser

    Potosi has been a tragedy since the 1540s, but the title/label is pretty hollow. Wars of conquest and resource extraction by a colonial power are older than the Spanish arrival.

    Amsterdam, where the joint-stock company was invented, or London, where robust secondary capital markets first developed, probably have better claims. And of course the Dutch and British were conquering, extracting, and enslaving contemporaneously.

    • Hogan

      Yeah, Potosi is more like primitive accumulation.

      • mikeSchilling

        Which is foolish. How many primitives do you need?

    • njorl

      It’s complicated. Without the infusion of silver, the expanded economic activity of other European powers would have been limited by deflation. Instead, the influx of silver caused inflation. Inflation forces the wealthy to put their money to work to create wealth or face ruin. Without it, the wealthy are content to sit back and collect rents.

      The same thing could have been accomplished if the European powers all decided to go to a paper money system and behave responsibly. Fat chance of that happening in 1600.

      So using force to make the helpless dig silver out of the ground isn’t necessarily capitalism, but it did create the closest thing to a fiat money system that Europe could tolerate at the time.

      • sonamib

        Good point, I’d never thought of this.

        • Gregor Sansa

          Still, this qualifies Potosí as the site of the womb of capitalism, not its birth.

          Or more specifically, the placenta. Necessary but destined to die.

          • njorl

            Or Potosi is a giant penis and the silver is a great big load of …

      • Ahuitzotl

        and behave responsibly

        The Bourbons? the Stewarts? the Hapsburgs? that’s quite some leap of faith

        • JG

          The Habsburgs were actually a quite sober, responsible, and risk-averse dynasty on the whole.

    • wengler

      Potosi and the extraction and export of precious metals from the New World on treasure ships is classic mercantilism. It’s not capitalism.

      • njorl

        It isn’t really even mercantilism. Mercantilism would be if Spain used force to exclude other nations from trading for the Peruvian silver, then taxed their merchants heavily for the privilege of trading in a protected market. But even in mercantilism the trade good the privileged merchants offer isn’t supposed to be “I’ll work you to death instead of butchering you”.

  • AcademicLurker

    Reading about that era, it’s amazing how the Spanish were constantly in financial difficulties despite the enormous wealth that was flowing in from the Americas.

    It’s almost as though being constantly at war is bad for a country’s well being…but that’s just crazy talk.

    • jake

      Or it’s almost as if there’s a difference between “capital” and “money”. Bringing back lots of silver didn’t actually make the economy any stronger, and probably made it worse.

      Mining has always been pretty shitty. This description of mining in 50BC sounds lovely:

      “The miners follow, in their labours, the direction of the metallic threads and are assisted by the light of lamps in the subterranean darkness. The stones are carried outside, and are there crushed and reduced to small fragments. The workmen never cease from their toil; they are forced incessantly to the work by bad treatment and by blows of the whip. Even children are not spared; some are sent to carry the blocks of stone, others to break them into fragments. The fragments are taken by older workmen, of over 30 years of age, and crushed in iron mortars. The fragments thus crushed are then found in mills, which are turned by women and aged men.

      It seems like capitalism allowed the development of technology more efficient than raw human labor that made it possible for mining to actually become a tolerable job for the first time in history.

      • They were smelting then too. Colleen McCollough’s (fictionalized) description of mining and smelting for the Romans included amazing descriptions of the toxicity of the process for everyone and the surrounding landscape.

        • BigHank53

          The mercury amalgam process used in Bolivia would have been toxic as hell, too. No retirement parties there.

        • guthrie

          It took something like until the high medieval period until the levels of pollution from lead smelting recorded in the Arctic ice got to the Roman levels.

    • run-away inflation. Dump a bunch of money into an economy, without anything else changing, and the only result is price increases.

      the price increases were felt first in Spain (where all the silver was delivered) making their exports noncompetitive relative to neighboring countries, stimulating industries in other places (England, the Low Countries, etc.).

      The wars certainly didn’t help, but the silver would’ve ruined Spain’s economy regardless. With a modern banking system and currency not tied directly to silver, they maybe could’ve weathered it better.

      In 1500, who thinks about that though? Take your newly minted money, and use it to pay some mercenaries to go kill people who worship a different imaginary-man-in-the-sky than you do. Or who worship the same imaginary-man-in-the-sky as you, but in a way you don’t agree with.

      • Ahuitzotl

        Arguably, going to war was one of the best ways of dispersing the excess metals, spreading the inflation around to neighbouring countries more briskly & lessening their competitive advantages a bit.

    • Murc

      My understanding is that the Spanish failed to learn that precious metals by themselves don’t do much beyond sitting there looking shiny.

      • Ahuitzotl

        There’s still plenty of people failing to learn that

      • njorl

        Gold makes very good corrosion-resistant electrical contacts. If the Armada had more reliable electronics, they probably would have conquered England.

      • bexley

        “And if every man on the shores of the Circle Sea had a mountain of gold of his own? Would that be a good thing? What would happen? Think carefully.”
        Rincewind’s brow furrowed. He thought. “We’d all be rich?”

        The way the temperature fell at his remark told him that it was not the correct one.

    • Brett

      To be fair, they were trying to run the largest empire in western Europe since the collapse of the Western Roman Empire in the 5th century CE.

  • AMK

    Due respect to Potosi, but the first city of capitalism was actually Dutch Batavia (Jakarta) around the same time. The Dutch managed to take all the genocidal enthusiasm and environmental lechery of the Spaniards and bottle it under the auspicies of a publicly-traded, legally distinct corporation (the VOC) with a stock exchange in Amsterdam, so speculators could profit from the slaughter of Indonesians by-the-minute. Some of the biggest VOC shareholders then took their capital gains and started another company to try the same thing in North America, where its first offices were called “New Netherland” on Manhattan Island, which became today’s first city of capitalism.

    I see Funkhauser beat me to it.

  • Woodrowfan

    Didn’t a lot of the silver end up in China through the Philippines?

    • Decent portion of it, yes.

    • Emily68

      Charles Mann’s book, 1493, Uncovering the New World Columbus Created, has a chapter about that.

      • Richard Hershberger

        1421. 1491. 1493. One of these is not like the others.

        • 1421 may be the worst book I’ve ever read.

          • liberalrob

            This one? Read as fiction, though, looks like it could make an interesting movie…Hollywood needs new ideas.

          • timb

            And, is not by Charles Mann

            • Brett

              Yeah, it was written by some crank arguing that China discovered the Americas in 1421 and sent a fleet to Italy in 1434 that sparked the Renaissance.

              Mann’s books are very good for lay reading.

              • Woodrowfan

                the author got slaughtered at an AHA meeting. he ignored it and started researching Atlantis.

          • Ahuitzotl

            you need to get around more, there are even worse books out there! some not about the ACW, even.

          • Rob in CT

            I made the mistake of reading that too. Woof.

      • Matty

        Really fantastic book. First encounter I’d really had with Potosi.

      • timb

        1493 is almost as good as 1491. No book I’ve read in the last 5 years has helped me understand the “how we got here” more than Mann’s description of the Colombian Exchange

    • Wapiti

      A lot of it was shipped up the coast to Panama, and then across the Isthmus, thru the Caribbean, and home to Spain. The entire concept of pirates in the Caribbean might depend on Potosi.

  • DrDick

    This situation would give rise to the cultural traditions described by Michael Taussig in The Devil and Commodity7 Fetishism in South America.

    • Oh, thanks! I should reread that!

  • los

    dykes?
    dikes and drains?
    or dykes and dames.

    • Vance Maverick

      They’re variant spellings. The civil-engineering kind is spelled with a ‘y’ mainly in British English, but not only.

  • There’s an anthropologist’s take on this, now quite dated no doubt: We Eat The Mines and The Mines Eat Us by June Nash. Sorry, its Bolivian Tin Mines.

    • I’ll have to check that out

      • DrDick

        Taussig talks about Bolivian miners in The Devil and Commodity Fetishism (among other groups). The title actually refers to the Bolivian miners’ belief system.

    • Lost Left Coaster

      Excellent book. Remains essential reading for anyone interested in Bolivia or mines. Nash’s work was in Oruro, though, not Potosi, but the cities share very similar histories and struggles.

      Also, Taussig used Nash as the source material for much of his analysis in The Devil and Commodity Fetishism — he didn’t actually do fieldwork in Bolivia. So it is interesting to read those books together.

  • los

    Well this looks we can hav nice things becus no Bureoo of Federal Minning Acts, but they were minning silver for could be only one reason! This was Obama’s War On Coal wen Obama was still a cummunity oregonasser!!1!

    Wen wee could hav made Obama a Wun Tourm Prezident!

    In this seesin I ask you to think why duss nowebuddy think of the childrin wolking miles in the snowe in bread bags, who had no coal to put buttuns on theyr snowe men?

    My brayns blese you,
    Ernest T. Blogger

  • Linnaeus

    Richard Longworth, who used to blog at The Global Midwest, but who has now retired, once compared Potosi with struggling US cities (Detroit, in particular). Not with respect to the labor exploitation, but with respect to Potosi filling a specific economic role that it no longer could when economic circumstances changed. Longworth wasn’t particularly optimistic about those cities recovering.

    • This may sound like a cruel question, but why should we expect struggling cities to recover if the industry they were founded on collapses? I mean cities exist where they do for a reason right? If NYC no longer had one of the best deep water harbors on the east coast, if Detroit no longer has the auto industry, if the cities of the rust belt no longer have steel mills or manufacturing, then they have lost that competitive advantage that made them attractive places to live. Then they must scramble for industries that have their choice of where to locate, and they will be shopping on price, cheap labor, low tax burden etc, so those jobs will necessarily be less lucrative than whatever they replace.
      I’m not trying to be a ruthless justifier of the status quo based on half-understood and badly remembered econ 101 lessons, but I genuinely don’t know how one would revitalize Potosi, given that it’s a city based on a collapsed industry, with huge pollution problems in a place that many people find downright uncomfortable to live, where the very altitude is a health hazard.

      • Linnaeus

        It’s a tough question to answer, but I think Longworth’s comparison is a bit unkind because Potosi has specific problems that the US cities Longworth cites do not have. I also think that there’s enough of a difference between local economies based on extraction and those based on industry such that we could have at least some expectation of recovery in the latter, however modest that might be.

      • Brett

        Most cities aren’t the equivalent of economic monocultures, like Detroit was at its prime (with one dominant industry and everything else revolving around it). If a city is much more diverse in terms of economic activity, it can recover from even a bad hit in terms of industry loss – Seattle recovered from some serious loss of industry in the 20th century, for example.

      • JG

        If NYC no longer had one of the best deep water harbors on the east coast

        NYC hasn’t depended on shipping as its primary economic activity in a long time so this isn’t the best example.

  • timb

    Isn’t it ironic that the Romans exploited Spain and slaves to extract silver, which destroyed the Republic and 1500 years later the Spaniards exploited “New Spain” for the silver which destroyed them as a world power.

    #Lepanto

    • liberalrob

      Better get to building Trump’s Wall before New Spain comes to exploit us!

      • timb

        Joke’s on them! We already committed a bunch of genocide to get the silver out of the ground here.

  • Brett

    But hey, it allowed the Spanish to spend huge sums of money killing Protestants in Europe, so it all was totally worth it!

    It did help China have a nearly two centuries boom period of expansion and growth. Lots of that silver got diverted away from going to Spain, to the Phillippines where it was traded for Chinese trade goods.

  • marcel proust

    I think it was in 1493 that I read this: in colonial Potosi, mercury poisoning was so severe that when a miner died, the mine management would amputate the feet and hang the body to drain the mercury in order to recycle/reuse the mercury needed for the smelting process.

  • Emma in Sydney

    I visited a little town in the Czech Republic called Kutna Hora that was the richest silver mining city in Europe at one time in the Middle Ages. Until the mines flooded and it was all over. It has a magnificent Gothic cathedral and very little else now, but the whole place is on a honeycomb of medieval tunnels. Incredible.

    • RobertL

      And a cool/weird ossuary at St Barbara’s church!

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